Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

DeVry Inc. (NYSE:DV)

F3Q09 (Qtr End 03/31/09) Earnings Call Transcript

April 23, 2009 4:30 pm ET

Executives

Joan Bates – Senior Director of Communications and IR

Daniel Hamburger – President and CEO

Rick Gunst – SVP, CFO and Treasurer

Analysts

Andrew Steinerman – JP Morgan

Amy Junker – Robert Baird

Jerry Herman – Stifel Nicolaus

Ariel Sokol – Wedbush

Trace Urdan – Signal Hill

Kelly Flynn – Credit Suisse

Kevin Doherty – Banc of America

Suzanne Stein – Morgan Stanley

Paul Ginocchio – Deutsche Bank

Jeff Silber – BMO Capital Markets

Gary Bisbee – Barclays Capital

Scott Schneeberger – Oppenheimer

Brandon Dobell – William Blair

Mark Zgutowicz – Piper Jaffray

Jeff Marsh [ph] – Marsh Capital

Operator

Good day, ladies and gentlemen, and welcome to the DeVry Fiscal 2009 Third Quarter Conference Call. My name is Jeremy, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) At this time, I’d like to turn the presentation over to your host for today’s call, Ms. Joan Bates. You may proceed.

Joan Bates

Thank you, Jeremy.

With me today are Daniel Hamburger, President and Chief Executive Officer, and Rick Gunst, Senior Vice President and Chief Financial Officer.

Before we begin, please be advised that statements made on this conference call may constitute forward-looking statements subject to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by phrases such as DeVry, Inc. or its management has a view, objective or outlook, or that management believes, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. Actual results may differ materially from those projected or implied.

Potential risks, uncertainties and other factors that could cause results to differ are described more fully in Item 1A, Risk Factors, in the company’s most recent Annual Report on Form 10-K for the year ending June 30, 2008, and filed with the Securities and Exchange Commission on August 27, 2008.

Telephone and webcast replays of the call are available until May 7. To access the replay, dial 888-286-8010 for domestic, or internationally 617-801-6888, using the pass code 19954322. A replay is also available via webcast through the IR portion of our website. As a reminder, our press release and preliminary financial statements are available in the Investor Relations section of our website located at www.devryinc.com.

I will now turn the call over to Daniel Hamburger.

Daniel Hamburger

Thanks, Joan. Thank you all very much for joining us for our third quarter call.

We're pleased to report that DeVry delivered solid academic results this quarter and as a result we saw strong and steady enrollment growth at all of our schools. We're really realizing the benefits of our growth and diversification strategy. This growth and diversification plan focuses on three important objectives: First, to achieve the full potential of DeVry University; second, to grow to continue diversification across vertical curriculum areas throughout the horizontal levels of education and in new geographic markets; and third, to build the infrastructure to support this growth.

Let me describe some of the benefits we are seeing of this diversified positioning. Diversification means that we can offset areas of slower near-term growth with more favorable performance in other areas. An example of this is in our Becker division, where our clients are more impacted by the economy right now. This is balanced by improved performance at DeVry University. A couple of years ago, it was the other way around. Despite the economic difficulties, DeVry is weathering the storm better than most with steady growth in enrollment, revenues and cash flows and a solid balance sheet. This performance together with our diversified platform gives us the ability to sustain investments in growth and quality for the long-term during good times and bad.

An example, an important example, of how we are executing our diversification strategy is our recent acquisition of a majority stake in Fanor, a leading post secondary provider in northeastern Brazil. Fanor is the parent organization of three institutions that operate five campuses. It serves more than 10,000 students through 28 undergraduate and graduate programs in business, law and engineering. Fanor provides a solid platform for DeVry in Brazil with its strong brand recognition, history of growth and academic quality.

As many of you know, DeVry has been seeking the right opportunities to expand in high-growth international markets, particularly within Latin America. Countries such as Brazil have fully embraced the market funded model of education and it is easy to see why. Brazil with nearly 200 million people has the tenth largest economy in the world, and the government there realized years ago that the key to this economic growth is of course an educated workforce. Yet the dilemma was how to fund it.

With a large and growing college age population and a growing middle class, that had limited educational opportunities, the government just couldn't keep up with student demand. So they passed legislation 10 years ago to encourage private sector participation. And the result is that while in the US 6% of enrolments are in market funded schools, in Brazil, it is 50%.

So, DeVry's diverse array of schools positions us well for bad times as well as good times. As a result of our growth and diversification strategy, we have a steady base of programs that aren't tied to economic cycles. If you think about it, DeVry is the only publicly traded education group with a medical school, and the only one with a veterinary school. We also have large enrollments in nursing, accounting and other vertical curriculum areas that are not tied to the economic cycle.

We also have a strong set of programs that do receive a bit of tailwind in a down economy. So over the last couple of months, we've been asked whether we believe we will lose this tailwind when the economy recovers. Given our diverse group of schools, we believe we are much better positioned for sustainable growth in both good and bad times, relative to others in the industry.

Another distinction that we believe differentiates us is the higher proportion of students that come to ours schools directly from high school. Some in the industry focus exclusively on working adults, which is great, especially in a down economy. Again, we have a more diverse model by recruiting high school students and working adults. We believe this distinguishes us during times of economic recovery, because high school students go to college regardless of economic cycles.

Now this quarter we also announced that we are planning to relocate our home office operations early next year into two nearby locations in Downers Grove and Oak Brook, Illinois. Both offer energy-efficient green facilities, which is good as it will help offset the carbon footprint from my longer commute. Now our goal is that these new facilities will support our strategy of building our growth infrastructure, including being the employer of choice in education with first-class amenities and a high-quality working environment.

In previous calls I have given you a brief update on the situation in student lending. The good news this quarter is basically no news. We haven't seen any significant changes in the student loan environment. Our students continue to have access to the financing they require, whether it is through federal loans, state grants, or the small amount of private loans or institutional loans. So I would like to focus briefly on one item that received a lot of attention a few weeks ago, and that is the potential switch of self to a direct lending program.

What's key here is that this is an issue for lenders, not for students, or for the schools themselves. We're prepared for the switch. We don't see any operational issues, nor do we believe it will have an impact on our enrollment. And finally another noteworthy event this quarter was the president's address to a joint session of Congress where he clearly articulated that education is one of this administration's top three priorities. The president laid down a challenge that America will regain the number one position in the world for the percentage of citizens with a college degree by the end of the coming decade. Sounds almost like John F. Kennedy's challenge to land a man on the moon and return safely to the earth within a decade.

I think this challenge in this president may have as big an impact on education as JFK had on space exploration. DeVry is excited to be a part of meeting this challenge and we're excited to work with this administration. So with that introduction, let me turn the call over to Rick for the financial results.

Rick Gunst

Thanks Daniel. We continue to deliver very strong results once again in the third quarter as the excellent results within our DeVry University and medical and healthcare segments offset the continued softness within the professional and training segment. Revenue hit a record level of $392 million in the third quarter and was up about 35% versus prior year. Revenue was still up about 19% excluding the impact of U.S. Education. Through the first nine months of the fiscal year, revenue was up 31% and again 19% excluding U.S. Ed. Net income was about $51 million in the third quarter and earnings per share $0.70, up about 32%.

There were three unique or unusual items that hit in the quarter that I would like to take a couple of minutes to explain. First, we recorded a pretax charge of about $4 million or about $0.04 a share in the quarter as a result of our buyout of a portion of our lease at the Long Island City campus in New York. This real estate optimization action resulted in $1.9 million of annual operating expense savings going forward. Third quarter earnings per share would have been $0.74 or up 40% excluding this discrete item.

The next two items basically offset one another. In conjunction with signing the agreement to purchase the majority stake in Fanor last month, we locked in the Brazilian currency on the date of signing to avoid potential currency risk prior to closing. This action resulted in a $1.3 million gain from the foreign exchange contract that hit the income statement in the quarter due to the strengthening of the Brazilian real at the end of the month.

Now this gain was offset by a $1.5 million reserve taken against prepaid clinicals within Ross University. As you may recall, we have prepaid for some clinical rotations in the past to lock in these swaps in more favorable rates. Unfortunately, a couple of hospitals within the group recently shut down their operations due to financial difficulties. While we have a clear contractual right to utilize other locations within their system, given the business uncertainty, we found it prudent to record this reserve, which represents less than 20% of the remaining prepaid bills.

On a year-to-date basis, net income was $128.6 million, up 27% versus last year. If we exclude the discrete items in both years, net income will still be up about 27% as detailed in our earnings release. Also if you reference third quarter results include expense related to share-based payments of approximately $1.7 million pretax or $1.3 million after-tax. This is slightly higher than last year's expense of approximately $1.4 million pretax or $1.2 million net of tax. Our overall effective tax rate moved up to 30.3% in the quarter and 29.7 year-to-date due to the continued growth in our domestic sourced income.

Cost of education expenses increased by 36% versus prior year in the quarter and up 29% year-to-date, excluding the real estate charge. When you exclude U.S. Education, cost of educational services would have been up 16% in the quarter and 15% year-to-date, both lower than our revenue growth driving improved gross margins. Student services and administrative expense increased by 26% in the quarter or about 13% excluding U.S. Education.

The rate of growth and SS&A expense came down in the quarter and grew less than revenue with or without U.S. Education. This trend was as expected and as we've discussed quite a bit in our previous calls. While we are making investments to drive future growth such as marketing, recruiting and new programs, we expect SS&A expense to grow at a lower rate than revenue again next quarter.

Now let me shift and walk you through some of the key highlights of our operating results, business segment operating results, which are further detailed in our earnings release. First, revenue growth within DeVry University segment continued at a strong pace of 18.7% versus prior year for the quarter and year-to-date. This growth is being driven by continued online expansion and improved on-site improvements. DeVry University segment operating income increased by 59% in the quarter and 38% year-to-date excluding discrete items. This improvement was driven by gross margin and operating expense leverage in the quarter as our rate of growth in marketing and recruiting expenses grew at a slower rate than revenue as expected.

Within the medical and healthcare segment, revenue more than doubled in the quarter driven by the addition of U.S. Education, but was still up about 30% excluding the impact of U.S. Ed. This growth was driven by Ross improvements along with Chamberlain's geographic expansion and accelerated growth of the online bachelor's degree completion program. U.S. Education continued to deliver strong revenue growth of its own, up about 24% in the quarter. Third-quarter operating income for the medical and healthcare segment was $26.1 million, was up over 80% versus last year, and income would have been up about 27% excluding the impact of U.S. Education.

Finally, our professional and training segment results continue to reflect the economic downturn and impact the financial firms Becker (inaudible) with revenue basically flat in the quarter and up about 3% year-to-date. While operating income was down versus last year in the quarter and year-to-date, the segments year-to-date operating income margin is still quite healthy.

Shifting to our balance sheet, the cash, marketable securities and investment balances totaled over $354 million at the end of the quarter compared to $310 million last year. Despite the strong cash balance, interest income in the quarter was only $800,000 compared to $2.8 million last year, due to the declining interest rate environment. Cash flow from operations for the nine month period was $288 million versus $205 million last year. We continue to use our positive cash flow generation to reduce outstanding debt to $135 million from $155 million at the end of the second quarter. Our net accounts receivable balance was about $180 million versus $122 million last year. And I remember about $31 million of this increase was the result of the addition of receivables for U.S. Education. The balance of the increase can be contributed to strong enrollment and revenue growth in the quarter. And I'm happy to say that DeVry University receivables accounts are basically back in line with prior year as we addressed our internal systems issues.

Year-to-date capital spending was $51 million versus $26 million last year, excluding last year's of Alpharetta purchase and immediate sale-leaseback transactions. Spending has and will continue to pick up during the second half due to the Project Delta, a new student information system, DeVry University and U.S. Education spending on facility improvements in new locations, and continued geographic expansion within Chamberlain College of Nursing, along with others. Capital spending for the full year is expected to be in the $70 million range, give or take excluding U.S. Education.

Finally during the quarter, we repurchased approximately 207,000 shares of our common stock at a total cost of about $10.3 million, bringing the total share repurchase in our current program to date to $15.7 million, at an average cost of about $51.53 per share. That concludes my overview of the strong results for the third quarter and first nine months of the year. Overall we feel very good about delivering positive results for the remainder of fiscal 2009 and meeting our long-term academic and financial objectives. And as we look for growth opportunities, we continue to focus on maintaining appropriately conservative capital structure.

Now let me turn the call back over to Daniel for some more details on our operating results.

Daniel Hamburger

Thanks Rick. And as I go through this operations review I will refer to our press release, where you will note that we have enhanced the information we provide, such as Chamberlain now reporting both new and total enrollments three times per year. Please refer to chart one within this release where a schedule of which schools are reporting enrolments and when.

Let me start here with DeVry University, including our Keller Graduate School of Management where we experienced excellent economic outcomes, and very strong enrollment growth this quarter. The DeVry University new undergraduate student enrollment increased 15% while total student enrollment was up almost 19%. Our total undergraduate student enrollment of 53,259 students is an all-time record for us and we're proud of that. We also saw nice growth across technology, business and healthcare related programs.

So very strong growth as I think everyone already knows given these growth rate comparisons on a percentage basis with the upcoming periods may be a little tougher. If you recall, new student growth in the last three classes was 12% last spring, 19% in summer, and 20% in the fall. To be clear, we believe we will see solid growth in new student but as we know everyone understands, it is not high teens or 20% forever. And we're confident that the recent strong incoming classes combined with improved retention should give us solid total enrollment growth as well.

Graduate course takers increased 12% over January last year and for the March 2009 session that number increased nearly 14%. At DeVry University Online, the total number of undergraduates and graduate course takers in March 2009 increased 87% over spring 2008. Here I'm referring to DeVry University Online; I want to point out that DeVry Central Online Services Group is an important part of our growth infrastructure as it supports all the online programs across all our schools. And I will talk a little bit more about that in a minute. They are doing just an incredible job of delivering high quality academics, excellent customer service, as you can see here, terrific growth.

In addition to the strong enrollment results, DeVry University implemented some new initiatives this quarter. And let me mentioned two of them. Perhaps most notable was the January launch of our new academic structure, which organizes our various disciplines into specific colleges. These colleges are the College of Business and Management, which includes the Keller Graduate School of Management. The College of Engineering and Information Sciences, the College of Liberal Arts And Sciences, the College of Media Arts And Technology, and then the College of Health Sciences. This structure provides a home for all degrees at all levels and it's an organization that is more familiar to students. So the new structure provides improved flexibility for program growth in the future as well.

And the other initiative was in the new program area. In this quarter DeVry University successfully launched three new undergraduate tracks in the computer information systems area. And these are health information sciences, web game programming and enterprise computing, which we launched directly jointly with IBM as a part of their academic initiative program. The IBM academic initiative is part of IBM's commitment to work with leading universities to grow opportunities for enterprise systems developers. So new programs are an accelerating source of growth for us and we're increasing our investments here.

As you might suspect, given the country's recent unemployment statistics, we are beginning to see some early signs of softness in graduate employment rates. In our release today, we included a chart showing graduate employment results for over 30 years. Since 1975, through four recessions and now into the fifth, our graduate employment rates have averaged over 90%. This number has fluctuated over time falling even to the low 80s, during times when nation wide unemployment has risen dramatically. But what is important to note is that even if graduate employment statistics go down a bit, we don't expect them to have a significant impact on new student enrollment. And also we're increasing the investments in our career services function to ensure we stay the number one career services university.

Let us turn now to our medical and healthcare segment. At Ross across University, new student enrollment grew 11%, and total student enrollment was up nearly 8% from a year ago. Ross continued to expand our physical presence and we added additional faculty during the quarter to ensure that our students receive the highest quality medical education. The med schools clinical training center opened in January at Freeport, Grand Bahamas. I was fortunate to be there for the ribbon-cutting ceremony along with the Bahamas prime minister. The feedback from our students there was very, very positive. We're pleased with the Ross team who has done an outstanding job building an excellent facility in a remarkably short timeframe. At Ross University Veterinary School, new classrooms are being built to accommodate increased capacity needs there as well.

Chamberlain College of Nursing had an extremely busy and productive quarter. Very happy to report that we received – that we achieved a record total enrollment of over 3700 students in the spring. This is 105% increase over prior year. New students rose 60%. Chamberlain is investing in high school recruiting efforts and now has high school recruiters in each of our markets.

During the quarter, we made a key management appointment at Chamberlain. Marie Hallinan has been named to the new position of Vice President of Campus Operations. Marie is a former Group Vice President at DeVry University and we're very happy to welcome her over to Chamberlain. Another perfect example of another benefit of our diversification strategy, more career opportunities for our employees as we became the employer of choice in the education industry. Our program and geographic expansion efforts at Chamberlain remain on schedule. We are adding a new Masters of Science in nursing, which received approval earlier this month, and we expect to be officially launched in the summer.

In March, our Columbus campus received a five-year approval with a new associate degree program there. And earlier this month, Chamberlain received approval for our Jacksonville, Florida campus. Chamberlain's expecting to launch programs in Jacksonville beginning in the summer pending final approval.

At the newest addition to our medical and healthcare division, we are pleased to announce the milestone in enrollment for U.S. Education, which comprises of course of Apollo College and Western Career College. Total student enrollment surpassed the 10,000 mark in the quarter, a record for U.S. Education, and a 22% increase over prior year. I just couldn't be more proud of the work that George Montgomery and his team continue to do for our students.

One area, a very exciting area of future growth for U.S. Education is the launch of online programs. And beginning in July with the help of DeVry's Central Online Services Group, Apollo College will offer two new bachelor's degree completion programs. Bachelor of Science in medical imaging program is for radiography practitioners to help them strengthen their understanding of research management and administration. The Bachelor of Science in respiratory care prepares their graduates for leadership roles in areas like clinical practice, research and education. The launch of these new programs at Apollo College is a great example of the synergies we are achieving through our diversification strategy. Apollo College is utilizing DeVry's Central Online Services including the technology platform, curriculum development and student services, just a great example there.

Now I would like to finish up here with the Becker professional review where as everyone is aware we're seeing ongoing weakness because of the slowdown in financial markets. So here the business is actually pro-cyclical if you will. Becker's revenues were basically flat compared with last year and earnings were down although Becker continues to have healthy operating margins. And while we are not anticipating any pick up at Baker for the remainder of this calendar year, we remain confident in the long-term growth potential of this segment of DeVry. One example of Becker's potential is our strong international presence. During the quarter, Becker signed an extension with the Toronto CFA Society to provide Stalla Review for the CFA exam programs for another three years.

So in summary we are very pleased with the academic and the financial performance d DeVry delivered this quarter. Our diversified positioning allows us to sustain investments in quality and growth over the long term during both bad times and good times. While we are doing well now, we expect that to continue as the economy recovers. So we're excited about the future and we are also excited to take your questions. Joan?

Joan Bates

Thanks Daniel. Before we go to the Q&A, I would like to mention that DeVry's Investor Day, which we had originally planned for May, has been postponed until November of 16 and 17th, which will accommodate an ongoing construction project at the Phoenix campus. We really want you to see the Phoenix campus, Phoenix area being Phoenix area, as you would be able to see three different schools including the recently acquired Apollo College, as well as Chamberlain and DeVry University. So we will be providing more details this summer and you should be on the lookout for more communications about the event later on.

With that Jeremy, if you would kindly give our callers instructions, we will begin the Q&A portion of the call.

Question-and-Answer Session

Operator

(Operator instructions) And your first question will come from the line of Andrew Steinerman with JP Morgan. You may proceed.

Andrew Steinerman – JP Morgan

Hi gentlemen. When you look at the balance of investments that you are doing and obviously very astute ones, do you think the pace of investments will be sustained here for the next couple of quarters, stepped up, and if you could talk sort of by school when speaking about kind of the pace of investments over the next couple of quarters?

Rick Gunst

Well I think as we said in previous calls we were picking up the pace quite a bit over the past 12 months, 15 months. And we'd soon intend to continue to make the appropriate investments across our portfolio, but the rate of growth given what we have done in the past I think will subside. We saw it this quarter, we will see it next quarter, we have gone through our detailed planning for the next year, and we see opportunities in all our businesses. You know DeVry University, we're continuing to look at the real estate front to make sure that we have the right footprint, so adding locations where there is opportunities and making the adjustments in other places.

Chamberlain is continuing to be a growth vehicle. We talked about Jacksonville, so at least some investment and that's part of it is flowing through the P&L this quarter and next on the start up cost of that location. U.S. Education, Daniel mentioned the online expansion, and we will also be looking at on-site expansion within U.S. Ed. We're expanding our footprint with Ross with what we've done in the Bahamas and we will continue to grow that operations. And so that gives you sort of a good sense of things.

Daniel Hamburger

Yes. And I would just add and Andrew thanks for that question. It is a spot on question, something we think about everyday and I think that the way you put it at the beginning of your question was right on the mark, it is a balance. And so we're balancing all these wonderful investment opportunities that we see with also performing as we go here in the near term.

Andrew Steinerman – JP Morgan

Right. And if you could just…

Daniel Hamburger

– some of the opportunities to you know that you're starting to see that margin expansion which is just as we said – I think Rick outlined that in his prepared comments, just as – really just as we have been talking about, very much on track, spot on, really with what we've said we would do, we have delivered during this quarter.

Andrew Steinerman – JP Morgan

Yes, okay. Thank you, Dan. Just one more thing, on the Grand Bahamas opening, it obviously the permanent facility is still moving towards, do you think there's any kind of constraint to grow within Ross, kind of before we get the kind of permanent clinical facility open?

Daniel Hamburger

No, Andrew. You know the ongoing profile of high single digit enrollment growth is still there and we are adding the capacity that we need across the Grand Bahamas location as well as in our Miami facility and Saginaw, Michigan, which is perhaps not quite as glamorous as Miami or Grand Bahamas or Dominica but being a native Michigander, it is a great place to go to school as well. We have a wonderful partner them with the Synergy Alliance Group. And so it is really an addition of capacity across the board and a lot of people tend to focus on the first four semesters, the core science of four semesters, but the remaining six semesters of this ten semester program are just as important to increase capacity. So we're doing that across the board.

Andrew Steinerman – JP Morgan

Okay. Thanks for all the color.

Daniel Hamburger

Sure. Thank you.

Operator

And your next question will be from the line of Amy Junker with Robert Baird. You may proceed.

Amy Junker – Robert Baird

Good afternoon. Daniel, can you touch on just the status of the integration with U.S. Education Corp and if you identified any potential co-location yet or is it still too soon to start seeing that?

Daniel Hamburger

Thanks Amy. The status of integration is excellent. I would suggest this is literally one of the best, if not the best, acquisition integration that this team – this team has a lot of integration experience across, across the team here, I am not just speaking for myself. It has gotten really well; you know a lot of credit there to John Roselli's leadership, George Harbison over at U.S. Ed.

It has been a cross functional, cross divisional team, with joint leadership from the U.S. Ed and then DeVry teams for each functional area, tremendous teamwork, great integration, great meshing of the cultures. I think it'll be started in a good place there because as we knew and we identified, we talked quite a bit about, the cultures were very compatible. And a lot of people's experience with integration, that is often one of the key success factors, successful acquisition integration is do you have compatible cultures. And since both were focused on academic qualities, student success, it made it really easy.

In terms of co-location, yes, we do see opportunities. George Montgomery and the team U.S. Ed and Bill Clohan as well are doing the analysis now but they are pretty far along in that, so I have seen some of the preliminary views of where we think we would like to go, and many of those do overlap with existing facilities and campuses, DeVry University, Chamberlain College of Nursing. So we do expect to execute on co-location. We're very excited about that. Our experience with the multiple co-locations we have done with Chamberlain College of Nursing and DeVry University have each gone well. In fact each one has exceeded our expectations. So we're quite excited about that.

And then moving, further geographic expansion is some cases, not just independently on their own for Apollo College, the Western Career College of U.S. Ed, online expansion, and which I talked about, and programmatic expansion as well are all part of the growth strategy. So that is it. Maybe more color than you were looking for. We are just so excited about this investment and this merger coming together has definitely exceeded our expectations.

Amy Junker – Robert Baird

No, that's very helpful. And along the same lines, if you can just touch on perhaps the strategy at Fanor as well, are you looking to take that school and expand it across Brazil, potentially look at the joint degrees or exchange programs with DeVry, what are your thoughts as you move further into Latin America?

Daniel Hamburger

Yes. Thanks for that. And we do see programs for students and also for our employees as part of the Fanor strategy. And further, and perhaps maybe even more significant would be geographic expansion in its own right within Brazil for Fanor across a couple of brands, focusing across the business, the law, and significantly their engineering. They have a very, very strong engineering school and a very strong brand, quite excited about that. And then little bit longer term would be online expansion, which is still pretty much in its early days. So there are many opportunities to grow and expand Fanor and those are some of the highlights.

Amy Junker – Robert Baird

Great. Thanks so much.

Daniel Hamburger

Okay. Thanks Amy.

Operator

And your next question will be from the line of Jerry Herman with Stifel Nicolaus. Go ahead.

Jerry Herman – Stifel Nicolaus

Good afternoon everybody.

Daniel Hamburger

Hi, Jerry.

Jerry Herman – Stifel Nicolaus

Dan, question about growth, are there any constraints that you have on growth generally? And the reason I ask that question is, and you probably aren't going to like this question, but some of your competitors have been posting some really robust volume numbers, and I'm wondering if you guys view the front end of the pipeline any differently than they do, or if you sense any shifts in market share that might be occurring as well?

Daniel Hamburger

Well, Jerry, the market funded segment clearly is increasing its share overall. We don't – we continue to increase our share and we're measuring up more carefully than we ever have before (inaudible) last year we renewed our strategic plan. And so it is really – I remember a time at the beginning of this decade where that was the case as well and the world was [ph] growing faster than DeVry and didn’t always work out so well over the long-term.

So we're continuing to pursue very healthy and very sustainable levels of growth that I think are sustainable. Here in this part of the economic cycle and we think in later parts of the cycle, I think one part of that, and I commented on this is, we didn't maybe go up as much as some others as unemployment has increased, and we are less counter cyclical than others. And by the way at the time at the beginning of the downturn, we said – I said – we said very, very openly in large forums and small forums, if you're looking for a counter cyclical place, probably look somewhere else. We're really much less counter cyclical than anybody else, we are much more diversified, and that is why I took a minute to go through that a little bit earlier.

And so if we shot off a little bit less than some others in the down time of the economy, as the economy improves, we think we will continue to perform very well, much more steady, perhaps outperform at that time, we have to see. But and then just to the first part of the custom about the constraint on growth, the constraint is people, and we've got the people and we continue to maintain an increase, delivering the economic quality to our students. That is really ultimately a long term constraint on growth.

Jerry Herman – Stifel Nicolaus

Okay. And just a follow up, let me go to the other side of the pipeline. You referenced increase investments in your career services area, could you maybe be more specific there and then any update on salaries?

Daniel Hamburger

Sure. Salaries, the last update that we had was actually up, even in this economy. But as I said, we have seen some early signs that it could be softening somewhat, not anything huge, but just a little bit. Some of the investments include more people, more career counselors. We think we've got the largest career services office in the country when you add it all up across several dozen career services office across the country, over 100 career services professionals. We were adding, even as enrolment have grown, we need to add more career services professionals, some marketing dollars as we – this is not student marketing, this is marketing to employers, and spreading the good word about our wonderful graduates. It is those kinds of investments, not hugely significant, but in the grand scheme of DeVry Inc., but important investments. And we're not going to be shy about that in order to preserve that strong positioning that DeVry University enjoys in the minds of prospective students.

Jerry Herman – Stifel Nicolaus

Great, thanks. I'll turn it over.

Daniel Hamburger

Okay, thanks Jerry.

Operator

And your next question is from the line of Ariel Sokol with Wedbush. You may proceed.

Ariel Sokol – Wedbush

Hi guys. Congratulations.

Daniel Hamburger

Thanks Ariel and welcome to DeVry and to the wonderful world of covering education.

Ariel Sokol – Wedbush

Thank you very much. I do have a couple of marketing related questions. And the first one is that I know you guys provide an advertising expense in your 10-Q but can you provide it now? And the reason why I ask that, I just want to go back to the comment regarding counter-cyclicality and understand the trend in acquisition costs per student start in your various programs? And the last question is, if perhaps you can speak to the trade-off you'll be doing with respect to margin expansion versus new enrollment growth, particularly as you go against what could be more challenging comparisons?

Daniel Hamburger

Yes. Well, thanks Ariel, and we have seen as we talked about quite a lot in on other call in quarters past that we would expect to see that here in the second half of the year, and it is coming out very much in line with expectations. We're seeing very good results coming out of our marketing team in terms of the cost to attract and recruit new students. So those have been favorable trends. We saw some leverage there in the – it shows up in our student services and administration, SS&A expense line, which grew very significantly slower than revenues. But I don't think I can give you specific breakout, to your specific question about ad expense until the Q comes out. You have it?

Rick Gunst

Yes. I've got it. I've got the numbers. Advertising expense in the quarter was about $46 million and year-to-date about $130 million. But keep in mind when you compare that to last year, you've got U.S. Ed in there. If you take U.S. Ed out, it is about $121 million year-to-date and about $42 million for the quarter.

Ariel Sokol – Wedbush

Great. Thank you.

Daniel Hamburger

Thank you.

Operator

And your next question will be from the line of Trace Urdan with Signal Hill. Go ahead.

Trace Urdan – Signal Hill

Thank you. Dan, I just want to check on those nonrecurring items that you described in the quarter. All of those are included in the segment data that you provided us, is that correct?

Rick Gunst

Yes.

Trace Urdan – Signal Hill

Okay. So in that circumstance, the Long Island City write off and the Brazil gain would be both in the DeVry segment?

Rick Gunst

No. It is true about the real estate charge but the investment gain is shown in the section of interest and other on the P&L. So it is below operating income.

Trace Urdan – Signal Hill

Okay, got it, all right. That's helpful. But then the reserve against the prepaid clinicals, that…

Rick Gunst

That is within the healthcare segment results.

Trace Urdan – Signal Hill

Okay great. That is helpful in terms of understanding what seems to be sustainable there. So it really does look as though we're seeing a pretty significant increase in the rate of margin improvement, even this quarter versus the prior quarter and I gather from your statement that you sort of – the level of investment is slowing a bit?

Daniel Hamburger

Yes. I mean it is spot on with what we said it was going to be.

Rick Gunst

Yes. I think…

Trace Urdan – Signal Hill

No. I know it is, I'm just trying to draw a circle around that and make sure that I got that right.

Rick Gunst

Let me help you out a little bit. I think if you look at our operating margin – or excuse me, our pretax income margin, on a year-to-date basis, we're at 17.6% when you exclude the real estate charge, year-to-date, nine months for this year. And last year, I think we were at 17.5%. And last year we didn't have U.S. Education, this year we do, and it has inherently little bit lower margins although growing. So we continue to make margin improvements in the quarter we saw as evidenced by the greater than 40% increase in operating income, a nice movement in margin this quarter, and we expect to see another nice moment in the upcoming quarter.

Trace Urdan – Signal Hill

Okay. And then it looked as though I'm not – it is nothing that I think is a big concern, but it looked like sequentially in the DeVry University segment in terms of new student starts, it looked like sequentially there was maybe a bigger dip than we have seen, at least for the last couple of years in terms of the number of students enrolled in the fall quarter versus the spring quarter. And I just wondered if there is anything, if there is anything to note in that observation at all, either because the prior quarter was specifically strong for some reason or you know was this just kind of noise in the machine and…

Daniel Hamburger

I think it is noise in the machine.

Rick Gunst

Yes. We have a chart that is attached in the press release that gets you through the absolute and the growth rates on new students as well as total students. And I think the seasonality really is what you're looking at. The growth rate is 15% in this term on top of a 19% growth the previous year. So I think the rate of growth is the same and has been pretty consistent.

Trace Urdan – Signal Hill

Yes, okay. And I hear you, it looks like that sequentially versus the prior quarter, you have not seen as large a move down as you did this quarter, but I hear what you're saying. It is not a concern.

Rick Gunst

Yes.

Daniel Hamburger

Yes. I don't really see that as…

Rick Gunst

Look at the visual on the chart and the numbers I think came together. It is pretty consistent.

Trace Urdan – Signal Hill

Okay. All right. Thanks very much.

Daniel Hamburger

Thanks.

Operator

And next you have a question from the line of Kelly Flynn with Credit Suisse. Go ahead.

Kelly Flynn – Credit Suisse

Thanks. I have one quick one and then kind of a more detailed follow-up. On the placement rate that you mentioned for DeVry, did you give the actual number or just said it was down?

Daniel Hamburger

No we – yes, it is in the press release.

Kelly Flynn – Credit Suisse

Sorry.

Daniel Hamburger

Yes, we've given it. Well, it is the latest number…

Joan Bates

Page 8 under new enrollment chart.

Daniel Hamburger

Yes, 92.1%, and that is the three term period. The October 2007 grads, February and then the June 2008 grads, the number goes six months, so that closed out at the end of December 2008. And so next time we will report the subsequent class.

Kelly Flynn – Credit Suisse

Okay great. And then just on the impact of the economy, I know you've touched on a couple of times, but could you just kind of go through the puts and takes on that? I mean what, how is it helping you and how is it hurting you? And particularly touch on – I am talking about just DeVry University, but particularly touch on corporate investment in there if you could? Thanks.

Daniel Hamburger

Okay. Well, at DeVry University, there is – the puts and takes are, some of the programs have a little bit of counter cyclicality to them, the MBA program, that maybe all can probably relate to that, just in our daily observation, you know people going back, maybe for an MBA if they're employed or maybe underemployed, is a little bit. So I think you have seen at our graduate results. It is a fairly minor effect, so it is really much more non-cyclical than counter cyclical but a little bit.

Some of the shorter programs at DeVry University does have a few associate degree programs and those seem to be getting the benefit. And so I would say we are getting a little bit of a tailwind there at DeVry University overall, but it is not nearly like what you would see at some of the more career college focused operations, including now, most recently the addition of U.S. Ed to the DeVry Inc. world. And so when you look at DeVry Inc., then you start to look at, added that to the portfolio, which is so much counter, then you have some pro cyclical areas like Becker, which tends to move with the economy, advanced academics. The high school program has a little bit of actually pro cyclical, although probably masked by just its overall very large rate of growth with its small size.

And then you have some non-cyclical, the medical school, the veterinary school, the nursing programs, accounting degrees at undergraduate level, tend to move at their own pace, not really correlate to the economic cycle. That is why I say that when you look at the overall DeVry Inc., it is much more non-cyclical, much less counter cyclical than any of the other publicly traded employers.

Kelly Flynn – Credit Suisse

And what about the corporate reimbursement, I know you don't get a lot, what are you seeing there?

Daniel Hamburger

Yes. And we have some exposure there, although not as nearly as again some other players you might be thinking of. But we are seeing steadiness said. We haven't seen – I think we mentioned last time that there was one employer that we're aware of who suspended their program and I'm not aware of any new news in that regard since that time. And again, our long-term history, and we have a lot of history here going back to when Dennis and Ron founded Keller Graduate School of Management in 1973. What we found is that this is an employee benefit, that is one of the last areas that any employer wants to cut. It is very important to employees; it is sort of just not worth the money there to cut that benefit for most employers. So we found that it is pretty steady. And by the way when corporations are feeling flush, they don't tend to raise it either. It just tends to be pretty steady.

Kelly Flynn – Credit Suisse

Got it. Thank you very much.

Operator

Your next question will be from the line of Kevin Doherty with Banc of America. You may proceed.

Kevin Doherty – Banc of America

Great. Thanks guys. Could you just a little more about your M&A appetite going forward? And I know you maintain you want to maintain an appropriate capital structure, maybe if you could just elaborate there?

Daniel Hamburger

Yes, sure. Feel free to jump in here, Rick, as well. Our appetite for M&A continues in accordance with our strategic plan. We have I think been extremely over the last couple of years here about our strategy and where acquisitions fit into that. So it is not so much at DeVry University, but it is very much as part of this growth and diversification strategy across new vertical curriculum areas, and so as we move into health and medical, we have used acquisitions as platforms to execute that strategy, and then typically organic growth thereafter although some – keeping an open eye to opportunities to accelerate our growth by buying versus building, and also diversifying across the levels, the horizontal levels of education.

So when we want to move it to pre baccalaureate level in a bigger way, we were previously 90% bachelor's masters and doctoral level degrees and then we acquired U.S. Education and Advanced Academics giving us that and then geographic expansion, so Fanor being an obvious example in Brazil. So we continue to look at international markets, particularly Latin America, and longer term, I think Asia will fit into the picture. And these are opportunities where we have the right combination of quality programs, strong management teams, and it is got to be at the right price. And frankly that is one of the opportunities that we have seen present itself in the last few quarters and prices have come down a little bit. So that is on how we're thinking about M&A.

Kevin Doherty – Banc of America

Okay. And then just your comment on the capital structure, should we read anything into that in terms of size of deals…

Rick Gunst

No. It is just the fact that I think in times like this we are – certainly in the marketplace having a conservative capital structure and good liquidity I think is important. So think about it, we have done a couple of acquisitions over the past eight months, over $300 million – $330 million in fact, probably still have $350 million of cash and marketable securities on the balance sheet, and we've been able to pay down our debt. So we were able to do some of these deals and still the same time keep the liquidity, keep what I think is still a pretty conservative capital structure in place.

Kevin Doherty – Banc of America

And could you just touch real quickly on pricing, maybe at DeVry, and with some of the newer schools like U.S. Ed?

Daniel Hamburger

Sure. Price increases at DeVry University at the undergraduate level will get net out to about 5 1/2%, be a little higher than that on a headline basis, but we're lowering fees, I mean netted out effectively will be about 5 1/2. At the graduate level it would be about 4½, just to give you a feel.

Kevin Doherty – Banc of America

Okay. Thanks guys.

Daniel Hamburger

Sure, thank you.

Operator

Your next question will be from the line of Suzanne Stein with Morgan Stanley. Go ahead.

Suzanne Stein – Morgan Stanley

Hi. One of the issues that got a lot of attention last quarter was course load for student. I was just wondering if you could give us an update on that.

Daniel Hamburger

Yes. It continues to be something that we're working on managing. What we have seen – anyone who didn't refer – what you're referring to the last time, for example, students who might have taken four courses in a semester, maybe is enrolling in three courses. And when you add that up across the base, it adds up to a little bit lower revenue per student. So what that means when you're doing your models and everything, is if you've got an X percent tuition increase plus a Y% enrolment increase, it takes a little bit away from X plus Y. Not a huge factor, or an issue with a capital I but a small I, but it is something that we're watching and working to continue to manage. What are we doing about it, we are adding more resources to schools, campuses, as well as online to counsel students on the benefits of taking a full course load in order to graduate sooner. So we're comfortable we will be able to manage that, but is kind of where we are with that particular…

Suzanne Stein – Morgan Stanley

But if you look at it relative to last quarter, would you characterize it as stable, or has it gotten worse, I mean I guess can you just compare it to where you were last quarter?

Daniel Hamburger

As far as we have, and we are still analyzing, sorting out the data from this semester, but it looks about stable.

Suzanne Stein – Morgan Stanley

Okay. And then can you just comment on your view of the regulatory environment? I mean that is gotten a lot of press recently and just wondering what your take is on that.

Daniel Hamburger

Yes. My take is it is overblown, but it is not overblown so much as well. I mean we – this administration is incredibly supportive of education and we at d DeVry in particular are quite excited to work with many friends from Chicago (inaudible) Chicago going to Washington DC. So many folks at DeVry know Bob Shireman well going way back to his days working with the late great Senator Paul Simon of Illinois. He's a huge friend of education, supporter of education, and many of our people know him very well and have an ongoing dialog with them.

I had the opportunity to meet with him; he headed up the transition team for Arnie Duncan. So and what I observed was a whole lot of listening going on, so we are excited to work with Bob Shireman, we're excited to work with Arnie Duncan who is the CEO of the Chicago Public Schools and pioneered with DeVry University and Mayor Daley as well the DeVry University Advantage Academy, a wonderful public-private partnership, way ahead of its time, because everyone now is talking about public-private partnerships to increase access to higher education. We have been doing it for six years with 89% high school graduation rates compared to 56% for the city as a whole.

And by the way most of the students are graduating with associate degrees at no additional cost to the family. So we started that up in Columbus, Ohio, and we look forward to working the administration and the department on promulgating that concept further across the country. And these are things that are doing well by doing good. I mean it is certainly good for DeVry; it is more importantly doing good things for the society. So I – we don't get it, I think there's just a lot of, maybe there's a lot of people who are not familiar sort of come just new to this world which is a regulated world of education. But the people that that we have be talk to who have observed this area for a long period of time have seen – tended to see these things as opportunities frankly.

Suzanne Stein – Morgan Stanley

Okay great. Thank you.

Daniel Hamburger

Thank you.

Operator

Your next question will be from the line of Paul – I apologize if I mess this up – Ginocchio with Deutsche Bank.

Paul Ginocchio – Deutsche Bank

Thanks. Can you just talk about the U.S. Education margins versus the medical division as a whole and what your outlook is for the near and long term?

Rick Gunst

Sure Paul, and likewise welcome to the sector.

Paul Ginocchio – Deutsche Bank

It is quite a welcome I got.

Rick Gunst

Yes. When we purchased U.S. Education about eight months ago, we noted that it is coming in with margins that are lower than our existing businesses, that make up the medical and healthcare segment. And I think last year the pro formas we showed it had about 40% operating income margin but with the opportunity to see some growth in that margin going forward though leverage of their existing facilities, enrollment growth as we are seeing it today, as well as co-location, online development et cetera. So we think just on a standalone basis it can improve and be part of the DeVry now with further opportunity.

Paul Ginocchio – Deutsche Bank

And have you seen – you've already probably seen some of that, correct?

Rick Gunst

Definitely.

Paul Ginocchio – Deutsche Bank

If I could just sneak another one in about persistence at DeVry undergraduates like it is doing very well, is that the economy or something company specific? Thanks.

Daniel Hamburger

It is – there is a little bit of a lift that we are getting from the economy. It is kind of like the main point, hey, we are not as counter cyclical as you think. That is a little bit of a lift there, but it is far superseded by the internal efforts of our team to do a better job of packaging students properly up front, to help with the student finance issues, which are one of the root causes of drop outs, and academic advising. We have had resources, we have changed some aspects of the curriculum, some of the early courses to improve retention, just a whole hold multipoint plan for improving retention. We're seeing some good results of that and there is still more opportunity in front of us.

Paul Ginocchio – Deutsche Bank

Thank you.

Daniel Hamburger

Sure. Thank you, Paul. Just a blip, just remember, just a blip in a long-term career that you're going to have.

Rick Gunst

It is an opportunity.

Operator

And your next question will be from the line of Jeff Silber with BMO Capital Markets. Go ahead.

Jeff Silber – BMO Capital Markets

Thanks so much (inaudible) just a quick question on more to maybe just to help us model, are you going to be detailing that separately, is that going be in the DeVry University segment? And can you also give us a base to work from roughly in terms of trailing 12 months revenues and margins and growth, that would be great?

Daniel Hamburger

You kind of cut out at the beginning of that, what was it that you're wondering if we are…

Jeff Silber – BMO Capital Markets

I'm sorry. On the Fanor acquisition, how you going to be segmenting that out, or is that going to be buried in the DeVry University business?

Rick Gunst

Sure. As you know, we acquired Fanor on April 1, so it is not anywhere in the third quarter results. And as we issue our year-end financials and our fourth quarter results, our anticipation is we are going to make a separate fourth segment for international and other as we go forward and any other juxtapositions will be restated at that time. And as far as the size of the business, as we said, when we acquired it, it's revenues are less than $25 million, right around that area and pretty healthy margins.

Jeff Silber – BMO Capital Markets

When you say healthy compared to your core business, good, the same, worse?

Rick Gunst

I would say compared to our core business, you mean, with DeVry University, maybe a little bit better.

Jeff Silber – BMO Capital Markets

Okay. And then I'm sorry, you mentioned the fourth segment being international, is Ross not going part of that fourth segment, or is that…

Rick Gunst

No, I'm sorry. Ross will be part of the medical and healthcare segment is our thinking right now. And then we'll be an international/other to capture Fanor, maybe a few other movements.

Jeff Silber – BMO Capital Markets

Okay, fantastic. Thanks so much.

Daniel Hamburger

Yes. I think we are trying to be responsive and I think we will just be able to provide more information on that question for sure on the next call. Are there more – I know we are up at the boundary hour here, so a couple more questions there Jeremy?

Operator

There are a few more if you would like. We can – the next question will be some Gary Bisbee with Barclays Capital. Go ahead.

Gary Bisbee – Barclays Capital

Hi guys. A little bit of more questions about Brazil, what's the strategy here? Obviously, the size of the deal is not material, are you content to operate this for a while, get to know the market, get to know competitors, and then maybe look to expand later, or would you consider other deals to sort of build this up, so that it becomes material over the next 12 to 18 months?

Daniel Hamburger

Yes. Gary, the strategy is to grow it, and I would expect it would come material over time, and our strategy is to make a contribution to the huge need, the huge unmet need for education in Brazil. And I think that will come through a combination of geographic expansion, also programmatic, as well as adding online as I mentioned before. In the geographic, adding new campuses, there it could be a combination of both organically, adding new campuses as well as keeping our eyes open to acquisitions, follow-on acquisitions there in Brazil.

We are quite mindful of the opportunities there and have a good team that's – and a team that we just brought on board is outstanding and very knowledgeable about the other opportunities down there. So that is sort of a nutshell version of what we think the strategy is.

Gary Bisbee – Barclays Capital

Okay. And then given the cash balance where it is and what would likely be continued strong cash flow, how do you think about buybacks in the context of the recent weakness in the stock price? Would you be willing to make a bigger move than you made to date there, particularly… right, your answer?

Rick Gunst

Yes. It has been an interesting period of time. If you look at our performance and our results, you would expect that our buyback program would have been much more effective than it has been over the past few months, but the market has been very volatile, as you well know. But we still feel very bullish about our future and intend to continue to buy back. We've got a program, a structured program in place where as the stock goes down, we are actually more aggressive in the marketplace, as the stock moves up, we will continue to buy, but not maybe at the same level. So we continue to valuate that, and open windows, and we will do so as we go forward.

Gary Bisbee – Barclays Capital

And if I could sneak just one more, can you give us a ballpark figure on CapEx for fiscal 2010? I assume with the new student information system project, probably it is up quite a bit, is that a reasonable way to think about it? Thanks a lot.

Rick Gunst

Yes. It is up-ish. Last year we spent around $50 million, this year we are going to be, as I said, in the $17 million range, give or take. We are actually going through that process as we are doing our operating planning right now, but you hit on it. We have got Project Delta, that is going to be a sizable investment next year. We have got more expansion and facilities planned. Bahamas investment, we have got this new office that Dan referred to that will have some capital associated with it. So it will likely add up more than the $17 million range this year, but I don't know if it is going to be that much materially more, but we will be able to shed a little bit more specific light on that with better information next call.

Operator

And we will take next question from the line of Scott Schneeberger with Oppenheimer.

Scott Schneeberger – Oppenheimer

Thanks very much. Dan, you mentioned at the beginning of the call strength of DeVry is that you have very successful recruiting out of high school. Could you provide quantification or any type of color on the success you've seen there?

Daniel Hamburger

Sure. And of course we can't give the numbers for what is going to happen in the summer but we are seeing improved performance in our high school recruiting efforts and increased opportunities to do that. I wasn't just referring to DeVry University, I always have to remember – I know you know this, but I have to remind everybody that DeVry is more than DeVry University. We have high school efforts going on at Chamberlain College of Nursing, which I think I mentioned, also at U.S. Education schools, Western Career College and Apollo College.

So when you put that together, plus our efforts in the high schools, at Advanced Academics, with more than 200 schools districts around the country, when you put all that together, we have got a strategic platform to post a high school which is frankly I don't – I'm not happy that we are even scratching the surface of the opportunities there. But I would say just steady progress, not anything that is lighting people on fire, but that is kind of the nature, that is what we like about high school. It is good, steady, it is not going to cycle or be counter cyclical like the working adult population, it can be a little bit more.

Scott Schneeberger – Oppenheimer

Okay. Thanks very much.

Daniel Hamburger

Thanks Scott.

Operator

Your next question will be from the line of Brandon Dobell with William Blair. Go ahead.

Brandon Dobell – William Blair

Thanks for squeezing me in at the end here. As a follow-on to the previous question, any sense within DeVry University of the mix of let us call it high school or high school age student versus working adults, and is there any change you're seeing in that with the kind of the change in mix in business, are you changing the mix of programs based on what you're seeing from a demand perspective?

Daniel Hamburger

Okay. Brandon, the high school is about a third and working adults about two thirds. And in terms of the change in that mix, little bit of more towards the working adult with the advent of online, but still a nice healthy base of high school enrollments within the mix and continued investment there to keep it going. And then in terms of the programmatic mix, we are actually nice growth in technology programs, as well as in business. That wasn't the case you know just maybe six, seven, eight, nine quarters ago, where it was really being driven more by the business.

The technology and engineering programs are kicking in and I am including within that computer science, computer information systems. I highlighted those in the call earlier, electronics, engineering programs as well. And then there is also the health and medical oriented programs like health information technology and biomedical informatics. These are programs that are very likely to see strong growth, especially given the administration's emphasis on health information and also with the huge coming wave of genomics, that is going to be driving the delivery of healthcare over the next five or ten years, we are all going to be – we are going to have our DNA mapped out and that is going to drive personalized healthcare and increasing quality and lowering the cost of healthcare. The biggest single issue with that is the informatics, it is how to deal with the 3 billion coded pairs of DNA that you have and how do you deal with the informatics. So we think that those programs are going to be long-term growth opportunities for our students.

Brandon Dobell – William Blair

Okay. And then I want to go back to, I think it was Trace's question about kind of the pace or – the pace of enrollment growth. I guess from my perspective, enrollments are a function of demand or lead flow combined with enrollment counts or recruiter productivity and then kind of scheduling issues. In the last couple of quarters, I would imagine you saw good demand and good productivity. With this term enrolling, I don't know, somewhere in the neighborhood of 500 or 800 less students than the previous two quarters, when I would think the domain and the productivity or your yield would be pretty much the same, kind of just trying to figure out how to reconcile those two different perspectives? I would think that this term should have seen the same gross numbers of students regardless of that percentage, the gross number of students?

Daniel Hamburger

What you see there Brandon and actually I would refer everyone to chart two which it sounds that you're looking at in the press release, and what you can see there is the seasonality. And that if we extended that to the left, to the dawn of time, you would see that same sort of summer, fall, spring pattern at DeVry University undergraduate. So that is really just a seasonal affect because we enrolled more high schools, way more high school students in the summer and fall periods as defined here than we do in the spring.

Brandon Dobell – William Blair

Okay. All right, thanks a lot.

Daniel Hamburger

No drop in recruiter productivity, let me be very clear about that.

Brandon Dobell – William Blair

Okay, that is helpful. Thank you.

Operator

And your next question is from the line of Mark Marostica with Piper Jaffray. Go ahead.

Mark Zgutowicz – Piper Jaffray

Thank you. Actually it is Mark Zgutowicz for Marostica. Just maybe if I could take on to Brandon's last question there, can you just comment in general on the quality of lead flow you are seeing from the perspective of the credit profile of those leads and if this has had any just general impact on your intake of students? I guess where I'm going with this, is there is a slightly more conscious effort to be more deliberate in your uptake?

Daniel Hamburger

Yes. What I would say is in terms of inquiries from prospective students, the quality of the inquiry flow is good and I would say up. And that is across both the overall segments of working adult and high school students. And there is not a specific credit quality that I'm talking about, just overall quality in terms of more interested or I would say fewer inquiries that are really not that interested and that's been helpful. Our marketing team has done a very nice job there, still seeing many opportunities to improve that further, and that is helpful in the overall productivity of the process. And then in terms of the credit quality again, with us given that private loans and institutional loans are such a small piece of the pie, there's really no material change there that I could cite.

Mark Zgutowicz – Piper Jaffray

Okay great. Thank you.

Daniel Hamburger

Okay, thanks.

Joan Bates

Let us go with one last question.

Operator

All right. And the last question will be from the line of Jeff Marsh [ph] with Marsh Capital.

Jeff Marsh – Marsh Capital

Hello everyone. Congratulations on the quarter. You people have been very good to me. I just want to – just a couple of questions, did I hear right that ex-USEC that the operating income in the medical division was up 27% year-over-year, is that right?

Rick Gunst

Yes. That is what I said.

Jeff Marsh – Marsh Capital

Okay. I guess what that implies is the operating margins for Ross/Chamberlain were fairly comparable with last year. I just wanted to get you guys thoughts on how we should be thinking about the profitability of Ross and Chamberlain going forward. I know you have been making an increased level of investments, particularly at Ross, but at the same time, you're continuing to demonstrate very good enrollment growth. So how should we be thinking about the profitability of Ross and Chamberlain going forward?

Rick Gunst

Yes. Jeff, I think your comment is right on as far as Ross, and then when you look at Chamberlain into that flow, you know, we're now giving the enrollment data and sharing them on a more frequent basis. You can see the strong numbers there. And as we get the benefit of getting in two years, two, three, on some of these new expansions sites, those goes from actually a loss to a nice profitability, so that the benefit of online and the Chamberlain business has done some pretty good margins. So bringing that into the mix with Ross helps offset any startup costs that Ross has in the Bahamas. And then the third piece is U.S. Ed coming in, that is coming in with lower margins there, but growing.

Jeff Marsh – Marsh Capital

And those investments in Ross in building the capacity there, those started – was it about three quarters ago now, so we should be anniversarying those shortly, is that right?

Rick Gunst

Well yes. Except that we started with a temporary location and we're going to be making capital investments in the next several quarters to get the permanent site ready, probably sometime at the end of 2010 or early 2011.

Jeff Marsh – Marsh Capital

Okay. And did I also hear that in terms of receivables that USEC added about 31 million, if that's accurate that would imply that receivables were up about 22% year-over-year which is consistent with the growth in revenue, if that is accurate, I would certainly love to get a sense as to how you guys are doing such a good job in managing receivables levels and bad debt expense, if there is any specific guidance there influencing that?

Rick Gunst

Well it has been really the focus for the past several years, a concerted effort. I know I've been here three years almost now and it has been a big focus working with the campuses, working with the centers within DeVry University, and really communicating with the students and staying abreast with what is going on and making sure that we are not letting these things age. And that is paying dividends today because we have seen the improvements and are managing our cost receivable per account pretty consistent with prior year even with price increases, even with enrolment increases and like. So we're pretty proud of that.

Jeff Marsh – Marsh Capital

Yes absolutely. You should be.

Rick Gunst

That as a result is to stay pretty consistent in the 2 1/2 to 3% range that we've seen historically.

Jeff Marsh – Marsh Capital

And your private loan exposure really hasn't changed much; it is still less than what 5%…

Rick Gunst

Yeah, it is going down a bit because of the increases in the Stafford and the Pell grants.

Jeff Marsh – Marsh Capital

Okay. I guess the last point really isn't a question. It is more of a comment. I would certainly as a shareholder love to see you guys take advantage of this craziness in the marketplace and take advantage of the share price. I have been following education for quite some time as you guys well know and I can't recall a time when the valuation has been at this level. So certainly would endorse you guys using some of this exceptional growth in free cash flow and allocating that towards higher levels of share repurchase. I think you have a great opportunity here.

Rick Gunst

Yes. It's pretty remarkable. When you think back to our last call, when we're going through our results which were very good in the second quarter, I think our stock was in the high 50s, close to 60, maybe even broke through 60, and here we are, a quarter later, given earnings going up 32% and our stock is down in the 40s somewhere. So…

Daniel Hamburger

(inaudible) I think again people who have followed for a long period of time can look at these – look at those charts and see each one of those as a bit of a blip and a bit of an opportunity, but just thank you for that comment, and as always we are listening and we are seeking input and feedback and comments.

Jeff Marsh – Marsh Capital

Absolutely. Good job guys. Good luck doing forward.

Rick Gunst

Thanks a lot.

Daniel Hamburger

Thank you. And I guess it is to me to say thanks to everyone for your questions and just let you know that DeVry's next conference call will be August 13. We will announce fourth quarter results and also enrollment at DeVry University, Ross University, Chamberlain and U.S. Education. Thanks again. Talk to you in August. Bye, everybody.

Operator

Thank you for your participation in today's conference, ladies and gentlemen. This does conclude the presentation and you may now disconnect. Have yourselves a wonderful evening.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: DeVry Inc. F3Q09 (Qtr End 03/31/09) Earnings Call Transcript
This Transcript
All Transcripts