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Sylvan revenue jumps 43%, operating income triples in 4Q


Higher education is paying off for Sylvan Learning Systems Inc. - the Baltimore company's revenue jumped 43 percent in the fourth quarter, while operating income more than tripled.

The strong earnings report, released yesterday, capped a year in which Sylvan cast off its best-known property to focus on international and online postsecondary education. Its K-12 operations, including the tutoring centers that have become a household name, were sold in June to New York-based Apollo Management LP as Sylvan looked to simplify itself and recover from an unsuccessful venture fund.

Some were aghast that the company jettisoned its tutoring centers. Douglas L. Becker, chairman and chief executive officer, said recently that even now people stop him on the street in Baltimore to offer condolences about what "happened" to Sylvan.

"Given the financial results that we've generated ... it's definitely worked," Becker said. "It's just thriving beyond belief."

Sylvan posted fourth-quarter revenue of $154.9 million, up from $108.2 million the year before. Its 2003 revenue was $472.8 million, up 41 percent from the previous year's $336 million.

Operating income in the fourth quarter was $35.7 million, up 231 percent from $10.8 million the year before. Sylvan's 2003 operating income of $33.6 million was up 135 percent, compared with $14.3 million in 2002.

The fourth quarter is Sylvan's prime season because all its universities are in session.

"We like what we saw - it was better than we thought," said Jerry Herman, managing director in equity research for Legg Mason. "Their history in the postsecondary business is short, but the track record has been excellent."

Sylvan's stock closed at $30.65 yesterday, up 51 cents, on the Nasdaq stock market.

Trace Urdan, an analyst with ThinkEquity Partners in San Francisco, believes the price is low and will rise as investors catch on that Sylvan has changed.

"It's a much less volatile kind of company than it used to be," he said.

Becker told investors during a Webcast yesterday that he expects to focus this year on "optimizing" the campus-based presence in the Latin American and European markets Sylvan has already entered.

The company, which has been steadily acquiring and expanding universities, saw enrollment rise 63 percent to 101,000 students last fall - fueled primarily by Latin American growth.

Sylvan is trying to reinvigorate European interest with new campuses and products this year, including postgraduate studies, and it is still trying to set the stage for schools in Asia. The company discontinued classes at a tiny engineering college in India at the end of the year when the regulatory situation soured for privately run universities.

Becker called it "a very minor part of our corporate financial picture" and said the future of for-profit education in India and China remains promising.

"We can't build the 10- and 20-year growth story we intend without making investments at this time," he said. "They'll make a big difference in the long term."

Sylvan also operates online universities in the United States, which enrolled about 15,800 students at the end of the year, a 6 percent increase.

Company officials said online enrollment is being temporarily dragged down because Canter, Sylvan's teacher education curriculum provider, stopped working with some public and private universities to focus on a few "strategic" partners - including Walden University, one of the company's online colleges.

"That has the effect of reducing enrollment but increasing revenues per student and profitability per student," Herman of Legg Mason said.

Urdan said Sylvan is a tempting acquisition target now that its American competitors are starting to show interest in the international market.

"One of the U.S. players may want to have what Sylvan has," the ThinkEquity analyst said. "Sylvan has the best network out there."

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