Services
Schools
NASD: EDMC
Education Management Corp.
300 Sixth Avenue
Pittsburgh, PA 15222
Phone: 412-562-0900
Robert B. Knutson
Chairman and
Chief Executive Officer
Interview conducted by:
Walter Banks
Co-Publisher
CEOCFOinterviews.com
March 2002
Bio or CEO,
ROBERT B. KNUTSON
Mr. Knutson is a founder,
Chairman and CEO of Education Management Corporation ("EDMC"), one of the
largest private education systems in the United States, and a publicly owned company.
EDMC’s education institutions offer doctoral, master’s, bachelor’s,
associate’s and non-degree programs at 40 primary campus locations in 26 major cities
in North America, with a total enrollment of approximately 39,000 students as of fall
2001. The Company’s two principal
operating divisions are The Art Institutes, and Argosy University. Academic programs are concentrated in the creative
and applied arts, behavioral sciences and education fields.
Mr.
Knutson is a graduate of the University of Michigan (B.A. with honors in Economics, 1956). He became President of EDMC in 1971, and Chairman,
President, and CEO in 1986. He formerly was a
Vice President with J. P. Morgan in New York, and a Vice President with Drexel Harriman
Ripley, New York. He served as a fighter
pilot with the United States Air Force from 1957 to 1962.
Mr. Knutson is a
member of the board of directors of the Western Pennsylvania Conservancy and WQED
Pittsburgh. He is a past Chairman of the
Pittsburgh Chapter, Young Presidents Organization.
Mr. Knutson has testified on several occasions before Congressional and other national
committees on subjects concerning higher education policy, has had op ed pieces concerning
education published in leading newspapers, and has been featured in a numerous media
articles.
Company Profile:
Education Management Corp.
Education Management Corporation is among the largest providers of private
post-secondary education in North America, based on student enrollment and revenue, with
40 primary campus locations in 26 major cities, and with approximately 39,000 students as
of fall 2001. EDMC's Art Institutes offer master's, bachelor's, associate's and non-degree
programs in the areas of design, media arts, fashion and culinary arts. EDMC's Argosy
University provides doctoral, master's, bachelor's and associate's degree programs in the
behavioral sciences, education, business and health sciences fields. Through Argosy’s
ITI Information Technology Institute, EDMC offers a graduate business and technology
program in three major Canadian cities.. EDMC’s
schools provide career-focused education that maximizes employment opportunities for
graduates.
EDMC has provided career-oriented education for 40 years, and its education institutions
have more than 135,000 alumni. Their graduates have won Pulitzer prizes, manage Intranet
sites, make movies, help people through professional psychology, identify e-business
solutions, serve as college professors, produce flight simulation programs, manage
businesses, create residential and commercial interiors, assist in the medical and dental
fields, win awards for fashion design, work as corporate trainers, produce print and
electronic advertisements, develop consumer package designs, and make their mark in the
culinary profession. The Art Institutes, a nation-wide system of 24 post-secondary
education institutions, offer programs in the creative and applied arts. As industry and
technology evolve, so do the Academic programs that they offer. The 12 primary campuses of
Argosy University offer student-centered undergraduate and graduate level programs
concentrated in the behavioral sciences, education, business and health sciences fields.
Campus Locations:
The
Art Institutes
The Art Institute of Atlanta®, CaliforniaSM, Charlotte®, Colorado®, Dallas®,
Fort Lauderdale®, Houston®, Las VegasSM, Los Angeles®, Los Angeles – Orange
CountySM, The Art Institutes International MinnesotaSM, The Art Institute of Pittsburgh®,
Portland®, Philadelphia®, Phoenix®, Seattle®, The Art Institutes International at San
FranciscoSM, The Art Institute of Washington®, The Illinois Institute of Art —
Chicago®, The Illinois Institute of Art — Schaumburg®, International Fine Arts
College®, The New England Institute of Art & CommunicationsSM, The New York
Restaurant SchoolSM, The Art Institute OnlineSM
Argosy Education Group
Argosy
University
Primary Campuses
Washington, D.C., Atlanta, Georgia, Chicago, Illinois, Honolulu, Hawaii, Twin
Cities, Minnesota, Orange County, California, Phoenix, Arizona, San Francisco Bay Area,
California, Chicago Northwest, Illinois, Sarasota, Florida, Seattle, Washington, Tampa,
Florida
Extension
Sites
Clearwater, Florida, Savannah, Georgia, Hilo, Hawaii, Kauai, Hawaii, Maui, Hawaii,
Nashville, Tennessee
Western
State University College of Law
Fullerton, California
Argosy
Profesional Services
Association for Advanced Training in Behavioral Sciences (AATBS), The Connecting Link.
ITI
Information Technology Institute
Halifax, Nova Scotia, Toronto, Ontario, Vancouver, British Columbia
CEOCFOinterviews: Mr.
Knutson, please give us a brief history of Education Management?
Mr. Knutson: "I
have been with the company for some 30 years. Prior to that I was in Wall Street with J.P.
Morgan and Drexel, Harriman Ripley, involved in various corporate finance activities. When
I came to Pittsburgh, we had one school, the Art Institute of Pittsburgh with 600 students
and 80 faculty and staff. Over the years we acquired small schools and started schools,
doing all of the things that you do to make a small business larger..
The company had two leveraged financings in the 1980s, which were successful. We
established a large employee stock ownership plan with the second financing in 1989. In
1996, we became publicly owned. At that stage, Education Management had 14 education
institutions, which were mostly Art Institutes, and 16,000 students. Currently EDMC
comprises some 40 primary campus locations, and as of last fall, 39,000 students."
CEOCFOinterviews: What
academic programs do you offer?
Mr. Knutson: "Our
academic programs range from associate degree to doctoral degree, and are concentrated in
the creative and applied arts, behavioral sciences and education fields. Our two principal divisions are the Art Institutes
with 24 institutions and Argosy University, which has 12 primary campus locations. We also
have three business and technology schools in Canada, which have recently been combined
with Argosy Education Group, the parent company of Argosy University."
CEOCFOinterviews: Can
you give us a picture of your revenue growth since going public?
Mr. Knutson: "Over
the 5 years that the company has been publicly owned, our revenues have grown at an annual
compound rate of about 20% per year and our earnings per share have grown at more than 23%
per year. We have indicated to investors that we believe we can sustain double digit
enrollment growth and coupled with tuition
price increases, revenues will grow at 15
percent or more per year. With
margin expansion, we expect to realize earning per share growth of 20% or better."
CEOCFOinterviews: Can
you give us some statistics on employment results for your graduates?
Mr. Knutson: "As
an organization, we’re highly focused on the career results for our graduates. If you look at the employment statistics for the
Art Institutes for example, you see that in recent years more than 90% of available
graduates have obtained employment in their fields or related fields. If you look at
graduates’ starting salaries, you see that they have grown at a rate well in excess
of the rate of inflation.
Our business philosophy is oriented to identify the needs of employers and the needs of
the economy. We try to ensure that our students are successful in completing their
education programs. In doing that; we have faculty with practical experience in their
fields. We invest in facilities and technology to support the education process. We
believe we have done these things successfully and that the characteristics of the field
of education bode well for our future growth. For example, positive demographics and a
strong awareness on the part of consumers that it’s vital they continue to invest in
themselves.”
CEOCFOinterviews: When did you
close the acquisition of Argosy?
Mr. Knutson: “The Argosy
acquisition closed last December and brought to Education Management Corporation some
6,000 students largely in master’s and doctoral degree programs in education,
counseling, clinical psychology and business, and undergraduate degrees in various health
sciences fields.”
CEOCFOinterviews: Have you fully
integrated all that at this point?
Mr. Knutson: “We are not yet
fully integrated with Argosy, however we have been working closely with the Argosy
management over the past several months on our transition planning and it has been going
very well.”
CEOCFOinterviews: Has Argosy been
your largest acquisition so far?
Mr. Knutson: “Yes, the
acquisition of Argosy has been the largest acquisition. It was purchased for $79 million
cash. .”
CEOCFOinterviews: How large is
the market that you are in and where would you place yourself in that market?
Mr. Knutson: “The market
size is huge. If you look at the higher education industry as a whole, there are some 15
million students, and the student numbers are expected to grow about 20% over the next ten
years. If you look at the role of private tax paying education institutions within that 15
million students, less than 10% of students are enrolled in private tax-paying
institutions, so we are a small part of the overall education market. We’re gaining
market share but given the size of the market as you can see from the numbers,
there’s a lot of room to grow. The way to grow is by being in-tune to what’s
going on in our economy and by having a student-service oriented environment in our
education institutions."
CEOCFOinterviews: What
do you think you need to do to continue grow out your business at the level you have been?
Mr. Knutson: “The two
principal parts of Education Management Corporation, the 24 Art Institutes and the 12
primary campus locations of Argosy University are similar in growth opportunities. There
are about 50 markets in the U.S. with a million or more people, so there are a number of
places that we’re not located. If you look at the history of the Art Institutes,
we’ve made sure our curriculum is current and in line with the needs of employers and
the economy at large. It’s a continual
process of outreach to make sure that what you are delivering is timely and appropriate
for students. It’s also important to be opportunistic in developing and rolling out
new academic programs that relate to the needs of employers. .
We have plans for expanding our academic program offerings and expanding our geographic
presence. Our electronic distribution through
The Art Institute Online and Argosy University Online has grown substantially compared to
a year ago. We have some 140 online courses that have been developed in various academic
programs ranging from graduate level programs in education and business to bachelor’s degree programs in
graphic design and in multimedia. Online programs appeal to students that can’t
attend one of our physical locations or students who want to take a course or two online
as a matter of convenience.”
CEOCFOinterviews: Do you require
students enrolled in your online program to come to a classroom any time of the year or
can they do it strictly online?
Mr. Knutson: “For our Art
Institutes’ students, it’s both. They can take part of their program online and
part in the classroom or they can take all of it online. With regards to Argosy, students
are required to take a portion of their academics at a campus location. For example, if
one is an employed educator and want to obtain a master’s or doctoral degree in
education, almost half of the class work can be taken online and the other half taken at
one of Argosy’s locations during break periods.
For example, during the summer or holiday periods.”
CEOCFOinterviews: Would you
consider online education a tremendous bonus to the educational environment?
Mr. Knutson: “I think
it’s a step in the right direction. We’ve been given very high marks on the
quality of our online programs at the Art Institutes. It’s a highly visual
environment, and is a lot different than taking a graduate business program online where
re looking at text material. In the graphic design or multimedia programs, you see a lot
of color and images that move. It's a
media-rich experience for students. We’ve been very careful in measuring the learning
outcomes, so that at the end of a course students are achieving the same level of learning they would in a physical classroom. That has
been our standard.
The availability of online coursework can
help someone enroll in a physical location, by being better able to manage his or her
personal schedule. Online education also can
help students in certain circumstances stay enrolled.
At EDMC, we feel that people have a need to come together whether
it’s for social reasons or to enhance the learning process. At the same time, Online
learning benefits those who can't get to us, and provides convenience for those who need
to take part of their class work in a place other than the physical school location. Our
virtual student population is growing substantially.
Students are from all over the U.S. and from other countries. The Art Institutes
have been offering online programs for a little over a year, after two years of
development. We’re quite pleased with the progress.”
CEOCFOinterviews: What do you
think sets you apart form your competitors today?
Mr. Knutson: “We concentrate
on having faculty with practical experience in their fields, and committed to the learning
process. I underscore the word learning as opposed to teaching. We have exceptional
physical facilities and the appropriate technology in the classroom to help our students.
We believe in creating an environment of student service within the school, and in having
small classes and personal attention. Our curricula directly relates to the needs of
employers and to the trends in our economy.
We make it plain to our students that it’s essential they take personal
responsibility for their education. We will help them, and we have the appropriate
faculty, technology and student support. There
are state and federal financial aid programs as well as our own scholarship programs. We
help students find a part time job.. More than 150 of our employees are in our career
services departments. Our students come into a real world, - success-oriented climate.
The attitude of the personnel of Argosy University is the same as the attitude of our
staff and faculty at The Art Institutes. That’s one of the things that attracted us
to Argosy. The education offered at EDMC’s schools is oriented to the needs of
students and concentrates on helping them achieve their goals. Those are things that set
apart our schools from what you often find with government controlled or supported
education institutions. Those attributes set us apart from many private tax paying
institutions as well.”
CEOCFOinterviews: What is your
marketing approach?
Mr. Knutson: “The most
important source of inquiries for our academic programs is referrals and the second most
important source is our web presence. We run multiple websites and we have linkages with
many other sites and databases. This year about 25% of our new students to the Art
Institutes will come from our web presence. About a third of our students come from
referrals. We do a modest amount of broadcast media advertising, which will account for
less that 15% of new students. Broadcast advertising helps reinforce our web presence.
We have very active outreach to high schools. We’ll
visit around 12,000 high schools this year on behalf of the Art Institutes. Those
presentations are oriented to explain the career areas that one can enter by enrolling in
one of the Art Institutes. For example, the principal education programs for the Art
Institutes are graphic design, multimedia, media arts and animation, game art and design,
industrial design, digital media production, interior design, fashion design and the
culinary arts. So there’s a broad spread
of educational offerings in the creative and applied arts.
That’s good for our students because
they’re exposed to an array of creative and visual arts specialties.
In the Art Institute education experience,
there’s the opportunity for cross-disciplinary projects reflective of what the work
place is like. The student experiences a very different environment than in most state
colleges, community colleges, or other private schools, which might offer one or two of
our academic disciplines. There’s a
unique environment in the Art Institutes. In Argosy University, if the student is taking a
bachelor’s, master's or doctoral program in psychology, they know they’re
attending an institution that for 25 years has concentrated on graduate level psychology
programs. The faculty are highly
credentialed from an academic standpoint, and they’re experienced practitioners. Argosy is known for its culture of academic
excellence in psychology, education, business and health sciences fields. The student
benefits from the programmatic concentration and specialization.”
CEOCFOinterviews: Are there any
new programs that you will be added within the next year and how long does it take to
develop new programs?
Mr. Knutson: “We’re
continually developing new academic programs because there’s an approximate two year
lead time from the generation of an idea that might come from one of our faculty members
or from one of hundreds of companies that are on our local curricula advisory committees,
or from industry experts that we reach out to.
For competitive reasons, we don't reveal what our future programs are, but I can give an
illustration. The newest bachelor’s degree program in the Art Institutes is visual effects and motion graphics. The
first class will start at the Art Institute at Fort Lauderdale this March (2002) It’s
is a program we started working on more that two years ago.”
CEOCFOinterviews: Do
you have any current plans for expansion?
Mr. Knutson: “In
terms of new physical locations there are a number of states and major metropolitan area
where we don't have an Art Institute or an Argosy University campus. Those areas are
targeted in our strategic growth plan over a number of years to come. We expect to have
two or three additional locations through start-up or acquisition in the course of the
next year which is consistent with the growth track record that we've maintained since
we’ve been publicly owned. For example,
Argosy University will establish its 13th primary campus location in Dallas next
fall.”
CEOCFOinterviews: Do you do much
to attract international students?
Mr. Knutson: “We have
students at the Art Institutes from more than 100 other countries. International students
represent about 5% of Art Institute total enrollment. It has been more difficult for
international students in recent months to obtain visas, and some students have been
concerned about their safety in the United States.
In the last month, the rate of growth in inquiries and applications from international
students has picked up nicely, and we welcome international students into our classrooms
because they bring their cultures and their life experiences. We utilize the services of
representatives that work with other colleges as well to help students abroad in
processing the paperwork in order to come to this country.”
CEOCFOinterviews: Will you be
able to sustain your revenue growth?
Mr. Knutson: “We expect to
sustain our growth going forward. Increasing
enrollments plus price increases plus programmatic and geographic expansion, have paid off
with attractive growth in revenues and earnings per share.
It also has resulted in strong cash flow generation. Investors appreciate the value
of cash flow because it provides capital for our expansion and reinvestment.
We’re known for having attractive physical facilities and for impressive classroom
technology available to our students. Those
investments, along with funding the startup or development of our new locations, have
resulted in capital expenditures running currently at around 10% of revenues.
We have a $150 million committed revolving credit with a group of banks, with no current
borrowings. We completed a public equity
financing last November. We have the capital to execute our growth strategy, and there are
multiple opportunities for us to grow both internally and through start-up or
acquisition.”
CEOCFOinterviews: In closing, is
there anything that you would like to say to your current shareholders and potential
investors?
Mr. Knutson: I feel honored to be
the chief executive officer of an organization in the business of education that is geared
to producing positive results for our students and graduates, providing a highly
satisfying career environment for our employees, and at the same time achieving
outstanding results from a business vantage point. Our
objective is to serve the interests of multiple constituents well. We have many talented
and committed employees. We’re in an industry that has very positive growth
characteristics because of demographics trends and because of the interest on the part of
the people in improving themselves. People realize there’s really is a big payback in
investing in their own future. The field of
education has the political and media support that places education as a top national
agenda item. I think we are in the right place at the right time. There is every reason to believe that
we’re going to be able to sustain our growth going forward, and to do it the right
way.”
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