Apollo Group, Inc. F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

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Apollo Group, Inc. (APOL)

F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

June 30, 2010 5:00 pm ET

Executives

Allyson Pooley – VP, IR

Greg Cappelli – Co-CEO

Brian Swartz – SVP and CFO

Chas Edelstein – Co-CEO

Joe D'Amico – President and COO

Analysts

Andrew Steinerman – JPMorgan

Gary Bisbee – Barclays Capital

Sara Gubins – Banc of America/Merrill Lynch

Scott Schneeberger – Oppenheimer

Bob Wetenhall – Royal Bank of Canada

Corey Greendale – First Analysis

Kelly Flynn – Credit Suisse

Brandon Dobell – William Blair

Gordon Masek [ph] – Robert W. Baird

Trace Urdan – Signal Hill

Jeff Silber – BMO Capital Markets

Suzi Stein – Morgan Stanley

Jerry Herman – Stifel Nicolaus

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Apollo Group Incorporated fiscal 2010 third quarter 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. (Operator instructions)

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 July 14, 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 website.

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

Good afternoon, everyone and thank you for joining us to discuss our third quarter results. Participating with me on the call today are Chas Edelstein, Co-Chief Executive Officer, Greg Cappelli, Co-Chief Executive Officer of Chairman of Apollo Global and Brian Swartz, our Senior Vice President and Chief Financial Officer. Joe D’Amico, 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 third quarter of fiscal 2010, which ended May 31, 2010 to the third quarter of fiscal 2009.

I’d also like to remind you that this conference call may contain forward-looking statements with respect to 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 in Item 1A and elsewhere in the company’s most recent 10-K and subsequent 10-Q reports filed with the SEC available on our website 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 for the most directly comparable GAAP measures. A reconciliation of the GAAP to non-GAAP measures is included in our press release, which is also available on our website.

On today’s call, Greg will provide you with an overview of the business and review our long-term strategy and update you on some of the initiatives that we are pursuing to meet these objectives. Brian will then review our financial results and provide you with our outlook for the fourth quarter and 2011 and Chas will conclude by highlighting some recent developments, including events in Washington.

I’ll now turn the call over to Greg.

Greg Cappelli

Thank you, Allyson. Good afternoon, everyone. Hopefully, you’ve all had a chance to review our press release and our operating results for the quarter and in just a moment Brian’s going to review our financials in more detail.

We’re pleased to have made some good progress this quarter on our long-term strategic initiatives, which are designed to enhance the student experience, expand student protections and ensure we enroll students who we believe can succeed in our programs. In addition, this quarter’s results reflect continued success with our efforts to shift the mix of our enrollments for the bachelor level students and above.

Based on some important results we’ve seen from our University Orientation pilot, we’ve decided to roll-out the program more broadly this fall. We’re confident that this is the right thing to do for our students and although it will adversely impact our financial results in fiscal 2011, we believe thereafter it will allow us to deliver sustainable high quality results over the long-term.

Now, before I go any further, I’d like to just take a moment to share with you some perspectives on the challenges our country faces in education and our role is part of the solution.

We believe that education in this country is really at a crossroads. As we previously stated, we’ve experienced an increasing number of students at University of Phoenix who are anxious to enroll in one of our degree granting programs. Their intentions are good, but in a relatively short period of time, we’ve also seen an increase in the number of these students that we think are under prepared for the rigors of our programs. So why is that?

First, we think it starts with our K-12 system, where recent data shows that we now spend more per student than any other major country in the area of K-12 education, yet our results in many key areas as a country are seriously lagging. Studies show that 12th grade science scores are lower today than 15 years ago.

Two-thirds of 12th graders can’t read at the 12th grade level and 77% aren’t even professional in 12th grade math. High school drop-out rates in major cities like Los Angeles and New York have reached 55%. As a result, according to the World Economic Forum’s Global Competitiveness Report, we’ve lost our number one competitive ranking in the world. And this is at a time when our citizens have to compete globally for their jobs.

50 years ago when America was a manufacturing powerhouse, we weren’t competing globally for our jobs and post secondary education was small, it was selective and it was elite, because the majority of jobs didn’t require it. But now the Bureau of Labor Statistics suggest that over the next 10 years the fastest growing jobs would be those requiring a higher education.

According to a study done by the Lumina Foundation, the U.S. will need to add a million graduates per year over the next 16 years to stay competitive as a nation. These facts help us understand the current state of the higher education market and why so many more Americans are seeking a college degree.

There is a reason why President Obama has set three very important education goals for our nation: First, to have every American receive at least one full year of a college education; second, to have the highest graduation rate among developed countries by 2020; and third to encourage lifelong learning.

Again, according to the Bureau of Labor Statistics, the United States labor force includes about 132 million people over the age of 25. Of those, more than 80 million don’t have a bachelor’s degree and 50 million have never tried. So with eight million jobs gone due to the recent recession and some of those never coming back, of course, Americans are looking for better opportunities to better themselves with a higher education.

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