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Apollo Group, Inc. (NASDAQ:APOL)

Credit Suisse 15th Annual Global Services Conference

March 11, 2013 12:00 pm ET

Executives

Brian L. Swartz - Chief Financial Officer and Senior Vice President of Finance

Analysts

Kelly A. Flynn - Crédit Suisse AG, Research Division

Geoff Webster

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay next presenting company is Apollo Group. We're pleased have the CFO, Brian Swartz, here presenting. We're actually going to do the Q&A in here in the second half an hour. Apollo reports earning in a few weeks, so they've requested to webcast the Q&A. And that said, I just want to remind you that they do report earnings, so there may be some limitations in the questions they can answer, but you could give it a whirl.

And with that, I will turn it over to Brian. Thank you.

Brian L. Swartz

Good morning, everyone. Thanks for joining us this morning. And thank you, Kelly, and thank you, Credit Suisse, for putting on the conference.

Before we get started, I'll just make a reference to the Safe Harbor statement on the screen. I'll have some comments that are forward-looking in nature. Actual results will differ, and you can refer to our SEC filings regarding risk factors and other disclosures.

As Kelly mentioned, we do release our second quarter earnings 2 weeks from today, actually, pre-market. So my comments today will -- I won't discuss any business trends in the quarter or anything along those lines, but happy to answer as many questions as I can.

Today, I'd like to first speak about the large and significant growing higher education market, both in the U.S. and globally. I'll share an overview of Apollo Group with you and talk about our strategies to meet the need and our commitment, really, to address the needs of the working learner; how we are very focused on innovation, in particular, in education; and how to influence higher education's direction with innovation.

We're very focused on helping our students improve their lives through education, to get education and further their job prospects and have a better life for themselves and their families. And then, finally, we'll also talk about the -- where we are focused in terms of differentiating the value proposition of both Apollo Group and the University of Phoenix in the marketplace.

To start off with, I'd like to talk about the market a little bit. The U.S., postsecondary higher education market is about a $386 billion market. There are roughly 132 million people that are over the age of 25 in the workforce in America, and about 80 million of those people do not have a bachelor's degree. 50 million of those 80 million have never gone to school and have no college credit. And it's estimated that within the next 5 years, by 2018 or so, that the amount of jobs in the U.S. that will require some form of postsecondary education training will be about 2/3. And today, in America, as we all know, we all well know that there is roughly 23 million, 24 million unemployed or underemployed Americans, with an unemployment rate of just less than 8%. Yet, the same time, there is 3.8 million available jobs in America. Now we can't fill those jobs because there's fundamentally a skills gap in America. We talk a lot about that. Our goal is help solve that skills gap for America. We're committed to providing high-quality access to education to help fill that need and to help solve that skills gap that we experience here.

Let's talk about the value of education. This chart is a bit of an eye chart, but if you focus on the second line from the bottom and the fourth line from the top, you can see there's a very high correlation. The more education you have, the lower your unemployment rate and, as importantly, the higher your average or median earnings. The chart basically shows, in the fourth line from the top, as a bachelor's degree on the right side, that you earn roughly twice what you would if you only had a high school diploma, which is the second line from the bottom, that $1,100 per week versus $500. And the unemployment rate for that group of individuals that have a bachelor's degree is roughly half, about 4.5%, compared to 8% if you only have a high school diploma. So our thesis is pretty simple. Education leads to greatness. It will open doors for you. And the non-traditional working learner, given some of the metrics that I talked about earlier in terms of unemployment and underemployment, is a very high-demand focus part of the market with respect to postsecondary education.

Outside the U.S., the global education market is even larger. It's expected that by 2025, there'll be over 260 million students in postsecondary education. That's up from roughly 100 million in 2000 at the turn of the decade. And there are many trends, some of which are listed on here: changing demographics, decline in public funding, amongst others, that are driving that growth. I'll share some details later in the presentation about how we intend to capture and be successful in the global education space.

Now a little history on Apollo Group and who we are. We're one of the largest private education providers serving students in the United States, Latin America, Europe, India, and then online throughout the whole world. We were founded approximately 40 years ago to help working learners access high-quality education. And I'll talk about why we were founded and the innovation that took place at that time as well.

Before we jump into that, let me go over our largest operating entity, it's the -- or operating institution rather, it's the University of Phoenix. It represents roughly 90% of our revenue today, currently has about 320,000 students, a little less than 800,000 alumni and over 30,000 faculty members. A little more than half of the student body is bachelor's degree seekers, but we also have programs at the associate's level all the way through to doctoral. And we're serving students online, but we also have a very large U.S. ground footprint, with about 112 locations throughout the United States.

Now to talk about our history of innovation, as I mentioned earlier. We're very focused on innovation in education. And actually, just to talk about the history of where we've come from, our founder, John Sperling, founded the company about 40 years ago. John was a tenured professor at San Jose State University in his mid-50s, and he had identified a need that was unmet at the time. At the time, you could not -- there was no such thing as non-traditional education. You couldn't get a degree, a bachelor's or a master's degree, unless you went to school full time generally, between the ages of 18 to 24, and you went full time. There was no non-traditional working learner model. And John was working with a lot of policemen and firefighters and others, and they wanted to further their life aspects and their career potential. So he decided to start what ultimately became the University of Phoenix, and that was the first innovation in our company. He had identified a market. That market has obviously since expanded and taken over the majority of postsecondary education. But that was the first innovation.

You fast forward a decade into the late '80s. in 19 -- I'm sorry, 1989, some say before the Internet was founded, is when we actually founded out first online or distance education programs. It was another innovation. It was one that we stuck with for many, many years and obviously is a big part of our success today and the industry.

In the '90s, we digitized textbooks. So much like Apple did with music, we successfully digitized all of our textbooks to the point today where, if you're a ground student or an online student, you access our online learning system and get all your content electronically.

So the industry that we operate in today is very different than it was 5 years ago, and I truly believe that Apollo is a different company than it was even 2 years ago or 3 years ago. We're working to be very -- to be leaner, to be more nimble, to introduce product to the market faster, and I'm actually going to give you a little taste of that product at the end of this and show you the latest product that we've introduced to the marketplace.

What we're really focused on doing today is differentiating the University of Phoenix brand and what it's known for. We've invested over $1 billion in platforms and technology, mobile devices. I'll talk a little bit more about that in a moment. And we've partnered with some very leading professors, people like Clay Christensen of the Harvard Business School, and you'll see him at the end of this in a brief video that I'm going to present. And Clay is really known for talking about how technology has disrupted industries, and he has said that he believes that education, or the education industry in general, is one of the last industries that has yet been disrupted by technology. So we've spent a lot of time with him talking about that.

And then we'll talk a little bit about connecting education to careers, which is our future of our -- or current and future North Star, as we say it internally, to truly differentiating the University of Phoenix and all the Apollo companies. So the bottom line is we're passionately focused on educational innovation and helping that drive our future success.

So our vision at Apollo is to be the global leader in driving innovations. We talk about this, or our 3 strategies really to help execute this: break down into differentiating the University of Phoenix; diversifying in the new markets, both domestically in the U.S. and globally; and then optimizing, developing business processes that are more efficient and effective.

Let's start with differentiating the University of Phoenix and what does that really mean. In the U.S., there are clearly -- you could put probably most students in postsecondary education into 3 buckets. There are some students that are very high academic achievers, that can go to elite universities that charge sometimes -- some cases upwards of $50,000 per year. It's for an elite few. It’s very expensive. It's a very good quality education, obviously.

Then there are other learners that are very effective, disciplined learners that want a low-touch model, a low-service model; don't need a lot of bells and whistles, for a lack of a better word; and perhaps, they're very focused on price and just want the least expensive offering. That's another bucket.

And then there's everyone in between. We believe that the vast majority of the 50 million or 80 million individuals that need postsecondary education in the U.S. is that middle market, and that's where we play. We're focused on delivering, number one, a rigorous and very relevant academic offering. It's tough. You come into our program -- you're a working adult, working 40 or 50 hours a week. We demand 15 to 20 hours a week of academic study. You might have a family. You might have life going on. You might be taking care of an elderly parent. And so we really wrap a warm blanket around our students. You have a very -- even though we have 300,000 students in the student body at University of Phoenix, the average class size is 15. You get a real world faculty member, an adjunct faculty that teaches most of our forces. We provide a lot of mentoring, assessment, remediation programs. If you want those, you generally get 2, in some cases, 3 counselors assigned to you that -- who are available to you frequently. Again, a lot of high-service, high-touch moments for our students because it helps them persist and manage the challenges of education.

So let's talk about some of those key differentiating elements. Education to careers. I mentioned this earlier. This is our kind of North Star in terms of what we're all about in terms of defining the brand. We've built relationships with 2,000 leading corporations around America. And we're not just signing up as vendors with many of these relationships, but we're having conversations with them about what they need with respect to workforce readiness for the future. And just to tell you a brief story of a large telecom company, I was meeting with one of the division presidents, and he explained to me how 20 years ago, the average worker that he needed to hire had 3 attributes on the job description. It was someone that could drive a truck, climb a pole and connect copper to copper. That was it. That was the job, and that was most of the people he hired in his unit. Today, it's totally different as you can imagine because we've all experienced it. You need someone that can drive a truck; someone that can come into the home, interact with the customer, sell the customer; understand all kinds of technical, fiber optics and connect all that stuff and be -- present yourself as someone that's very customer-facing. They're a very different skill set. And his #1 challenge is finding enough people to fill those spots in the next year from a human resources perspective. So we're working with corporations like him and others to better understand what they need and embedding some of those skill sets and competencies in our curriculum. We've launched partnerships with community colleges and key industry associations in the retail and manufacturing space and others. We have a career portal for our students and alumni that has, today, over 18,000 currently listed jobs in the portal for them to identify. And then most important, what we've just started doing in the last few months, is the conversation that our counselors are having. From the moment you become a lead well before you're ever a student with us, all the way through graduation, the conversation is around your career and understanding what it is you want from the moment you're a lead. You might think you want to come to the university and get a degree in nursing because you think that's what you want to do. And perhaps you do, and that's fine, but maybe your skill sets and through some assessments that we can do on the front end might say you'd be better off pursuing a degree and a career in education. Doesn't mean you have to go that route, but at least having that dialogue upfront helps point people in the right direction. And then we're trying -- we're starting, and we actually have been doing this the last few months, of showcasing all of this in our recent ad campaign that we refer to as "Let's get to work." Broadly speaking, there's been 4 or 5 commercials. I'm going to actually show you one of them here in just a minute. We call this ad Many Reasons, and it profiles a lot of the things that we just talked about: small class sizes, career planning, real world faculty and our corporate partners. Here we go. There's some sound.

[Presentation]

So that's an example of one of the ads that has been running. There's 3 or 4 others as well, and these have just been in market here in the last few months.

So the next aspect of differentiation I want to talk about is adaptive learning. It's another key focus area for ours. People wonder and people ask, "What is adaptive learning? It sounds like a technical term." Here's a way I think about it. It's taking content and delivering it to a student the way they want to receive it. So we're all different types of learners. Some of us might be auditory learners, where we like to hear something to absorb content; some of us might be visual learners, you like to see something and you absorb it best that way; or something like a kinesthetic learner, where you want to touch it. So what an adaptive learning engine does is it actually learns who you are and delivers and modifies the content to deliver it to you. Perfect example is math. The way we -- many people that are math oriented and do well aren't the greatest readers in the world. I'm actually one of them. So -- but yet, when we teach algebra, we actually give someone a text book, and we ask them to read it. That may not be the best way to absorb the concepts of algebra and learn them. So that's what adaptive learning is. About 1.5 years ago, we purchased a company called Carnegie Learning to really jump-start our adaptive learning capabilities. They have over 10 years in the science of building adaptive learning engines, and we've been very pleased with that. It's starting to roll out to our math courses as we speak now and will be rolled out to other parts of our curriculum in the future.

Talk a little bit about technology. I mentioned this earlier in the earlier remarks. We're very focused on a rigorous and relevant academic experience. We've put a lot of money into our new platforms and technology. The first, just to start off with, is our new learning platform, which is just now rolling out to students. It should be rolled out to virtually all the courses at the University of Phoenix by the end of our fiscal year. The platform has lots of flexibility. It allows faculty members to customize the syllabus. It brings in specialized content that teachers or faculty members want in the classroom, and it has the flexibility to incorporate things like adaptive learning. We've invested in mobile applications. So much -- many of our classroom experiences and systems that students yearn can actually be accessed on your various mobile devices, which has been -- many of our students have really enjoyed because it allows them to access it whenever they want. It might be on their commute to and from work.

And then finally, we've rolled out what we refer to as University Orientation, which has been about 2 years now since we've rolled that out. But it's something we're very proud of. Basically, if you're in your freshman year of college and you're transferring in with less than 24 transfer credits, we require you to go through a 3-week free orientation program at the University of Phoenix, and it's really intended to help students identify who's really committed to get through the program. So it's not focused on necessarily academic learning, but helping make sure that we test the commitment because it is a very rigorous program, as I mentioned, and it's testing commitment to get through it. So all of this leads to better connecting how our students want to learn today, to be successful in the future. That's where we're focused. And then, finally, wrapping up the differentiation elements are -- is our interactive classroom experience. We recently announced at the University of Phoenix that we were going to -- we are in the process of closing about half of our ground locations. That only impacts about 5% of our students in our student body. And what we saw was, over the last several years, as online education has become more and more accepted, our customers', our students' preferences moved in that direction. So the University of Phoenix management team is in the process of closing many of these facilities. It's important to note, we still will have over 100 ground locations. It's a coast-to-coast presence. I think we still are operating about 35 or 36 different states. So we will still have a ground presence. Our ground locations are very important to us. They're very important to our corporate partners. And as a -- and when you have a ground location, great learning takes place. It's a very vibrant experience. And we'll actually be reinvesting in some of those locations to modernize them as well.

So the next pillar is diversification. The goal of our diversification strategy is to leverage our technologies and innovation that we've learned over the last 40 years to other Apollo Group assets. And the 2 vehicles that we're doing that through is our Apollo Education Services business and Apollo Global. I'll talk about Apollo Global in a moment.

Just to spend a moment on Apollo Education Services, it's really our goal here to help other institutions -- stand up non-traditional models or working learner models. And it runs the gamut in terms of the services we can provide. We've been investing in this area and -- in putting our management teams in place. We've actually had a pilot program with a world-renowned research institution as well that's made very, very nice progress in this area.

Let's talk a little bit about Apollo Global, as you can see here a picture of other various operating international institutions. We have institutions in Europe, Latin America. We recently expanded into India. The reason why this is so important to our future is when you look at the demographic shifts in some of these countries, even relative to the U.S., if you want to be a player in higher education, you need to go here. Just to give you an example. India. India is going to have 500 million students under the age of 20. They're going to have build 50,000 colleges over the course of the next 10 years just to meet current needs. So when you think about the U.S. and some of the data points I mentioned earlier, there's 130 million people in the workforce, 80 million don't have a bachelor's degree, this is 500 million students under the age of 20 that are eventually going to need some form of postsecondary education over the course of the next decade or 2. We have a new joint venture in India. It's a greenfield operation right now. We have a partner, HT Media, which is one of India's foremost media companies, and we're very excited about it.

The next strategic priority for us is our optimization pillar, and this is all about us becoming a more efficient and effective organization. The real goal here is, is to optimize our business processes, help us to become more nimble, leaner. We want to drive the best possible experience for our students. That's absolutely critical. And then it allows us to keep the cost of education affordable and accessible for as many people as we can. We're reinvesting much of this capital and obviously, we've talked about a lot of those areas today.

Over the long term, margin expansion is important to our management team and to our company. In the meantime, as we go through a period of transition, we have been very aggressive on the cost side. And we'll obviously provide a full update on that here in 2 weeks in terms of where we're at when we have our quarterly earnings. But we've been very, very aggressive. And over the long term, getting back to a level of margin expansion is very important.

So before I close and start with a little bit of Q&A, I want to share a clip with you. It's about, I think, 4 minutes or so, about our newest product to market. We call it the Innovators Accelerator. It's part of our diversification strategies that we've talked about earlier. And we recently launched this just in the last couple of months, and we're working through our corporate partner channel to get this in industry's hands through our corporations. Let me give you a summary of what's here. It actually features the 3 foremost authorities in innovation who are likely Christensen, who I mentioned earlier; Jeff Dyer and Hal Gregersen. They've built this Innovators Accelerator. It's a 6-week executive MBA -- or executive education program. And it talks about how to create skills in employees to make them more innovative as individuals, as employees. And then secondarily, it also talks about how to help organizations take innovative ideas and turn them into reality, which is the second part of that puzzle. So this is right in line with what -- some of the discussion that I mentioned earlier about our corporate partners and what do they need. We actually went out to market about 1 year ago, talked to some of our corporations. They said this was one of their top challenges in terms of human develop -- human capital development and, as a result, we've launched this product. So I'll let you take a look at it, then we'll do some questions.

[Presentation]

Okay. That concludes the presentation. I don't -- Kelly, if you want to ask some questions or open it up to the audience?

Question-and-Answer Session

Kelly A. Flynn - Crédit Suisse AG, Research Division

Sure. We will open it up to the audience, but I guess I'll kick it off. I want to ask about the military tuition assistance. As you know, on Friday, the Army announced, I think, that they were suspending the tuition assistance benefit. Can you talk about, if you can, what percentage of enrollments come from active duty military roughly, and just your thoughts on what happened Friday and how we should think about 90/10 as it relates to that news?

Brian L. Swartz

Yes. Our tuition assistance programs, those students that are on the tap for active duty military is actually a very small percentage of our overall military enrollments or students. So it would -- it'll have a -- with that going away, would have a very modest impact on both enrollments and 90/10. We are working with our students. We'll continue to work with students. There are some alternate funding sources that they have access to in the Veteran's administration. And as always, we'll work with them on the responsible borrowing for other sources of funds. But overall, the actual number of students on active duty military is pretty small.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Just another question about starts. I recognize you don't want to provide me updated guidance there. But you guys have said in the past that you're hopeful that starts can grow by year end. Can you just talk about what, broadly speaking, you expect will drive growth again? Is it these innovations and market differentiations, things that you're talking about here? Or is it a market dynamic that you expect will change? Or I suspect it's probably a combination of both, but what's going to go on to drive that?

Brian L. Swartz

Yes. The focus for us is all around value proposition for students. So as I talked about or mentioned in my comments, what we're really focused on is providing a product and a service and educational experience that is valued by students. So we've been investing for several years here. You've seen it in our financial statements, in our business trends. And just this past year, we have said this year is the year of execution. We've rolled out -- are rolling out the learning platform as I mentioned. We've rolled out the education to careers initiative. We launched the career services portal. We've just started changing the dialogue with students. I think it was right around mid-November, is when we first rolled out some of those conversational changes. So we need to give all those elements of differentiation time in the marketplace. But that's our goal. Our goal is focused on -- focusing on those elements of execution that will help drive that differentiated product and service in the marketplace. And then the ad campaign is what will help prospective students understand that. So we do need to give that time. It's still relatively early for an ad campaign. It's only been a handful of months, then I guess I will talk about the performance of that here in a couple of weeks.

Unknown Analyst

Brian, Doug Kelsall [ph] here. You've talked a little bit about diversifying your revenue stream, and I'm wondering if you can give us an idea of the revenue breakdown by those different components that you talked about now between University of Phoenix and your international and services groups and how you see that changing over the next 5 years and where you see, again, the growth coming from, as the company goes forward in those different areas?

Brian L. Swartz

Yes. So broadly speaking in terms of today, about 90% of our revenue comes from the University of Phoenix. It's been roughly that level for the last few years. Apollo Global, the international businesses, really anchored by -- our BPP operation in the U.K. is the majority of Global. In terms of the Services business, those aren't businesses that we're really investing more in. We actually have a business we don't talk a lot about because it's pretty small, but it's called the Institute for Professional Development, or IPD, which was actually started even before University of Phoenix, which is actually a services-type business that we've kind of put some additional resources at to grow the Services business more broadly. So our hope is that in the future it's hard to pick exact numbers in terms of where things will be. But we think the emerging businesses in the Services and the Global area are great opportunities for us in the future. And then also, University of Phoenix. I mean, we do need to stabilize that business and make sure the right product is in the marketplace that's valued by students. And -- but over time, we would -- I mean, I would hope that -- something less than 90% of our revenue clearly is coming from University of Phoenix.

Geoff Webster

Brian, my name is Geoff Webster from INTO University Partnerships in the U.K. Very interested with the little sound bite you gave on India. Obviously, the demand is massive and the opportunity is massive. India is a somewhat challenging operating environment for non-Indian companies. I was just wondering if you could give us a little bit more flavor of what it is that you're looking to do in the joint venture with your Indian partner? I mean, are you planning to bring your platform and your programs as your contribution rather than -- because clearly, it's not feasible to build 50,000 new universities in the next 5 or 10 years. So a little bit more texture on that would be great, please.

Brian L. Swartz

Yes. We're actually working through that with our partner -- I mean, we spend a lot of time selecting our partner for exactly the reasons that you mentioned. It is an area that you need to have a very strong partner. HT Media is a very well-respected company there. We've been very pleased with the initial partnership, and we're trying to figure out exactly what is the best way to grow an education business there. So we don't have any definitive plans yet or agreements with them in terms of exactly how we'll do that, but it'll be a combination of organic and possible acquisitions. But we're working through that with them. But our goal is to have a nice presence there that, again, is very value-added to India, and we're helping educate their workforce for the future.

Unknown Analyst

Brian, I don't know if you've already addressed this, but it seems like the only program that's really growing in the space consistently is the online RN DPSN program. I'm wondering if you guys offer it and if you feel there's an opportunity to expand that particular program?

Brian L. Swartz

Yes, nursing is an area in general that we would like to expand more. We actually have quite a few students in our nursing -- in our various nursing programs. So the deans are constantly looking at it, looking at all the programmatic offerings we have and trying to link them to where the jobs are going in the future. So we would certainly like to enhance it, if we could, in certain areas, and I guess the academics and the deans are always focused on that. We actually don't -- we don't break down by programmatic levels what percentage the student body is in various programs.

Unknown Analyst

Just a question on the career portal. You mentioned 18,000 jobs on the career portal. I guess, a couple of questions. Is that relatively new and growing? And is that -- do you have results yet on that in terms of what percentage or whatever you can generalize as students that are actually utilizing that? And is this a free service for them? Or is it a paid service? How does it work?

Brian L. Swartz

Yes. Sort of lot of questions, I'll only try to get all of them. Yes, it is relatively new just to start. I think we launched it sometime last fall. I don't know the exact date. But it is a typical career portal. It's a little bit early on to tell whether or not -- how effective it is in terms of results because it is so new. But students are using it. We don't charge for it. It's part of their academic experience with us. And it's -- what we're trying to do in that whole education to career space -- what traditional schools have done, many of us probably in this room had the same experience, I did, right, you're in your fourth year, you're a senior, you go to career services, they teach you how to write a resume and do some mock interviews and set up some interviews for you, and that's kind of the icing on the cake. That's the last piece of what we're trying to do. What we're trying to do is ingrain the whole concept of your next career and your next job throughout your entire academic experience. So that's to make sure when it comes to the end and it's time to use that portal to get the next job, that you’re as prepared as you can be. So we'll continue to monitor it. It has been growing. And I know some of the employers that have jobs on there that I speak to, I know they've been very pleased with it thus far. But the data is still pretty early.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Brian, can you just briefly explain the insufficient autonomy issue that the Higher Learning Commission flagged for you and talk about the next steps in the process with HLC? And if possible, can you tell us if you know of any school that has successfully resolved an insufficient autonomy issue?

Brian L. Swartz

So basically, in the 8-K that we have filed, I guess it was 2 weeks ago today, it talked about that the reason why the team had recommended a near draft recommendation report, the accreditation team, was due to a lack of independence at the University of Phoenix and its board for which -- with respect or with regard to Apollo and Apollo's board and government structure. So that's the nature. It's purely a governance issue. It's important to note -- I mean, the team was actually very complementary of some other areas, including academics and student services, our use of technology, our infrastructure, those kind of things. So I'm -- we're not -- we are working with HLC to better understand what their concerns are around governance and we'll have -- and then obviously follow the process to see this through. And I'll comment on that in a minute. In terms of answering your second question, before I talk about the process -- or your third question, rather, I'm not aware of any other schools that have -- had had governance concerns from HLC, so I don't know any of those. In terms of process and next steps, so we have our draft recommendation report, and that's just what it is. It's draft, and it's a recommendation report from the team that did the accreditation visit. The process is we have an opportunity to comment on that report back to the team. The team will ultimately issue their final report, which, again, is still a recommendation report. Our accreditation has not changed -- or will not change even at that point. It will move on to what's referred -- a council within the Higher Learning Commission infrastructure called the Institutional Actions Council, and we'll have an opportunity then to state our case and argue areas of judgment and maybe perhaps where the team misunderstood certain things, that type of thing. That council has pretty broad authority to issue a report, uphold what the team recommended or do something different. Even at that -- so once they're done with that, assuming the recommendation is still probation at that point, it would go on to the HLC Board of Trustees. And again, we would have another opportunity then to talk about our case, assuming the recommendation is still probation at that point. And then only when the HLC Board of Trustees takes action would our accreditation status change. So the Board of Trustees, or HLC, has indicated they would like their Board of Trustees to take this up at their end-of-June meeting. So we're working obviously along that time frame with them. And then if ultimately we are put on probation, I do want to comment that we will still remain accredited. It's a -- and we will have up to 2 years, if HLC's Board of Trustees takes that action, to basically remedy the issues that they identified if we're ultimately put on probation by their action, and we would host another comprehensive visit or -- some time in the next 2 years to show them how we've ameliorated the issues and rating -- remain in compliance with the other criteria for accreditation. So that's how the process will work. The only other thing I would mention, which I think is important, is the team identified in their report that they were confident that the University of Phoenix team and the Apollo teams and their respective Board of Directors could address all the issues identified in the report. So again, we'll work with them and do whatever we certainly possibly can to stay in compliance.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Can you talk a little bit more about international priorities? Obviously, you've talked a bit about India. You already have BPP. Are there any other markets globally that Apollo is excited about? And how should we think about your size parameters on international acquisitions? Are we looking at tuck-ins? Or is it possible you may consider something more transformational?

Brian L. Swartz

Yes. We've had a team in place, our management team of Apollo Global. The current management team was put in place about 18 months or 24 months ago. They've been very focused internally on stabilizing the existing businesses, and we've actually had some nice wins in some of those -- some of the institutions. Down at Mexico, at our institution, we've launched a blended learning model, which has been very, very successful that we'll actually be rolling out to BPA [ph] -- BPP shortly. BPP is stabilizing itself and had some nice wins as well. Overall, Apollo Global -- we said previously that we expect them to lose less money this year than they have in prior years, which is good. So they're turning in the right directions. Our corporate development team supporting that business has been very active with people on the ground and looking at a variety of deals. China is another country we'd like to be in. Certainly, Brazil as well in terms of priority markets. We don't have operations in either of those countries today. And in terms of size, there is no governor in terms of minimums or maximums. You need to be opportunistic. If things were tuck-in, they probably wouldn't be our first time in a country through a tuck-in. We would do a tuck-in if we had an existing operation there, just -- It's just easier to manage that if you have an existing operation there, and there is no maximum size or anything. Again, we're looking for good management teams, high-quality institutions with good partners that are really focused on helping educate their various respective country citizens. So that's the focus for Apollo Global operations.

Unknown Analyst

Could you provide an update on the employer-funded relationships? I remember that was a big focus of outreach last year? Are there any metrics there on which we could judge whether that's successful?

Brian L. Swartz

Yes, we get that question a lot from many of you. We haven't provided any specific numbers. What I would tell you is that, that business continues to grow. Our partnerships -- how we're activating the partnerships, the level of conversations we're having with the partnerships that I gave you the example, the telecom one, that's getting better and better. It's getting deeper and deeper in those organizations. And the number of students that are coming to us through that channel who are associating themselves with corporate partners when they come to us is growing as well, which is good. It's good for the students, it's good for us. We have higher levels of persistence in those students, so we've been pleased with that channel.

Unknown Analyst

And just to follow-up on that, your latest 90/10 was I think 84%. Do you think it'd go up or down from here?

Brian L. Swartz

Yes, we don't -- so last year, our fiscal '12 was 84%. That was down from 86% and 88% in the prior 2 years, and we don't have -- we haven't given any forecasted numbers with respect to fiscal '13. But we'll certainly talk about that once the year ends here next fall in the October time frame.

Unknown Analyst

Brian, I was hoping that you could talk a little bit about what you've done with scholarships and things that you've been happy with, things that you've been disappointed with. And as you look forward over the next couple of years, how you're likely to use scholarships in your overall mix when you consider sort of the cyclical pressures on the industry versus your ability to be more targeted in retention for certain students?

Brian L. Swartz

Yes. It's a good question. We -- generally speaking, we've been using scholarships relatively selectively. We made some comments on the last call that we'll obviously update where those numbers fall out here in 2 weeks when we report this quarter. But the goal of our scholarships have been a couple fold. One, targeted to students to help them retain longer. And then secondarily, prior to really putting the career tools in place and the counseling conversations in mid-November, we had some programs in place just to help our councilors talk to students that might be very super focused on price, some programs to allow them to help -- help in the conversation of leads into enrollments. So -- but again, the programs really are focused on helping students retain more effectively. That's how we've thought about them. When we think about the overall value -- the value proposition of the product offering, what we really are focused on is understanding students' needs. That's really what it comes back to. What a student needs, what they want, make sure we're reinventing ourselves to constantly make sure that our service and product offering is relevant to that student and driving value to them, because it's all about the value proposition. So exactly where the utilization of scholarship goes, we'll talk more about that in the future. But that's the way we think about it at least.

Kelly A. Flynn - Crédit Suisse AG, Research Division

You guys had spoken a few quarters ago about tweaking the orientation program. Could you give an update on whether or not you did that and I guess where that stands?

Brian L. Swartz

Yes. Structurally, the orientation program hasn't changed dramatically since we rolled it out just over 2 years. I mean, it's still 3 weeks long. It's free. It's for all, basically anyone who's a freshman in college or comes with less than 24 transfer credits. We have enhanced the curriculum that students get -- why they're in their program. So for example, we've introduced career conversations in the curriculum to start that process prior to enrollment. We've also introduced some responsible borrowing and student financial aid understanding and learnings during that process before they enroll, helping them understand their -- really along the lines of student protections and understanding their choices prior to enrollment and how they're going to pay for it and what it means when they graduate, those kinds of things. So those have been some of the curriculum enhancements that we've put into the program.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Was does that -- I guess the types of students -- are eligible for it, are you enabling some students to pass out of it so to speak? And when did that start?

Brian L. Swartz

Yes, we put a program in place that we were a little concerned than perhaps we were -- there were students that we were forcing to go through it that really didn't want to. We had put a program in place to allow students to kind of bypass it. Because again, as I mentioned in my comments, the point of orientation is not really academic learning. You don't get credit for it. It's non-credit bearing. It's really to test and make sure that students are up to the commitment of going to school relative to what's happening in their life. So we were concerned that perhaps we were asking students to go through it that really didn't need to go through it, and it was turning them off because we were basically forcing them through it. So we've put a program in place that allows students do that. The take rates, so to speak, on that wasn't very high. So I think a lot of students actually enjoyed going through it and it was beneficial to them in terms of making a decision to ultimately enroll.

Kelly A. Flynn - Crédit Suisse AG, Research Division

All right, great. Thank you very much.

Brian L. Swartz

Thank you. Thanks for having us.

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