Apollo Group Inc. (APOL)

F4Q2010 Earnings Call Transcript

October 13, 2010 5:00 pm ET

Executives

Allyson Pooley – VP, IR

Chas Edelstein – Co-CEO

Greg Cappelli – Co-CEO

Brian Swartz – SVP & CFO

Joe D’Amico – President and COO

Analysts

Paul Ginocchio – Deutsche Bank

Andrew Steinerman – JP Morgan

Sara Gubins – Banc of America-Merrill Lynch

Gary Bisbee – Barclays Capital

Bob Craig – Stifel Nicolaus

Trace Urdan – Signal Hill

Peter Appert – Piper Jaffray

Corey Greendale – First Analysis

Jim Stanford – Citigroup

Ariel Sokol – UBS

Brandon Dobell – William Blair

Jeff Silber – BMO Capital Markets

Amy Junker – Robert W. Baird

Arvind Bhatia – Sterne Agee

Kelly Flynn – Credit Suisse

Suzi Stein – Morgan Stanley

Scott Schneeberger – Oppenheimer

Bob Wetenhall – RBC

Presentation

Operator

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Good afternoon, ladies and gentlemen and welcome to the Apollo Group Incorporated fiscal 2010 fourth quarter and 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.

This conference call is being recorded today, June 30, 2010, and may not be reproduced in whole or in part without permission from the company. There will be a replay of this call available through October 22, beginning approximately two hours after we conclude today. Additionally, this call will be broadcast over the Internet and can be accessed via the company’s Web site.

I would now like to turn the call over to Allyson Pooley, Vice President, Investor Relations of Apollo Group. Ms. Pooley, go ahead, please.

Allyson Pooley

Thank you and good afternoon everyone. Thank you for joining us to discuss our fourth quarter and year-end results. Participating with me on the call are Chas Edelstein, our Co-Chief Executive Officer; Greg Cappelli, Co-Chief Executive Officer and Chairman of Apollo Global; and Brian Swartz, our Senior Vice President and Chief Financial Officer. Joe D’Amico, our President and Chief Operating Officer, is also here and will be available during the Q&A portion of the call.

Before we begin, I’d like to remind you that as we discuss our results, unless noted otherwise, we will be comparing the fourth quarter of fiscal 2010, which ended August 31, 2010 to the fourth quarter of fiscal 2009.

I’d also like to remind you that this conference call may contain forward-looking statements with respect to the future performance, financial conditions, regulatory compliance and other matters regarding the business of Apollo Group that involve risks and uncertainties.

Various factors could cause actual results of the company to be materially different from any future results expressed or implied by such forward-looking statements.

These factors are discussed under risk factors and elsewhere in the company’s most recent 10-K and subsequent 10-Q report filed with the SEC and available on our Web site at, www.apollogrp.edu. The company disclaims any obligation to update any forward-looking statements made during the call.

Additionally, during the call, we may refer to non-GAAP financial measures, which are intended to supplement, but not substitute the most directly comparable GAAP measures.

Our press release, which contains financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures, is available on our Web site.

With that, I will turn the call over to Chas.

Chas

Edelstein

Thank you, Allyson and good afternoon everyone. During fiscal 2010, we made some good progress on our long term strategic initiatives, which are designed to enhance the student experience, expand student protection and ensure we enroll students who have the greatest likelihood of succeeding in our programs.

In the coming fiscal year, we plan to continue to implement initiatives to meet these goals. Because of the significant number of changes we’re implementing we are entering a period of transition, and as a result we expect it will be challenging financially. Nevertheless, the initiatives we are undertaking are in the best interest of our student and we are committed to these efforts.

To be clear, we are not focusing on maximizing new student enrolments, rather the initiatives that we are focused on are directed at attracting prepared students and providing them with an outstanding experience. The intended outcome of successful implementation of these initiatives is a more experienced student mix with higher retention rates over time.

We intend to share insights with you on our progress in these areas as they become available. We believe that over time this will position us for more stable, higher quality results which benefit all of our stakeholders. We also believe it is these very principles that have provided the foundation for the success of our universities, our employees and our students for many years.

In order to accomplish this positioning, we’ve spent significant time evaluating our operations and procedures with a focus on improving the student experience. We take our responsibility as one of the leading universities in the country seriously, and we believe we’re in a position to be a leader in student-centric innovation and student protection.

Over the last year alone, we have conducted an evaluation of our enrolment practices and procedures which is resulting in changes in the roles of our admissions personnel, and comprehensive changes in their evaluation and compensation systems.

We’ve intensified our focus on compliance, including the hiring a year ago of a Chief Compliance Officer who is a recognized leader in the area of compliance. Under his leadership we’ve implemented a digital call monitoring system where we monitor nearly one and three substantive conversation with students. The results are used for advisor coaching and training, and in some cases, disciplinary actions.

We’ve developed and beginning November 1 will be implementing our free orientation program university-wide at University of Phoenix for those students entering with less than 24 transfer credits. We’ve increased our training of financial counselors and developed financial literacy tools, all aimed at helping students make more informed financial decisions.

Since our borrowing tool was implemented in 2009, we’ve seen the number of students who take out maximum amount of debt, declined from approximately 90% to 60% to 70% and we’ve continued refinement of our approach to marketing, which has resulted in a notable reduction in the use of third-party lead generators, which allow us to maintain better control over student messaging and to ensure accurate information is being provided to students.

We know, however, that we have room for continued improvement. If our advisors are providing less than accurate information, we take prompt action and we do not tolerate this kind of behavior.

Further, we have taken multiple steps to ensure our strict policies are well understood and implemented. We view the current environment of increased scrutiny in our industry as an opportunity to improve and expand our training and compliance.

Consequently, we’re doing a complete evaluation and revision of our training material. We’re committed to being a leader, not only in the education of our students but also in a role model for the industry from a compliance perspective.

Now, let me touch on the regulatory environment a bit. As many of you know, the next step in the negotiated rulemaking process is the expected publication in the next couple of weeks of final rules for all of the topics other than gainful employment provisions, but will include some reporting and disclosure rules related to gainful employment. We have evaluated the NPRMs and will further study the final rules when they’re published.

Regarding the metrics portion of the gainful employment provision, we continue to believe that in its current format, it’s not good public policy as we believe it limits student choices and could ultimately lead to the elimination of good programs in areas of significant societal need, such as criminal justice, nursing and teaching. These rules are not final and because we now expect the final rules to be delayed past November 1st, we’re not in a position to quantify any potential impact to our business at this time.

We continue to work with members of Congress and others to discuss the potential unintended consequences and are pleased the Department is taking additional time to consider unprecedented volume of comments they have received as well as the analysis of the rules that continue to be published.

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