Apollo Group Earnings Call Insights: EBIT and Revenue Guidance, Pricing Strategy

On Tuesday, Apollo Group Inc Class A (NASDAQ:APOL) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

EBIT and Revenue Guidance

Paul Ginocchio – Deutsche Bank: For the 17% decline in the number on quarter you just talked about that’s missing a day, right. So, on a normalized basis it’s like 12% on a same start date?

Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: No, Paul. Actually Q1 2013 will be consistent. In fact, all the quarters in fiscal 2013 will be consistent with ’12, so there won’t be any material days adjustment year-over-year.

Paul Ginocchio – Deutsche Bank: And then just looking at the guidance for revenue and EBIT even taking out the 150 million of cost saves. The remaining, sort of, cost saves look to be a pretty significant amount of the revenue decline, so it just seems like variable cost in fiscal ’13 or a lot higher even again excluding the cost saves versus say fiscal ’12 or fiscal ’11. Can you just talk to that?

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Brian L. Swartz – SVP and CFO, Apollo Group, Inc.: Yeah, absolutely. So, if you apply to the 13% of revenue you get numbers within the financial outlook that we provided north of $150 million in cost savings and so those are either normal business operating cost savings. I also want to point out that the guidance on the cost savings were a minimum of $300 million and more than half of that in fiscal ’13, so we’re not being any more specific than that, but that gives you directionally the amount of cost savings we expect to realize.

Paul Ginocchio – Deutsche Bank: I think just one more quick question, just couple of quarters ago, I had asked about seeing more zero credit, sort of bachelor students, is that trend continuing? Are you seeing more students going through bachelor program as a percentage of the new students coming in with low credits to zero credits?

Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: Paul, this is Greg. That varies from year-to-year and quarter-to-quarter. At times we have, in certain quarters, is there a trend overall, over the past several years? I’m not sure we can draw that conclusion, but certainly from time-to-time, and I am not sure exactly what drives it in the economy or the competitive landscape, but yes, from time-to-time we have seen spikes in that and other times we’ve not. So, just like we’ve seen a shift more towards bachelor’s programs, recently than we have associates.

Pricing Strategy

James Samford – Citigroup: Just wanted to talk a little bit more about your pricing strategy and it sounds like – it looks like 90/10 is working out in your favor, at this point particularly as you add more corporate. Are you going to be able to potentially lower tuition at some point to maybe compete a little bit more effectively against some of the traditional online – schools coming online?

Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: Let me just say something about pricing. Here’s the way we view it, no matter where you are priced certainly there are students who want the lowest possible price point. They might want $50 or $100 a credit hour to community college or very low priced option they don’t care about. The services and the grad teams and the capabilities online or adaptive learning or what not, that’s what they want. That’s the value proposition to them. There are people at the other end of that spectrum that will pay $50,000, or $60,000 or $70,000 a year because they want to be part of an exclusive community that might let in 10% or 15% or 20% of all the applicants. And then there is the middle where we’ve positioned ourselves. Wherever we’re priced, we believe that the value has to be there for the pricing. So, in the case of the University of Phoenix, we’ve elected to add capabilities we think are going to truly help people from their first touch point of providing them with assessments, helping them understand where they are in the U.S. in terms of their capabilities, what they need to do to get the career that they’re saying they want to get, help them drive a personalized roadmap for that, and then provide them all the tools that are necessary to have a highly successful outcome. And there is investment to do that. So, there’s a value proposition there that a portion of students want. We think that’s going to be the biggest portion, and that’s where the University of Phoenix is pointing right now. But it’s fair to say that we were always monitoring in every market we operate in our competitive position, which includes price as well, and we’ve made adjustments from time-to-time on a market-by-market basis and we’ll continue to do that as necessary going forward.

James Samford – Citigroup: Just a quick follow-up on uses of capital; looks like, obviously $800 million bought back this year, once the business stabilizes, any thoughts again on potentially dividends versus buybacks at this point?

Gregory W. Cappelli – Director, CEO, Apollo Group, Inc.; Chairman, Apollo Global, Inc.: Yeah, that’s always part of our conversation in terms of the uses of capital. The conversations are; what are the things that can move the enterprise value of the organization first, right; are there opportunities to expand in the places like India. We’ve talked about that or other areas in the world as we expand Apollo Global, the answer to that is yes, and we’ll continue to be prudent with that capital but invest in areas where we see high ROI long-term propositions; two, obviously, investments into the University of Phoenix, which we’re making and have made and continue to make that we talked about on this call. Share repurchases; I think we’ve repurchased 30 some percent of the float over the past two years or three years, a couple of billion dollars’ worth of stock. That continues to be part of the equation and discussions. And certainly dividends will be part of those discussions as well. So, I’m not ruling any of that out, and again, it’s a part of a good healthy capital allocation discussion with our Board that we have quarterly.

A Closer Look: Apollo Group Earnings Cheat Sheet>>