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DeVry (DV)

Q3 2011 Earnings Call

April 26, 2011 4:30 pm ET


Patrick Unzicker - Vice President and Controller

Daniel Hamburger - Chief Executive Officer, President and Director

Joan Bates - Director, Investor Relations

Richard Gunst - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer


Michael Tarkan - FBR Capital Markets & Co.

Paul Ginocchio - Deutsche Bank AG

Maria Karahalis - Goldman Sachs Group Inc.

Jerry Herman - Stifel, Nicolaus & Co., Inc.

Kelly Flynn - Crédit Suisse AG

Sara Gubins - BofA Merrill Lynch

Peter Appert - Piper Jaffray Companies

Arvind Bhatia - Sterne Agee & Leach Inc.

Ella Ji

Paul Condra - BMO Capital Markets

Robert Wetenhall - RBC Capital Markets, LLC

Suzanne Stein - Morgan Stanley

James Samford - Citigroup Inc

Corey Greendale - First Analysis Securities Corporation

Trace Urdan - Signal Hill Capital Group LLC

Gary Bisbee - Barclays Capital

Unknown Analyst -


Patrick Unzicker

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Thanks, Rick, and good afternoon, everyone. Cash flow from operations for the first 9 months was $485 million versus $481 million last year. Cash flow was up only slightly versus prior year due to the timing of receivable receipts in the month of March.

The strong cash generation drove our cash and marketable security balance to $599 million at the end of the quarter as compared to $502 million last year. We also remained debt-free during the quarter compared to having outstanding debt of $45 million last year.

Our net accounts receivable balance was $224 million versus $156 million last year. This increase was mainly timing related, resulting from a delay in March of the receipt of funds for DeVry University undergraduate students. DeVry University's cohort default rate of 10.2% was slightly above the Department of Education's 10% threshold, thus resulting in a couple of weeks delay. We expect accounts receivable balances to be back in line with year-ago levels at the end of the fiscal year.

Receivables were in line aside from this timing issue that hit us right at the end of the quarter. Our bad debt rate continue to reflect the focus on the receivable collection process, with bad debt expense for the first 9 months of the year actually down to 2.7% of revenue as compared to 3.1% last year, an indicator of our students paying back their accounts and the strong value proposition of our program.

Capital spending was $91 million for the first 9 months versus $102 million last year. We anticipate the rate of spending to continue to pick up this quarter and expect spending to be around $150 million this fiscal year, give or take, depending on the timing of activity between June of this fiscal year and July of next.

This high rate of spending is being driven by facility improvements to better serve our students across all of our schools, new locations planned at DeVry University and expansion within Ross University and Chamberlain College of Nursing so that we can educate more doctors and nurses in this great time of need.

Finally, during the quarter, we repurchased 571,000 shares of our common stock for $29 million or on average, $50.82 per share. We have completed about 2/3 of our fifth program, leaving just about $20 million remaining under this $50 million program.

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

Daniel Hamburger

Thanks, Pat. Let me start off by discussing how we're managing our resources in our Business, Technology and Management segment, which of course consists of DeVry University and it's Keller Graduate School of Management. We've been preparing for normalization of enrollment back to the long-term trend and we're improving processes and reducing cost in some areas while redeploying resources in others to continue to improve the value proposition to our students and to enhance academic quality.

One area of particular focus is investment in improving the freshman year experience. We're also putting in place mechanisms to better track academic outcomes. We recently implemented direct assessment measures that will help us to better gauge our student success early in their academic careers. From these programs, we hope to improve our student retention as we help them to achieve their academic goals.

We're also investing in faculty development and training. This week, we're holding our annual faculty symposium, where DeVry University's thought leaders will learn from one another through white paper presentations and topics such as student retention and blended learning models. I'm really looking forward to spending time with the group this week.

And a quick update on new location at DeVry University. Our campus in the Houston Metro opens in March and we plan to open 2 additional campuses in July, 1 in the Los Angeles and 1 in the Seattle Metro.

Moving on to our Medical and Healthcare segment, Ross continues to experience strong demand, given the overwhelming need for veterinarians and physicians in the United States. At Ross University School of Veterinary Medicine, for the last several years, we've been working on achieving an additional level of accreditation from the American Veterinary Medical Association, the AVMA. We're very proud to report that we received full seven-year accreditation from the AVMA. This prestigious accreditation is the gold standard in veterinary medicine and reflects the investments that we've made in academic quality and student services. At Ross University School of Medicine, we've had capacity constraints in Dominica, as Rick mentioned earlier, and we've been making investments to address that. We just opened a new academic center with a state-of-the-art simulation lab.

At Chamberlain College of Nursing, we're continuing to see strong demand across all our programs. We believe the success at Chamberlain is a direct result of the investments that we continue to make in both programs and new markets. We're in the process of launching a new informatics program certification, which will provide students with education in patient electronic record and other technology-related healthcare services.

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