Apollo Group CEO Comments on the Online Education Model

| About: Apollo Education (APOL)

Brian Mueller, President of Apollo Group, noted in the company's fiscal fourth quarter earnings call that the company "failed to meet our own expectations with regard to student and revenue growth." A large part of this is due to declining online campus numbers: "online campus re-entered over 10,000 less students in the second-half of the year than they did in the previous year. That had a major impact on the fourth quarter." In the course of the call, Mr. Mueller commented on online versus offline origin of students:

Greg Cappelli - Credit Suisse

I guess on the online versus off-line front, first question is, what percentage of your new students now are coming online versus off-line? Brian, you talked several quarters ago about how you were not going to be directing students as much to one area or the other, you were going to let that flow happen more naturally. I am wondering where that is coming out right now.

Brian Mueller

It is north of 60% that are going online, and probably inching closer to 65% as we go through this third quarter, and that is a good thing. It is also something that does not come without adjustments that have to be made in how we operate our business. Those students can be very profitable but there is a lot of flexibility in terms of coming in and out of class, and so you have to be really good in terms of managing them managing their goals and keeping them in class and keeping them on track. That will be a major priority for us.

Greg Cappelli - Credit Suisse

On that note, can you just talk a little bit historically, generally, how much higher attrition has been for online students versus off-line?

Brian Mueller

Yes, and there are two ways to talk about attrition. The first way is how many students actually persist all the way through graduation? From an online standpoint, traditionally that has been a little bit lower than ground, but we are talking two or three, maybe four percentage points.

The biggest difference is that students who are in an online model, because they can start any class any time, any class any week, if they decide they need a break or to sit out for any reason on ground, they might not be able to come back and rejoin their group for a period of five or six weeks, whereas an online student can come back the very next week or two or three weeks later. There is a lot of flexibility there.

If you were dealing with an online student body, for example, of -- just pick a number, 150,000 students. You do not have 150,000 students. You really have closer to 290,000 students, of which 150,000 of them are in class and 140,000 of them are temporarily not in class.

Your ability to keep them, to get them scheduled to come back and to stay in touch with them, maintain contact and make sure they come back when they have agreed to, is an important part of the overall success rate in any given quarter. The numbers are so big now that if you miss or lose focus on that at all for a period of a couple months, it has a dramatic impact upon your student enrollment and your financials, to the point where you could swing 10,000 or 11,000 or 12,000 students in a short period of time.

The fact that more people are choosing online has really positive ramifications. We just need to understand what the potential pitfalls are and make sure that we are organized to manage against that very well.

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