“ wall street perspectives on for-profit emo’s” sponsored by national center for the study of...
TRANSCRIPT
“Wall Street Perspectives on
For-Profit EMO’s”
sponsored by
National Center for the Studyof Privatization in Education
Columbia University Teacher’s College
EMO Panel Agenda
Introduction (5 Min.)
Education Industry Landscape (10 Min.)
For-Profit Postsecondary B-Models (10 Min.)
Moderated Discussion of EMOs (20-30 Min.)
Open Q&A (35 Min.)
Education Services Overview Education Services Overview
Teachers College, Columbia UniversityMay 7, 2002
Teachers College, Columbia UniversityMay 7, 2002
Presented by:Presented by:
Brandon Dobell, Senior AnalystCredit Suisse First Boston
Brandon Dobell, Senior AnalystCredit Suisse First Boston
44
AgendaAgenda
Sector Overviews
K-12 Post-secondary Corporate Training
Sector Overviews
K-12 Post-secondary Corporate Training
55
K-12 EducationK-12 Education
54 million children in k-12 schools in the US
enrollments expected to grow 1-2% per year now thru 2004/5 every kid goes to school
this is not just a demographic play birthrates are key and they are fueling a Tidal Wave in k-12
enrollments$350 billion spent this year
federal and state monies = regulation, control, etc. we spend more than any industrialized nation on k-12 education
yet our outcomes are among the world’s worst per student spending has grown 5-7% per year
54 million children in k-12 schools in the US
enrollments expected to grow 1-2% per year now thru 2004/5 every kid goes to school
this is not just a demographic play birthrates are key and they are fueling a Tidal Wave in k-12
enrollments$350 billion spent this year
federal and state monies = regulation, control, etc. we spend more than any industrialized nation on k-12 education
yet our outcomes are among the world’s worst per student spending has grown 5-7% per year
66
K-12 Education – Becoming an “Investable” SpaceK-12 Education – Becoming an “Investable” Space
Significant focus from Capitol Hill and State GovernmentsSchool Choice Standards
Assessment and Testing Teacher Training
Businesses are gaining critical mass - finally More $$ to for-profit vendors - changing the pie technology to better the learning process, make administration more efficient Products and services that help teachers teach better, faster and with more
accuracy
Capital Markets have provided a filterParticipants
Edison Schools Renaissance Learning Scholastic
Sylvan Learning Riverdeep McGraw-Hill
Significant focus from Capitol Hill and State GovernmentsSchool Choice Standards
Assessment and Testing Teacher Training
Businesses are gaining critical mass - finally More $$ to for-profit vendors - changing the pie technology to better the learning process, make administration more efficient Products and services that help teachers teach better, faster and with more
accuracy
Capital Markets have provided a filterParticipants
Edison Schools Renaissance Learning Scholastic
Sylvan Learning Riverdeep McGraw-Hill
77
Post-secondaryPost-secondary
16 million people in college in the US
Growing number are working adults, non-traditional students Service economy: Income differential between diploma and degree Flexibility of programs (content), schedules, delivery (classroom, web)
$250-270 billion will be spent this year
federal and state funds mean rules and regulations $70b in financial aid – “If you want to go, the money is there” Income differential between diploma and degree
16 million people in college in the US
Growing number are working adults, non-traditional students Service economy: Income differential between diploma and degree Flexibility of programs (content), schedules, delivery (classroom, web)
$250-270 billion will be spent this year
federal and state funds mean rules and regulations $70b in financial aid – “If you want to go, the money is there” Income differential between diploma and degree
88
Post-secondaryPost-secondary
Stocks have outperformed market consistently
Multi-term enrollments create visibility and predictability Great cash flows (get the $$ up front, deliver the service) Returns on capital are very high – creating lots of value Consistent Pricing Power (under the umbrella) High Barriers to Entry
Participants Apollo Group / University of Phoenix Online Career Education DeVry ITT Education
Stocks have outperformed market consistently
Multi-term enrollments create visibility and predictability Great cash flows (get the $$ up front, deliver the service) Returns on capital are very high – creating lots of value Consistent Pricing Power (under the umbrella) High Barriers to Entry
Participants Apollo Group / University of Phoenix Online Career Education DeVry ITT Education
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Corporate TrainingCorporate Training
$60 Billion spent each year for corporate/government training
Service economy, globalization, pace of technology driving need for training
Keeping pace, driving productivity Technology, business skills, personnel skills
Focus on core competencies Driving Outsourcing Proposition Large majority still done face-to-face but e-learning growing
E-Learning: $2-4B, growing 50-75% per year Aligning the extended enterprise
Employees, Suppliers, Customers
$60 Billion spent each year for corporate/government training
Service economy, globalization, pace of technology driving need for training
Keeping pace, driving productivity Technology, business skills, personnel skills
Focus on core competencies Driving Outsourcing Proposition Large majority still done face-to-face but e-learning growing
E-Learning: $2-4B, growing 50-75% per year Aligning the extended enterprise
Employees, Suppliers, Customers
1010
Corporate TrainingCorporate Training
Stocks have underperformed
Training more cyclical than anyone thought Difficulties of measuring true ROI
Overabundance of capital created too many providers Pricing pressure, minimal differentiation
Participants
Content Technology/Service Site-based
SmartForce Saba LearningTree
SkillSoft Docent NewHorizons
DigitalThink
Stocks have underperformed
Training more cyclical than anyone thought Difficulties of measuring true ROI
Overabundance of capital created too many providers Pricing pressure, minimal differentiation
Participants
Content Technology/Service Site-based
SmartForce Saba LearningTree
SkillSoft Docent NewHorizons
DigitalThink
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The Economics of For-Profit Postsecondary Education
National Center for the Study of Privatization in Education
May 7, 2002
Peter P. Appert, CFA
Managing Director
Deutsche Bank
Wall Street Perspective on For-Profit EMO’s
12
Agenda
• Unit Volume Growth• Pricing Power• Margin Leverage• Stock Performance• The Players
13
Unit Growth
Enrollment Growth Trends (Y/Y % Change) Market Share of Publically Traded Post-Secondary Companies
Company 2Q:01 3Q:01 4Q:01 1Q:02
Average(last 4
quarters)
Apollo 27.5% 28.2% 28.4% 29.4% 28.4%Career Education 45.0% 41.7% 26.0% 24.4% 34.3%Corinthian College 31.7% 31.6% 22.1% 22.6% 27.0%DeVry 12.2% 11.2% 6.2% 1.6% 7.8%Education Mgmt. 17.8% 15.6% 18.7% 16.2% 17.1%ITT Education 9.3% 11.1% 11.4% 9.8% 10.4%Strayer 18.8% 15.8% 17.2% 19.0% 17.7%
Group Performance 22.8% 22.8% 21.7% 20.8% 22.0%
Source: Company Data & Deutsche Bank Securities Estimates
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Unit Growth
• Economics drive demand for postsecondary education
Unemployment Rates vs. Years of Education
9.0%
4.8%4.3%
3.3%
2.4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
Less Than HighSchool Education
High SchoolGrad., No College
Some College, NoDegree
Associate Degree Bachelor's Degreor Higher
Source: U.S. Department of Labor, Bureau of Labor Statistics.
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Unit Growth
Advanced Degrees is a weighted average of Master's, Professional, and Doctor's degrees
Source: U.S. Dept. of Commerce, Bureau of Census and Deutsche Banc Alex. Brown estimates
Mean Annual Earnings by Educational Attainment, 1998
Persons 25 yrs. & Older
$18,641
$26,738
$34,548
$44,012
$61,102
-30%0%
29%
129%
65%
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
< High School High School Associate's Degree Bachelor's Degree Advanced Degree
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Mean Annual Earnings Percent Above/Below High School Earnings
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Unit Growth
Market Share of Public Post-Secondary Companies
Source: Deutsche Bank Securities Estimates, U.S. Dept. of Educ., and company information
1.1%
1.3%
1.5%
1.8%
2.1%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001
Total Degree Granting Enrollment as of 12/31/01 = 15.3 million
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Pricing Power
Source: Digest of Education Statistics and FactSet
Tuition vs. Inflation Rates Indexed to 1964 (1964 =100)
0
400
800
1,200
1,600
1964 1970 1976 1982 1988 1994 2000
0
400
800
1,200
1,600
Tuition Inflation Adjusted Prices
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Margin Leverage
Source: Deutsche Banc Alex. Brown estimates and Company information
Operating Margins - Postsecondary Industry
13.3%
17.4%
16.6%
15.5%
13.7%
12.4%
17.1%16.7%
14.5%14.6%
14.8%
13.9%14.1%
12.7%12.4%
11.8%
14.1%
14.9%
16.5%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
12
/31
/19
96
3/3
1/1
99
7
6/3
0/1
99
7
9/3
0/1
99
7
12
/31
/19
97
3/3
1/1
99
8
6/3
0/1
99
8
9/3
0/1
99
8
12
/31
/19
98
3/3
1/1
99
9
6/3
0/1
99
9
9/3
0/1
99
9
12
/31
/19
99
3/3
1/2
00
0
6/3
0/2
00
0
9/2
9/2
00
0
12
/29
/20
00
3/3
0/2
00
1
6/2
9/2
00
1
9/2
8/2
00
1
12
/31
/20
01
3/2
8/2
00
2
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Conclusion
• Unit Growth + Pricing Power + Margin Leverage = Superior Financial
Performance
– 20%+ earnings growth rates– High returns on capital– Significant free cash flow– Predictable, counter-cyclical growth
20
Stock Performance
Educational Services - Postsecondary(Performance Indexed to 1/1/2000)
Educational Services - Postsecondary Companies: APOL, CECO, COCO, DV, EDMC, ESI, SLVN, STRASource: Factset and Deutsche Banc Alex. Brown estimates
25
50
75
100
125
150
175
200
225
250
275
300
12
/31
/99
1/2
1/0
0
2/1
1/0
0
3/0
3/0
0
3/2
4/0
0
4/1
4/0
0
5/0
5/0
0
5/2
6/0
0
6/1
6/0
0
7/0
7/0
0
7/2
8/0
0
8/1
8/0
0
9/0
8/0
0
9/2
9/0
0
10
/20
/00
11/1
0/0
0
12
/01
/00
12
/22
/00
1/1
2/0
1
2/0
2/0
1
2/2
3/0
1
3/1
6/0
1
4/0
6/0
1
4/2
7/0
1
5/1
8/0
1
6/0
8/0
1
6/2
9/0
1
7/2
0/0
1
8/1
0/0
1
8/3
1/0
1
9/2
1/0
1
10
/12
/01
11/0
2/0
1
11/2
3/0
1
12
/14
/01
1/0
4/0
2
Educational Services - Postsecondary Education Universe S&P 500
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The PlayersCompany Major Operating Units 2002E Revs. Enrollment
Apollo Group (APOL) University of Phoenix $1,045 million 116,300
Career Education (CECO) Katharine Gibbs Schools $708 million 40,800Int'l Academy Design & Tech.American InterContinental Univ.California Culinary Academy
Corinthian College (COCO) Rhodes Colleges $376 million 31,991Florida Metropolitan University
DeVry (DV) DeVry Institutes $688 million 55,735Keller Graduate School of Mgmt.
Education Mgmt. (EDMC) The Art Institutes $523 million 35,922Argosy University
ITT Education (ESI) ITT Institutes $475 million 30,986
Strayer (STRA) Strayer University $115 million 14,335
Sylvan Learning (SLVN) Various International Universities $252 million 48,940
Columbia University Columbia University $1,574 million* 22,425 (fall 2000)
*year ending 6/2000
Source: Company data, Deutsche Bank Securities Inc. estimates.