Joan Walter - Senior Director-Investor & Media Relations Daniel M. Hamburger - President, Chief Executive Officer & Director Timothy J. Wiggins - Chief Financial Officer & Senior Vice President Patrick J. Unzicker - Treasurer, Chief Accounting Officer & VP.

Corey Greendale - First Analysis Securities Corp. Peter P. Appert - Piper Jaffray & Co (Broker) Sara Rebecca Gubins - BofA Merrill Lynch Jeffrey Marc Silber - BMO Capital Markets (United States) Denny L. Galindo - Morgan Stanley & Co. LLC.

Good day and welcome to the Q1 2016 DeVry Education Group results conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Please note this event is being recorded. I would now like to turn the conference call over to Ms. Joan Walter, Senior Director of Investor Relations. Ms. Walter, the floor is yours, ma'am..

Thank you, Mike, and good afternoon, everyone. With me today from DeVry' Education Group's leadership team are Daniel Hamburger, President and Chief Executive Officer; Tim Wiggins, our Chief Financial Officer and Pat Unzicker, our Chief Accounting Officer and Treasurer.

I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of DeVry Education Group that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied.

These factors are discussed in our quarterly reports and Form 10-K for fiscal 2015 filed with the SEC and available on our website. DeVry Education Group disclaims any obligation to update any forward-looking statements made during the call.

Additionally during the call, we may refer to non-GAAP financial measures, which are intended to supplement, but not substitute, for our most directly comparable GAAP measures.

Our press release, which contains the financial and other quantitative information to be discussed today as well as a reconciliation of non-GAAP to GAAP measures is also available on our website. Telephone and webcast replays of today's call are available until November 12. To access the replays, please refer to today's release for more information.

And with that, I'll turn the call over to Daniel..

career-oriented programs with high academic quality, affordability, and strategic marketing. So, first, we're getting much better aligned with programs where there are strong career outcomes, skills gaps and supply-demand imbalances.

Examples of this are in Cyber Security, where we now have five program offerings, and our new Medical Billing and Coding Program, which has enrolled more than 1,200 new students since launching just in May. We're also embedding certifications into the program, such as Cisco into key programs in order to enhance value for students and employers.

This programmatic focus is both about what we offer and how we offer it. And that's with the care and support we provide to students.

Responding to our students' need for schedule flexibility, our vision is to transform from a university with multiple locations to managing as if we were one giant campus with an integrated scheduling system across Video Connected Classrooms.

Not only will this approach better provide students the course they want when they want it, it will also improve our utilization. This quarter, our integrated scheduling system helped us increase our campus class size by approximately 15%, while maintaining and enhancing a quality classroom experience.

The second element of DeVry University's transformation is focused on pricing affordability. It's really perceived affordability because we're finding ways to better communicate the affordability that we have of a DeVry University degree. So, it better resonates with prospective students and their families. There are multiple levers that we're pulling.

We'll be shortening program lengths, increasing scholarships, reducing prices in some cases, and offering stackable degrees. We continue to pilot other creative paths to systematically build on our affordability programs. We expect to have more to report here in the next quarter or two.

And the third element of our transformation is strategic marketing. This is the confluence of local marketing and program-specific marketing, all supported by a strong DeVry University brand.

While we've reduced our overall marketing budget, we've increased our investment in each of our local – our focused local markets, to better prioritize our advertising spend.

For example, our Columbus, Ohio campus was our first market for increased investment at the local level and it's using traditional channels and with an emphasis on digital media. Our messaging has been focused on our technology programs, an area that's a competitive advantage for us, especially in Columbus, with our 80-year history there.

The result? Columbus had 8.4% new student growth in September. And November's trending higher there as well. Now in terms of first quarter results, overall, DeVry University enrollments were in line with our expectations.

We expected September's rate of decline to be worse than July because of the impact of narrowing our campus footprint and the shift in our marketing strategy. For the September session, undergraduate new and total student enrollments declined 24% and 20%, respectively, compared to last year. Now, on a same-campus basis, the decline was narrower.

New enrollments on a same-campus basis for undergrads declined 16%. For graduate course takers, we declined about 17%, but, again, here on a same-campus basis, graduate course takers were down 12.9%. So, to sum up, at DeVry University, we know that our students are looking for careers, care and speed and flexibility.

I'm confident in our turnaround and transformation strategy, because it responds to those needs. More importantly, I'm confident in the team that's executing the strategy. And I'll look forward to providing you with progress updates over the next few quarters. So, with that, I'd really like to turn it over to Tim Wiggins..

Thanks, Daniel, and good afternoon, everyone. I'll start with overall financial results, then go through the reporting segments. In the first quarter of fiscal 2016, total revenue declined 4.5% to $441 million. The decrease was driven by the planned decline in enrollment at DeVry University, as we reposition it for growth.

The declines were partially offset by growth in our Medical and Healthcare and International and Professional Education segments. We continue to focus on expense control. Total costs, excluding special charges, for the first quarter were $409 million, down 3.5% from the prior year.

Net income, excluding special items, was $24 million during the first quarter, which resulted in earnings per share, excluding special items, of $0.38. Our effective income tax rate was 10.9% for the first quarter. Excluding special charges, our rate was 19%. With that overview, let's now shift to our operating segment results.

Starting with the Medical and Healthcare segment, revenue of $224 million was up almost 9% during the first quarter. Segment revenue growth was driven by Chamberlain.

Operating income, excluding special items for the segment was $35 million, representing a decrease of 9.6% from the prior year, due primarily as a result of higher home office cost allocations supporting growth and expenses incurred as a result of Tropical Storm Erika. Chamberlain revenue grew 22% for the quarter.

In September, we continued to grow our market share. New student enrollment grew 28% and total students grew 23%, driven by strong demand for our post-licensure programs, including the Family Nurse Practitioner and RN to BSN programs. In addition, new campus openings contributed to Chamberlain's enrollment growth.

At DMI, revenue of $82.8 million grew a half a percent versus last year. While Tropical Storm Erika did not inflict any significant physical damage on our campus, we did incur extra costs to reroute and temporarily lodge many of our students to keep them on schedule to begin their studies.

In total, we incurred roughly $1 million of expense this period as a result. At Carrington, revenue decreased approximately 2% during the quarter. In the quarter, new students decreased 1.5% and total students decreased by 1% compared to last year. The decline was the result of lower enrollments in two programs in several markets.

We expect both enrollment and revenue growth to return in the second quarter. Turning to the International and Professional Education segment, revenue of $59 million increased 10.3% in the quarter. The decline of the Brazilian real as compared to the U.S. dollar reduced reported revenues by almost $20 million.

Without this currency effect, revenue for our International and Professional Education segment would have grown 47%. The segment operating income, excluding special items, was $2 million during the quarter, down $2.7 million, reflecting increased investments in curriculum development at Becker and currency impact.

At Becker, revenue increased 7% during the quarter. This reflects continued positive momentum in the number of CPA exam-takers, building on the momentum from last quarter, solid growth in Accounting and continuing professional education, as well as continued growth in U.S. MLE program enrollments.

Revenue at DeVry Brasil increased 13% in the quarter, driven by the acquisitions of FMF, Faci and Damásio. New student enrollment growth increased 176% compared to last year, including the impact of these acquisitions, while total student enrollments increased 72%.

Excluding the results of FMF, Faci and Damásio, same-campus total enrollment at DeVry Brasil increased 6%. Within the Business, Technology and Management segment, revenue was down 22% to $159 million during the quarter as a result of our resizing of DeVry University to reflect the current market.

We've continued to make progress on reducing our cost structure and we're on track to achieve our target of at least $125 million in cost savings. The segment recorded an operating loss of $1.6 million for the quarter, excluding special items.

The loss reflects lower enrollments, but 96% of the quarter's revenue decline versus the prior year was offset through our cost reduction actions. Costs declined by 21% compared to the year-ago period. The first quarter is a seasonally weaker one for DeVry University and we continue to expect to maintain positive segment economics for the year.

Now, looking to the second quarter of fiscal 2016 at DeVry Group, we expect revenue to decrease about 6%. The decrease is a result of continued weakness of the Brazilian Real and declining revenue at DeVry University, which offsets revenue growth at our other institutions.

We expect operating costs to be down about the same percent – percentage rate as revenue, as a result of cost reductions at DeVry University, offset somewhat by growth investments. And last, we expect effective tax rate to be in the 20% range, excluding special items.

I'll now turn the call over to Pat to talk more about our balance sheet and financial position.

Pat?.

Well, thank you, Tim, and good afternoon, everyone. Our cash flow from operations for the quarter was $117 million. Our cash and cash equivalents were $436 million at September 30, down from $473 million last year, primarily driven by capital deployed for acquisitions.

Our net accounts receivable balance was $186 million, up 9% from the prior year, primarily due to the impact of extended FIES payments at DeVry Brasil. Our bad debt expense as a percentage of revenue is one of the lowest in the industry at 2.1% versus 2.6% last year. Capital spending for the quarter was $23 million compared to $21 million last year.

We continue to invest capital for the long term in infrastructure to support our quality and diversification strategies. We're targeting to keep our capital spending for fiscal year 2016 to be about flat, roughly in the range of $90 million.

Now, we continued our cost reduction efforts during the first quarter, resulting in a $24 million pre-tax restructuring charge related to real estate optimization and workforce reductions, primarily at DeVry University.

We expect to incur additional restructuring charges in fiscal year 2016 as we continue to execute our transformation strategy for DeVry University. Also during the quarter, we returned approximately $8 million to shareholders through share repurchases.

We repurchased 292,000 shares during the first quarter at an average purchase price of $28.32 per share. This repurchase activity represents a 32% increase over the fourth quarter, which followed a 20% increase over the third quarter.

We are confident that our strong financial position and cash flow generation give us the flexibility to support our strategy. Now let me turn the call back over to Daniel..

Thanks, Pat. Well, to wrap up, continued growth in both our Medical and Healthcare and Professional and International segments, combined with stabilization and very modest growth expectations for DeVry University, should generate solid future growth and leverage.

DeVry Education Group's strategy of quality, plus diversification, plus long-term focus, coupled with our strong culture, continues to differentiate us in a tough environment. We're confident that by executing the plan we outlined at our Investor Day that we'll deliver positive student outcomes, attractive growth and significant value creation.

And so with that, we're eager to take your questions.

Joan?.

That's great. So I'd like to ask, Mike, if you could please give our participants the instructions to ask a question..

Yes, ma'am. At this time, we will just pause momentarily to assemble our roster. First, we have Corey Greendale of First Analysis. Please go ahead..

Hey, good afternoon..

Hi, Corey..

Hey. So first question, it sounds like the results of the local marketing in Columbus were encouraging.

Can you talk about how rapidly you expect to roll out a similar strategy across your entire footprint? And if you could give any color on directionally what we should expect in the November term on the undergraduate new students, that would be helpful..

Sure, thanks, great question. And it's rolling out now. So we have our set of local markets who are – and each one is different.

So, it's a different mix of how you reach the market, Columbus is sort of a driving town, so there's outdoor, billboard, radio, for example; whereas in New York City, you wouldn't be doing that, you'd be doing subway or something else, just as an example of the local. So, they're all rolling out as we go.

And we're expecting to see results from those over the next few quarters. I would say – you asked about November. And I would say that – likely to see similar results here to September. There are some encouraging signs, but I always need to caveat that it does take time for some of these strategies to work. So, thanks very much..

Yep. And second question, I think you made a comment about doing some things on pricing and scholarships.

Can you just give us a sense of what we should expect on revenue per student in the DeVry University segment?.

Sure, Corey. So, our revenue per student for the first quarter for DeVry University undergraduate was down about 6% compared to last year. And this was expected and in line with our previously disclosed commentary. Now, of course you'll recall that our first quarter, we included our gainful employment tuition grants, and that was about $3.3 million.

So if we excluded that, revenue per student would have been down about 3.5%. And going forward for the balance of the fiscal year, we expect revenue per student to be down in a similar 3.5% to 4% range..

Great, thank you..

Thank you..

Next we have Peter Appert of Piper Jaffray..

Thanks. So, Tim, I heard what you said about the specific cost issues here that might be impacting the healthcare unit, but nevertheless, I was a little bit surprised that the margins contracted as they did in the context of what looks to be pretty strong revenue momentum.

So can you help us better understand that?.

One is that as the Medical and Healthcare segment becomes our largest and a larger portion of our revenue, there's more of the home office costs that are allocated to support the growth. That was the primary driver. We do expect to see the Medical and Healthcare segment margins expand slightly for the whole fiscal year.

So it's a kind of a confluence of factors. The Erika spend was part of the issue, but we do expect to see some improvement in that margin for the full year..

Okay. Fair enough. And then the second thing, in terms of the 6% revenue decline for the second quarter, I think this is maybe a little bit sharper than the investor expectations that have been out there.

Is that a function of further deterioration in trends you're seeing in the starts in any of the businesses or were we just mis-modeling it previously?.

Well, I think one of the things that's been a challenge for us is the currency issues in Brazil, that put some additional pressure, that's deteriorated significantly from our original planning horizon. We hope to see that moderate a bit, that would be one. But the rest of the numbers are pretty consistent.

And I think if you look, at least when we last looked at the First Call estimate, it's in that ZIP code..

Peter, I just want to clarify that the 6% number, that was the decrease in revenue per student at DeVry University in the first quarter..

And our guidance..

And our guidance. Our DeVry Group revenues, as Tim stated in his comments, were down 4.5% and that was in line with our guidance that we provided on the last quarter call..

Right. Exactly. No, I was referencing the 2Q revenue guidance. But thank you, I understand..

Got it. Thank you. Sorry about that..

Next we have Sara Gubins, Bank of America Merrill Lynch..

Hi, thanks. Good afternoon..

Hello, Sara..

Any changes to your views around full year fiscal 2016? Last quarter you talked about 5% revenue declines and adjusted EPS flat to up slightly..

No..

Okay. That was easy. And then, could you talk about how we should think about growth in Brazil this year? Maybe just on a constant currency basis might be the best way to put it..

Sure. So, on a constant currency basis we would expect DeVry Brazil in local currency rather to grow in the mid-to-high 20% range, largely driven by the benefit of the acquisition that occurred in the second half of the year..

Okay. Great..

If I may jump in on that, yeah. In addition to everything that Pat said, which is absolutely accurate, I would also add the continued organic growth. I think what's interesting is we kind of showed it both ways in the chart in the press release. So there's almost three ways to look at it, really. And there's with and without.

So without the additions and the recent acquisition, the new enrollments were down about 5%, total enrollments were up almost 6%. Now, as reported with the acquisitions, the new was up 176% and the total 72%.

I'd say that there's a third way to look at it, because we didn't just sort of acquire these schools and just add it, we rapidly integrated them, and I think the team did an excellent job of doing that, and we grew them. So there was organic growth on top of the acquisition.

And so as a result, I'd say the third way to look at it would be somewhere in between. So I would give the team a very good grade on the class..

Okay, great.

And then switching gears a little bit back to DeVry University, of the campuses that you're closing and moving students to online, how many were closed in the first quarter? And when should we expect the final campuses to be closed?.

I'll take the second part first. We would expect that all the locations would be vacated roughly by the end of the calendar year, with the exception of maybe one or two that would go further into calendar 2016. It's typically a six-month to nine-month process to conduct the teach-out process. Some could take a little bit longer.

One thing I want to hasten to add is that no matter how long it takes, we'll be handling the transition with DeVry's care for all of our students. Anything....

We started the fiscal year, Sara, with DeVry University about 80 locations. We're currently operating or teaching out of 66 locations now. So, once we're complete with our consolidation, we'll be around 60 locations..

Got it. Okay. Great. Thank you very much..

Good..

Next we have Jeff Silber, BMO Capital Markets..

Thank you so much..

Hi, Jeff..

Sorry, can you hear me?.

Yes, go ahead, Jeff..

Great, thanks. Just a follow-up to Sara's question. I knew you had thought that some of the students that were enrolled in the campuses that you closed might be going online. I know it's still very early but I'm just wondering if you can give us some color in terms of if we've seen any of that..

Yes. Actually, it's exceeded our expectations. Students have been open to the online delivery and that's been good. I think we're learning more and more as we go.

And one of the things we're very excited about, as you know, and we demonstrated this live for everyone at the Investor Day, was our new Connected Classroom concept, where students can attend with a professor in another location and they can go ahead and come to campus and have a very immersive experience and connect live with that professor.

We've also tested that technology for online students from anywhere, punching into that experience, if you will. And we see that rolling out in the future, as well. So I think you're going to see this become a real advantage for us, and this reimagined or transformed university of the future, will be sort of this one giant campus.

And sort of scheduling it that way and managing it that way, helping to support our faculty in that way, building the schedule that way.

So you increase this blending, such that I think five years from now the vision would be we would look back and say, Oh, how trite it was that we talked about an online student or an on-site or an online campus or an on-site course or an on-site – it's just going to be one blended concept, which I think is a very exciting future.

So those kinds of things, as they roll out, will help our students to navigate that as well..

All right. That's great. And, in terms of gainful employment has been officially around I guess for almost four months now, any more color on how the new regs might impact you going forward? Thanks..

Well, as you know, we reduced the initial – we were sort of early trying to give as much color as we could and be as transparent as we possibly could with some initial color on what we thought some of the revenue and then earnings impact might be, and then updated that recently, so that it's in the 3% to 5% range for fiscal 2016.

So, that gives you sort of a dimensionality on that. And we're working through all of the adjustments that we've had to make. It's gone very smoothly and, frankly, not a lot to report to you on that, unless there's something more specific that you had in mind..

No, just wanted a quick update. There wasn't anything. Thanks so much..

Good. Sure. Thanks..

Next, we have Denny Galindo of Morgan Stanley. Please go ahead..

Hi, good afternoon. One question I wanted to ask, just especially relevant today, given the turmoil that one of your competitors is facing, they're changing their start dates, moving to less frequent start dates, and also moving away from third-party affiliates, as lead generation.

Have you seen any impact on your conversion rates from their actions? Are you seeing better conversion rates because of maybe some of the moves your competitors are making?.

That's an interesting question, but there's nothing that I could report to you that I could attribute. I can give you a little color on sort of increase in applications and conversions that we're seeing, if that's helpful to you.

And to that I would say that our team is doing just a terrific job in the process of advising prospective students who inquire with DeVry University. And this applies, actually, to our other US institutions as well, but I know you're asking about DeVry University.

And so the conversion rate, that is the percentage of inquiries that then go on to apply at the university, it's up. The conversion rate is up. And so what that means is a prospective student who talks to us or visits our campus – and, by the way, we interview every prospective student, unlike other universities who might not do that.

Those prospective students they like what they see and the application rate is up. Our issue is a little bit more at the earlier stage of the process. Inquiries are not where we'd like them to be and we're working on addressing that with a new marketing strategy.

And the net of all of that is, as we work through that, I think there's going to be good news because that would be a more efficient model. It would mean sort of fewer more qualified inquiries, fewer more qualified applications, it'd be more efficient for our staff to handle than in days past. So that's a little bit of color on what's going on.

Does that make sense?.

Yeah, that makes sense and that's very helpful.

On that same vein, I guess the Columbus example and the pilot program, is there anything specific about Columbus that makes you think it might be a little bit better or a little bit worse than some of the other cities that you rolled this local advertising program out to? I'm specifically thinking of mix.

Would their mix of degree programs maybe be growing faster than average or slower than average, or is there any more color you can give us about how that campus relates as it compares to the rest of your locations?.

Sure. Very thoughtful question and I appreciate that. And I would say that maybe some small differences and then a lot of generalities. One difference is that we have a co-location with Chamberlain College of Nursing and we know that that's productive.

And we have 13 or 14 of those around the country and that's growing, so I think that's something that's a little different, but increasingly becoming more generalizable. So another difference is the time.

We've been in Columbus, it used to be the Ohio Institute of Technology and then it was bought by DeVry, Bell & Howell, and there's a long, long history there.

So, in markets like that, in Chicago, Columbus, Atlanta, other places I could name, that great reputation that we have and legacy students who are – the legacy of a parent or an uncle or a cousin who went there definitely does help. So those are a couple of differences.

And I would say that something that's the same, though is – but building off of that is the reputation for technology. We're known for technology. It used to be DeVry Institute of Technology, after all and that's still known. And I would say, as we self-reflect here, in the last few years perhaps we got away from that a little bit and that reputation.

There's good things, we grew our business, enrollments, we grew management, we grew account and we grew other areas very effectively, but perhaps we focused on the university as a whole. It was more of a national and a university-centric communication.

So part of what's different now is it's more local, and it's more programmatic focused, and so that tech focus that we laid on in Columbus. And it's really – it's organic, it's really granular.

Even the things like events, they got a Hack Your Future event and hundreds of attendees showed up and learned about hacking and cyber security and things like that. That's what you've got to do to get local. I think that's the trend. That's what you're going to see more of. And so that I think is very general.

We can do that in all the local markets that we're focused on. There's nothing specific about Columbus in that regard..

Okay. And then lastly, just circling back to Peter's question on the margins in medical. I was wondering if you had any other color you could give there.

How much might be related to new campuses? How much might be related to the mix of students? If the degree program mix is changing in any way or if there's anything else you can give us on that margin decline..

The margin decline, Denny, as Tim said, is more relevant and specific to the quarter itself. Sequentially, we would expect to see a nice increase in the margin. We did open our North Brunswick campus in May of last year, so we're continuing to – we haven't reached a startup there and have some advertising around that.

We opened our Chamberlain campus in Irving, Texas in September; we're getting ready for the opening of Charlotte. So, we have some additional advertising startup costs that are incremental that would be impacting that without any, of course, revenue coming in from those campuses, or at least for the full quarter that would be impacting it.

So wouldn't consider this quarter to be any representative of the full year. And, as Tim said, it's very likely to expect to have some nice, or some modest margin improvement on a year-over-year basis for Medical and Healthcare..

I will just add or emphasize what was mentioned before, which is the one-time cost of dealing with tropical storm Erika. And that really was a major event, and I'm so proud of the team for displaying DeVry Group Care and making sure that our students were able to get there, that our team was able to get there, going to extraordinary lengths.

So, there was expenditure there and we've quantified that for you. And I don't expect to see that again in the coming quarters..

Thanks for taking my questions..

Sure..

Well, with no further questions, we'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Ms. Joan Walter, Investor Relations for any closing remarks.

Ma'am?.

I think Daniel wants to say something first..

I apologize..

Yeah, before she does, I want to mark a milestone. Which is somebody on this call is celebrating their anniversary. Their 60th results call with DeVry Education Group. If you do the math, that's 15 years.

And some of you have been around this story for a long time and we really appreciate that and we appreciate you, Joan, and all that you do for our students and for our colleagues. So, with that commercial interruption, I will turn it back to you..

I love DeVry. Thank you. So, I'll close it up by saying we'd like to thank everyone for your questions and remind everyone that our next results call is scheduled for February 4, when we'll announce our fiscal 2016 second quarter results. Thank you, everyone, for your continued support of DeVry Education Group. We'll conclude, operator. Thank you..

And Ms. Walter, we thank you, ma'am. And to the rest of the management team for your time also today. The conference call is now concluded. At this time you may disconnect your lines, everyone. Thank you and take care..