Full Transcript of the Apollo Group's 3Q05 Conference Call -- Prepared Remarks (APOL)

Here’s the entire text of the prepared remarks from the Apollo Group's (ticker: APOL) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Apollo Group Incorporated - Q4 Fiscal 2005 Year End Earnings Conference Call

Good morning ladies and gentleman and welcome to the Apollo Group Incorporated Fourth Quarter and Fiscal 2005 Year End Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. Please refrain from entering into the queue until those instructions are given. If anyone should require assistance during the call please press “*“ 0 on your touchtone telephone. And as a remainder ladies and gentleman this conference is being recorded today October 12, 2005 and may not be reproduced in whole or in part without permission from the company. There will be a replay of this call available till October 21st 2005, approximately two hours after we conclude today. The replay is 800-642-1687 or 706-645-9291 internationally. The conference ID for the replay is 1132957. Additionally, this call will be broadcast over the internet and can be accessed via the company’s website at www.apollogrp.edu. I would also like to remind you that this conference call contains certain forward looking statements with respect to the future performance of Apollo Group that involve risks and uncertainties. Various factors could cause the actual results to the company to be materially different from any future results expressed or implied on such forward looking statements. These factors are discussed in the company’s 10 K report filed with the Securities and Exchange Commission. I would now like to turn the call over to Mr Todd Nelson, Chairman and CEO of Apollo Group.

Todd Nelson, Chairman and CEO

Thank You. We appreciate you joining us this morning. I have just a couple of brief comments and then we are going to turn sometime over to Kenda Gonzales who will give you a little more detail. As mentioned in the press release we are pleased to announce that the quarter is $0.65 versus our revised guidance of $0.64. Also, $2.46 for the year as compared to the original guidance back a year ago $2.40. We are also pleased to mention that our board authorized an additional $300 million for stock buyback, which I believe takes the total now Kenda to…

Kenda: Over $1.8 billion.

Todd Nelson: So we are again very pleased with that, and with that I am going to turn sometime over to Kenda.

Kenda Gonzales

Thanks Todd. We have had a few questions this morning as to why we did not include the business outlook in our release. We issued the outlook for the first quarter of fiscal 2006 and all of fiscal 2006 on September 19th. Our guidance is based on detailed budget prepared at the campus and department level for the company and those budgets have not changed in the last three weeks.

At this time I would like to reiterate that we expect revenue for the quarter ending November 30th 2005 to be between $635 million and $640 million and to be between $2.685 billion and $2.705 billion for fiscal 2006. Excluding the estimated impact of stock option expensing, diluted earnings per share are expected to be $0.72 for the quarter ending November 30th 2005 and to be $3.2 for fiscal 2006. Including the estimated impact of stock option expensing diluted earnings per share are expected to be $0.70 for the quarter ending November 30th 2005 and to be $2.92 for fiscal 2006.

Revenue related to students enrolled in degree programs increased 20.3% for the fourth quarter of fiscal 2005 to $550.7 million compared to $457.9 million for the fourth quarter of fiscal 2004. Discounts for the quarter were $29.4 million or 4.7% of gross revenue. During the fourth fiscal quarter we were able to leverage instructional cost and services as a result of the Department of Education Settlement reported in the first quarter of fiscal 2004, partially offset by an increase in our provision for uncollectable account and an increase in faculty pay. Selling and promotional costs decreased as a percentage of revenue in the quarter ending August 31st 2005, primarily as a result of a decrease in advertising.

University of Phoenix currently has 63 local campus locations of which 33 are less than five years old, 20 of these local campus locations are two years old or less with 15 of these locations not yet at breakeven for fiscal 2005. During the fourth fiscal quarter of 2005 general and administrative expenses decreased as a percentage of revenue due primarily to decreased employee compensation and related expenses. Our operating margin excluding non-cash expenses associated with the conversion in August 2004 of the tracking stock and the Department of Education Settlement increased to 31.9% for the fourth quarter of fiscal 2005 compared to 31.2% for the fourth quarter of fiscal 2004.

Net income for the fourth quarter of fiscal 2005 excluding the items previously mentioned increased 18.4% to $118.2 million compared to $99.8 million for the fourth quarter of fiscal 2004. Turning to the balance sheet, cash and marketable securities were $693 million at August 31st 2005. Net receivables were $201.6 million, which equates to 33 day sales outstanding. At August 31st 2005 we had reserved 21.8 million against our receivable balance and during the fourth quarter of fiscal 2005 we wrote off $11.4 million of Ju9%ne receivable.

Although we consistently provide the detail of the student deposits and current portion of third revenue in the notes to our public filings, it appears there is some confusion regarding this balance sheet item. As indicated in the description this item is made up of student deposits 64% of the total and differed revenue 34% of the total with differed application fees making up the balance. The current portion of differed revenue increased 29.3% to $132 million. Student deposits increased 17.9% to $249.7 million.

The deceleration in the increase in student deposits is the result of more students managing their own financial aid. Depreciation and amortization expenses were $15.9 million for the fourth quarter of fiscal 2005 compared to $12.2 million for the fourth quarter of fiscal 2004. Capital expenditures for the three months ended August 31st 2005 were $23 million compared to $21.6 million during the quarter ended August 31st 2004. Cash flow from operations for the fourth quarter of fiscal 2005 was a $123.1 million compared to $125.9 million for the fourth quarter of fiscal 2004.

During the fourth quarter we determined that the most appropriate presentation of restricted cash to avoid some of the confusion with re-classes etc., is in the investing activity section of the statement of cash flow. During the fourth quarter of fiscal 2005 we purchased 1,483,000 shares of stock. At the end of the quarter including the $300 million additional authorization that Todd mentioned earlier, we have $351 million remaining of the amount authorized by our Board of Directors for stock buybacks.

Todd:

Great. Thanks Kenda. So again I was asked the question this morning about are we still feeling good about our guidance for the first quarter ‘06 and the year, and thank you Kenda for reconfirming that. Just one another point I would like to make, as we begin this new year we are also encouraged by lead flow and conversion rates going into the quarter so again we are very optimistic of this upcoming year. So, with that I would be happy to open it up for questions.

On to Q&A.

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