Apollo Group Class A Earnings Call Insights: Expense Structure and Student Debt Sensitivity
Suzi Stein – Morgan Stanley: For the last few quarters, you’ve been increasing the estimated savings from the cost cutting efforts, and I’m just wondering, how much more is there to go? And is the incremental savings due to rightsizing, because you’re just coming in terms of the (sack) that you’ll have a much smaller base, or is there truly still just efficiency and sort of (flat) in the operations that can be cut. And I guess also on expenses, why is marketing expected to be flat? I guess I’m just surprised in an environment where you’re trying to drive enrollments higher where you wouldn’t be increasing the marketing spend?
Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: Suzi, this is Greg. Let me take the first part of that. I think the answer to your question is, we’re obviously a smaller organization that is focused on enrolling quality students that are going to retain for the right reasons. Yeah, that requires a different expense structure. And that ranges throughout the organization in terms of efficiencies. So, we are working very, very hard to put an operational excellence throughout the organization, both domestically and internationally, and we are – we did update the target, we do think that’s achievable, could there be more. I mean, we’re working and we’ll keep you updated certainly every quarter. But this is to create a nimble, faster-moving more competitive organization in a more competitive marketplace going forward. We’re making really good strides and having good success to this point. Brian, why don’t you take rest of the question?
Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: Yeah, I think the second part of question, Suzi, was related to marketing and the spend there. I mean, we this year, in light of the trends in the business, marketing is the one line item that we expect to remain basically flat with fiscal ’12. Now, we’ve shifted, as you know, and all our investors know, much of the spend in that area. It’s really moved out of – what I’ll call direct (legion) principally the affiliates and the Internet. And we’ve gone to a lot of off-line branding with our Let’s Get to Work campaign, that I know many people have seen in the various commercials for us. So, we have not cut back dramatically in aggregate on the ad spend, it’s really a mix issue, and it’s how can we be most effective in targeting and getting students on the phone that we want to enroll that can be successful with us and how effective we can be at doing that. So that’s what we’re focused on doing and that’s what we’ve attempted to do this year…
Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: Yeah, we’ll look at every one of those areas critically going forward to make sure that we’re getting a return and if we are not, we’ll adjust. In a sense, if I simplify the answer kind of, that I, the way I think about it, your question is we’re in the process of building out the runway a little longer, right. So, we’re becoming a more efficient organization which is helping our free cash flow. We are very focused and are working on a number of pilots and have identified some things that are showing promise that potentially can give us some serious improvement of retention going forward, which is important for so many different reasons. Those are the things that we can do so that we can have financial performance, lengthening the runway until we can get more air under the wings and the nose up in the air and return to growth. It’s sort of a simplified way to think about it.
Suzi Stein – Morgan Stanley: Will you guys be giving guidance for ’14 next quarter?
Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: Yeah, like most companies, in our fourth quarter, we go through a budget process for the following year. So, I don’t want to commit to anything, but that would be normal course where we’d talk about generally the financial, well, our expected financial performance for fiscal ’14.
Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: We will certainly do the best to help you understand where, what we see.
Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: Yes.
Student Debt Sensitivity
Corey Greendale – First Analysis: So, I understand a lot of disruptive things are going on in the industry. Where do you rank student debt sensitivity and price sensitivity there? Should be we looking at what’s going on, what were you doing at Western as maybe a test case to do something more meaningful at University of Phoenix as well on the pricing front?
Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: Look I think that we have put everything on the table that this group has come together, right, both domestically and internationally and said we’re putting everything on the table to better understand – to best understand what’s important to students and employers, right. And when you look at that entire package, yeah, affordability is part of it. We have an offering clearly aimed right at that, which we’re going to be gathering data and intelligence on. It’s a high quality offering. I’m excited about it. But we know that it’s going to take some time to grow. But yes, we’re looking at every aspect of the experience of higher education and the fact, as I said last quarter, that we’ve really only had one vehicle in the marketplace for many years, right, which is kind of like an SUV for all seasons, a full degree granting program that is used to solve the needs of people skills, despite what area they’re going into, and we’re broadening that portfolio of opportunities for students, so they can recognize value much earlier in their time or their experience with us and take that to the employer, so they can improve their own financial position and outcome, and so they can choose to go on and do more in terms of an education experience with us or others.
Corey Greendale – First Analysis: And you mentioned multiple times the focus on retention and I think everyone kind of agrees with your focus there. What’s actually happening with retention the way we can calculate it? It looks like it’s down a little bit, but I don’t know (indiscernible) for graduation to larger classes?
Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: The way you calculate I think is the persistent cap, which I assume is consistent with many people…
Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: It is down. The best way to look at that obviously is year-over-year. By quarter it is down slightly in Q3 relative to Q3 and the prior year. Part of that was impacted by graduation but also just the trends in the business. I mean it remained a top priority for us. And Greg talked about several of the things we’re focused on. I would expect, as we look forward into Q4, that it improves year-over-year. Part of that is some seasonal timing of graduations that impacted. So, I wouldn’t expect the Q4 persistence to improve modestly year-over-year.
Corey Greendale – First Analysis: So, just to be clear, actual persistence was down a little bit year-over-year in Q3?
Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: In Q3, it’s down a little bit year-over-year.
Corey Greendale – First Analysis: And scanning the queue in a couple of minutes that we had before the call started, there was a comment – this is a regulatory question – there was a comment about your expectation on when new regulations I think particularly again from (indiscernible) will go into effect and the (indiscernible) published by this fall, and effective July ’14. We’ve been hearing likely a year after that, just because of the timing of the negotiations. What are you hearing on that front?
Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: I’m not sure I understand. Are you talking about the reauthorization? Are you talking about HLC? Could you just clarify, I’m sorry?
Corey Greendale – First Analysis: I’m looking at the version on your website, Page 28 in the PDF version. It talking about the negotiated rule making, the new set of negotiated rule making hearings that the Department’s planning on doing, particularly pertaining to gainful employment, and in the Q it says that the rule making is expected to produce new regulations that are published by this fall and maybe effective as soon as July ’14 and we’ve been hearing that it was most like a year later than that since the negotiations aren’t going to be over until – before the end of October, so if you could just…?
Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: Well, yeah, there will be Neg/Reg this fall, it could be ready. That could mean that this process is supported by July, but honestly we don’t have a crystal ball there. So, we put our best, guest on thoughts, obviously there’s no guarantee there.
Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: Part of this is timing of when they finish the rulemaking too and actually publish it in the federal register to make them effective. So it’s just a matter of how quickly it happens.
A Closer Look: Apollo Group Earnings Cheat Sheet>>