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TWST: What's going on so far this year in the world of education?
Mr. Craig: Let me start off by talking briefly about the postsecondary
space, then I will turn it over to Jerry to talk about K-12 and training
and development. In postsecondary, we are finally seeing some evidence
of stabilization in enrollment growth after two years of year-to-year
declines, and we're also seeing some diminution in the legal regulatory
risk that had been evident in this space for most of that two-year time
period, and both of those factors, we think, were having an inordinate
impact on valuations in this space looking back over that two-year
cycle. Some other factors that we continue to see in postsecondary are:
the ongoing mix shift to online delivery based on student preference '
this area being a focus of growth initiatives ' as well as a continuing
shift in lead generation to the Internet resulting in the need for
greater marketing sophistication and also an adjustment in spending
levels. It is still a challenging environment to recruit new students;
that's partially a function, we believe, of the economy with the
improvement in the job market and also increased competition, and it has
become more costly to recruit new students as well. In response, many of
these companies continue to shift some of their programmatic focus and
broaden their end-market diversification. We do see some concerns over
what is perceived to be an eroding value proposition in the space and
whether or not these companies will be able to increase tuition prices
as rapidly as they have in the past. We also have seen the emergence of
negative leverage at some companies resulting from the deterioration in
enrollment growth and, therefore, we're seeing some right-sizing or
rationalizing of operations, and there may be more of that to come.
Overall, the funding environment is relatively benign and we still
believe that international opportunities are plentiful for many of these
companies. We can talk to this a little bit later, but the focus of our
current postsecondary recommendations are areas of supply/demand
imbalances, and the international market and the US market for
technology-oriented curriculum are two of those areas right now.
Tickers included in this excerpt: APOL, BFAM, CECO, COCO, EDMC, ESI, LAUR, RLRN, STRA
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