Joan Walter - DeVry Education Group Inc. Lisa W. Wardell - DeVry Education Group Inc. Patrick J. Unzicker - DeVry Education Group Inc..

Jeffrey Marc Silber - BMO Capital Markets (United States) Nick J. Nikitas - Robert W. Baird & Co., Inc. (Broker) Jeffrey Lee - Credit Suisse Securities (USA) LLC (Broker) Peter P. Appert - Piper Jaffray & Co. Chris Howe - Barrington Research Associates, Inc..

Good afternoon and welcome to the Q1 2017 DeVry Education Group Conference Call. I would now like to turn the conference over to Joan Walter, Senior Director of Investor Relations. Please go ahead..

Thank you and good afternoon, everyone. With me today from DeVry Education Group's leadership team are Lisa Wardell, President and Chief Executive Officer; and Patrick Unzicker, our Chief Financial 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 involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied.

These factors are discussed under Risk Factors and elsewhere in our Quarterly Report and Form 10-K for fiscal 2016 filed with the SEC and available on our website at www.DeVryEducationGroup.com. DeVry Group disclaims any obligation to update any forward-looking statements made during the call.

During today's call we may refer to non-GAAP financial measures, which are intended to supplement, though not substitute, for our directly comparable GAAP measures.

Our press release, which contains some financial and other quantitative information to be discussed, 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 15. To access the replays, please refer to today's press release.

Finally, I'd like to call your attention to the supplemental slides that we filed along with our press release and 8-K today. And with that, I'll now turn the call over to Lisa..

Thanks, Joan. Good afternoon, everyone and thank you for joining us on today's call. As our first quarter results indicate, we're off to a solid start to achieve one of our key priorities of stabilizing revenues and growing earnings. Total enrollments across our group were up 8%, reflecting continuing demand for our program offerings.

We're executing our strategic plan and taking the necessary steps to strengthen our value proposition among prospective students and employers while carefully managing our cost to improve operating performance.

We've got a good deal of work to do in terms of fully tapping in to the potential of our organization and returning DeVry Group to sustainable growth. And while we're demonstrating notable progress at several institutions, we're still in the process of turning around our performance at others.

I'm encouraged by the renewed sense of energy and focus across our organization. But our mandate is really clear; we're centered on utilizing our resources to better meet the needs of today's students and employers, with the aim of filling the global workforce skills gaps that are prevalent in our society.

Our success will be determined by our ability to achieve better persistence, completion, and post-graduate employment, while driving further margin increases and efficiency in our operations.

Looking at our fiscal first quarter performance, our overall operating results were slightly ahead of our expectations, with our top line increasing by 1.9% year-over-year, and our EPS, excluding special items, increasing to $0.45 as opposed to $0.38 last year.

Our results reflect continued growth at several institutions including Chamberlain, DeVry Medical International, Becker and DeVry Brasil, offset in part by the transitions underway at both DeVry University and Carrington College.

We're benefiting from the actions we've taken to reduce costs, while further diversifying our revenue profile and increasing our presence across a number of attractive, fast-growing sectors where there is considerable demand for well-trained professionals.

For perspective, more than 90% of our operating income now comes from growing institutions serving the healthcare, professional education, and international markets. Notably, our fiscal first quarter represented our third consecutive quarter of operating income growth, excluding special items.

As we noted on our previous call, we believe we're now at an inflection point, and we expect to show continued momentum in terms of operating income growth at DeVry Group in the year ahead. We also fully expect to deliver earnings per share growth for the full fiscal year.

Before reviewing recent developments at each of our institutions during the first fiscal quarter, I'd like to tell you about our progress to-date in meeting the four key objectives of our strategic plan that I outlined on our previous call.

First and foremost, we have continued to concentrate on fostering in a heightened culture of student-centric focus and academic excellence, with the aim of fully delivering on the promise and value proposition across all of DeVry Group's institutions.

We are introducing a range of programs that are designed to effectively address the workforce skills gaps in our society. From healthcare and technology to accounting and computer programming, these programs are very much aligned with the needs of today's employers, and have been designed to give our graduates a clear edge in pursuing employment.

At the same time, we're taking steps to reduce DeVry Group's exposure to Title IV funding, underscoring our commitment to our students and our confidence in the programs we're introducing. Recently, we committed to limiting the revenue that each of our institutions derived from federal funding to 85%.

And we're including the Department of Veterans Affairs and military tuition assistance benefits in those calculations. We believe we can meet this threshold for all of our institutions by the end of the current fiscal year.

Thus far, we have received positive responses from policy makers and other stakeholders in Washington, as we seek to proactively change the dialogue with regard to for-profit institutions and their integral role in this country's higher education system.

As I outlined on our previous call, being laser-focused on student success is really very much a personal issue for me. Many of our students are adult learners, come from challenged socioeconomic background and require a different path to realize their potential. Simply put, these students are the new normal, and now in the majority.

We must provide better access to the programs and resources that will help these students succeed. Secondly, as I mentioned, we're making significant progress in stabilizing revenues and growing operating income and EPS, as well as growing the intrinsic value of DeVry Group.

As we develop and roll out highly relevant program offerings, especially in healthcare, professional services and technology, and make these courses more accessible to a wide range of students and corporations, we're also strengthening our revenue profile, while continually fostering a more efficient operating structure.

By emphasizing a range of program choices aimed at delivering the right skills to our students in an efficient manner, in the classroom and online, everyone benefits; our students, their employers, and our shareholders, as we operate in a more focused and profitable manner.

The third priority, we're going to accelerate our efforts to leverage our organizational synergies and broaden cost reduction across our footprint. You're now seeing the impact of these efforts in our results.

As Patrick will review in his remarks, we're continuing to make further progress in reducing costs at our home office, with overhead spending decreasing by nearly 5% during the first quarter. And there's room for more.

We're moving forward and duplicating the kinds of cost reduction strategies that have worked well at DeVry University, and seeking to improve efficiency across the rest of our institutions as well as home office. We expect ongoing progress in this area as the year unfolds and it will be reflected in our operating income performance.

And finally, we're continuing to work to find a resolution to the regulatory issues we are facing, so we can put this chapter behind us. In October, we reached an agreement with the Department of Education regarding its Notice of Intent to Limit, which has been issued this past January.

As part of this agreement, we've agreed to post a letter of credit with the Department equal to 10% of DeVry University's annual Title IV disbursements. In addition, DeVry University's participation in Title IV programs will be under provisional certification for a 5-year period.

Overall, we believe this is a good outcome for our organization, as it will not in any way hinder our ability to serve current or future students at DeVry University. With that settled, we turn our full attention and focus to discussions with the FTC to resolve that agency's complaint.

We remain hopeful that we can come to an agreement this calendar year. With an 80-year history of quality education and thousands of graduates in the workplace, resolving regulatory issues will allow us to maintain a leadership role in addressing some of the key issues facing this sector.

I'm committed to working collaboratively with the administration, Congress, and a range of partners in our industry to evaluate effective paths toward developing a very clear and sustainable measurement process for determining academic success in our industry.

Just yesterday, we released a bold set of student commitments that all of our institutions will adhere to as we move into the next chapter of DeVry's history. We will continue to be a leader in higher education. Now, let me review our segments beginning with Medical and Healthcare, which remains our largest contributor to revenue and earnings.

We continue to see healthy and growing demand for a wide range of professionals in these industries globally, and we believe our program offerings are very much in sync with the skill sets that employers are looking for.

In addition, our reputation remains excellent as thousands of our talented alumni serve in a broad range of roles in the healthcare market.

At Chamberlain, we delivered another quarter of growth in revenues and operating income, as our programs continue to effectively tap into the significant demand for skilled professionals, especially nurses, across the healthcare market.

While Chamberlain achieved double-digit revenue growth in the quarter and the institution's growth outlook remains robust, we should note that we're seeing some moderation in the rate of top line growth due to the change in the school's BSN curriculum, whereby we had to decrease average credit hours by approximately seven credits to address student affordability concerns.

This change will modestly impact near-term revenue, but Chamberlain's strong overall momentum will continue, given the institution's outstanding enrollment growth. For perspective, in September Chamberlain delivered record new student starts, including the largest RN to BSN class ever.

In addition, both the MSN and DNP programs had their second highest start in those programs' history. Chamberlain's growing number of graduates who work in the industry and demonstrate the efficacy of the school's programs and patient care philosophies serve as referral sources for Chamberlain.

Chamberlain's healthcare facilities partnership model has continued to position the institution very well, as potential students recognize the relevance of Chamberlain's presence among these highly-visible institutions.

Our national network of health development specialists has built strong relationships with hundreds of providers nationally, leveraging Chamberlain's reputation and skilled workforce. Overall, demand for Chamberlain's program offerings remains strong, and our recent campus openings are performing above our expectation.

With regard to our new BSN concentration serving Hispanic communities, which was launched in Phoenix in May, the program has been very well received and is progressing in line with our goals. We remain excited about this program and the many opportunities that Chamberlain is pursuing.

I should also note that Chamberlain plans to begin increasing FNP student enrollments in January, as the institution ensures it can provide a quality clinical experience for this high-demand program. Our performance at DeVry Medical International remained mixed during the first quarter.

Our veterinary school continues to perform very well and has enrolled a record number of new students based on its strong reputation internationally and the continued demand for veterinarians. As I addressed on our last call, both medical schools required organization restructuring to more effectively compete for new student enrollment.

The reorganization has been implemented, but new student enrollments were down at both medical schools during the quarter, as frankly our marketing and enrollment services were not effective in their outreach and we were not differentiating our offerings from the competition.

Moving from a centralized marketing structure, we've created marketing departments at each institution with each operating alongside the alumni relations and admission functions of that institution.

We're also focusing on doing a better job highlighting our excellent metrics, including our residency track record, while placing a greater emphasis on communicating our value proposition through digital and social media.

It's going to take some time for the reorganization to generate results, given that the decision cycle for incoming students typically takes about 6 months to 12 months. So we won't start to see the impact until January of 2017 at the earliest, but we remain confident that we have the solution.

The good news is that demand for medical doctor programs remains very healthy, primarily due to the large surplus of students looking to become MDs and the limited spots available in the U.S. In addition, there are ample residency slots for international school students in the U.S. following graduation.

And our residency track record clearly demonstrates that Ross and the American University of the Caribbean are among the Caribbean schools that consistently have excellent residency outcomes for students.

Both schools continue to graduate very well-trained professionals who are sought after in their medical fields, and we're generating solid result with regard to key metrics, including test pass rates, persistence, and graduation rates.

As we implement these new marketing initiatives, I should note that we're carefully managing cost with expenses being flat in the first quarter. Now, let me turn briefly to Carrington, where we have continued to struggle with negative enrollment trends, but our quarterly results exceeded our internal expectations.

We also experienced strong student outcomes in our nursing programs, with (14:59) pass rates higher than the national average. However, the overall climate for career education remains under pressure, with continued declines in new student demand across the sector.

In response, we're evaluating every facet of the institution spanning our program offerings, pricing, and marketing efforts. On the revenue side, we're continuing to focus on rolling out our new programs in pharmacy technology, veterinary assisting, and medical billing and coding.

We're also emphasizing shorter, stackable programs that are more affordable to incoming students, many of whom are also working full time. On the cost side, we're also continuing to evaluate all options for further reducing our cost exposure, including head count reductions and real estate consolidation as well as driving marketing efficiencies.

In the first quarter, excluding special items, Carrington reduced total expenses by 11% and we made notable progress in reducing the school's operating loss, recovering more than a 100% of lost revenue.

Overall, we remain optimistic about the institution, given the quality of our program offerings and the overall demand in the healthcare marketplace as well as Dr. Loraine's leadership and oversight. In our International and Professional Education business, Becker continued to deliver solid results.

With regard to the Association of Certified Anti-Money Laundering Specialists, or ACAMS, Becker has made solid progress in integrating the acquisition. Integration is ahead of plan, and we now expect ACAMS to be neutral to earnings per share and EBITDA in the current fiscal year rather than modestly dilutive as originally anticipated.

The Becker team is working closely with ACAMS on introducing the organization's programs to the Becker customer base and vice versa. There are a broad range of opportunities given the growing alignment across the accounting, fraud, risk assessment and anti-money laundering profession.

By merging its education technology and marketing capabilities with ACAMS program offerings, Becker is adding a complementary resource to its product offerings and building another attractive long-term revenue opportunity, particularly on the international stage where ACAMS has limited penetration.

With regard to health care, Becker is starting to see good traction in the U.S. and is attracting partner institutions for the USMLE exam. The licensing exam prep program, which already has solid and growing support among international clinical training centers, recently secured a new partnership with the Chicago Medical Training Center, CMTC.

Becker will work with the center to offer USMLE prep courses, which will provide medical students with access to efficient comprehensive training and study options in one centralized location. Becker is in discussions with additional clinical training centers as well.

Succeeding on the USMLE step one remains a critical step in becoming a doctor for all medical school students, and providing exam preparation on site at clinical centers provides a notable competitive advantage to students.

Turning to DeVry Educacional do Brasil or DeVry Education of Brazil, formally known as DeVry Brasil, the institution delivered solid growth in the first quarter on an organic constant currency basis.

Both undergraduate and graduate total enrollment increased in September, and the brands that make up the group continued to be among the most respected schools in Brazil.

Persistence levels remain healthy, but we're seeing some slowdown in new student starts due to the changes underway with regard to the government's management of the CS program, as well as ongoing economic pressure in the country.

Still, Brazil remains a key long-term growth market and DeVry Educacional, which was bolstered by our acquisition of Grupo Ibmec, and remains well positioned to take advantage of the expanding middle class, increasing college penetration in favorable regulatory systems.

Turning now to DeVry University, following a substantial organizational right-sizing in the past two years, we've now entered a new phase in the University's history.

Leveraging the institution's core attributes and strong reputation in technology, we've begun to move forward in introducing a highly relevant program offering aimed at better meeting student preferences and employer needs.

Throughout fiscal 2017, we'll be introducing a range of shorter, stackable programs with off-ramps to careers that allow students the flexibility and affordability to pursue their education outside of the traditional 4-year degree construct.

Our course offering will primarily center on supporting the development of in-demand skills in the technology, healthcare and analytics markets.

These stackable program offerings will span health information, web development, networking, computer information systems and technical management among others, with programs delivered through certificates and Bootcamp as well as associate's, bachelor's, and master's degrees.

We're putting particular emphasis on the Bootcamp format, including both part-time and full-time programs, spanning computer coding, cybersecurity, mobile app development, digital marketing and social media marketing, among other high demand areas.

Through DeVryWORKS, which was launched this past June, our team of workforce solutions professionals is focused on transitioning our direct relationships with employers from what has generally been a tactical approach into a much deeper strategic relationship-driven approach.

This approach calls for working more closely with employers to develop and design programs that better meet their specific needs spanning talent acquisitions, talent development through skills gaps training and talent acquisition. It's early in the roll-out of the new program offering.

And while our enrollments remain below prior-year periods, we're encouraged by the diminishing rate of decline in new undergraduate students, especially with our new online program, validating our new strategy. As we focus on executing our plan, we're also committed to maintaining positive economics at the University.

During the first quarter, excluding special items, we recovered 88% in expenses for every dollar of lost revenue.

As the fiscal year progresses, we expect the cost recovery rate at DeVry University to increase, as we continue to achieve a disciplined balance between the initiatives we're implementing to return the University to growth and the positive economics that we are maintaining.

Our new program offerings, our efforts to address affordability through new pricing and scholarships, and our focus on strengthening our employer relationships, combined with our strong expense discipline, are all part of a formula that I believe will result in both growth and significant operating leverage at what we envision as a smaller, leaner, and ultimately profitable DeVry University over the long term.

I also think it's worth mentioning that DeVry University significantly improved its cohort default rate for 2013 at 10.6%, which is down from 12.6% in the prior year. So congratulations to the team for their dedication in improving this critical metric.

Now, before providing my closing remarks, I would like to turn the call over to Patrick for the financial review..

Thank you, Lisa and good afternoon everyone. We're very pleased to report improved results for our fiscal first quarter. We're making tangible progress in aligning our organization with the growing macro trends in healthcare, technology, and professional education, while diligently managing our costs.

Our success in diversifying our revenue profile and reducing our costs is having a positive impact, as we grew both our top- and bottom-line results for the quarter.

Now we have built a differentiated portfolio of quality institutions that increase our long-term revenue potential, while providing ample opportunities to drive operational synergies and leverage our scale to further improve our operating fundamentals.

As Lisa noted, we believe we're now at an inflection point and we expect to show continued momentum in terms of earnings growth at DeVry Group in fiscal year 2017.

Supporting our outlook, our earnings are now driven by our Medical and Healthcare, Professional Education and International Institutions, which are all aligned with attractive and growing in-demand sectors.

As we execute our plan, we are focused on driving further efficiencies across our organization, with the goal of enhancing our cash flows, rebuilding our cash balances, and rewarding our shareholders through improved returns.

Now turning to the specifics of the quarter, total DeVry Group revenue increased 1.9% year-over-year to nearly $450 million, driven by growth in our Medical and Healthcare and International and Professional Education segments, offset in part, by the continued decline in enrollment at DeVry University in Carrington.

Total costs, excluding special items, for the first quarter, were about $412 million, increasing 0.6% from last year. Special items in the quarter include a $5 million pre-tax restructuring charge, primarily for real estate consolidation at DeVry University, Carrington, and home office.

We reported net income of $25.2 million for the first quarter and earnings per share of $0.39. Net income excluding special items was $28.8 million during the first quarter, which resulted in earnings per share, excluding special items, of $0.45, up from $0.38 in the year-ago quarter.

Our effective tax rate excluding special items was 22.5% for the first quarter. Starting with Medical and Healthcare segment, revenue of $236.8 million was up 5.7% during the first quarter, led by continued double-digit growth at Chamberlain.

Operating income, excluding special items for the segment was $43.2 million, representing an increase of 24.8% from the prior year. This increase reflects operating leverage, particularly at DeVry Medical International. Chamberlain revenue grew 10.4% for the quarter.

For September, new students increased 1.2% as we continue to limit enrollments in our Family Nurse Practitioner program. Total students grew nearly 12%. Looking to the remainder of the fiscal year ahead, we continue to expect high-single digit to low-double digit growth in both total enrollment and revenue at Chamberlain.

DeVry Medical International revenue grew 6.6% during the first quarter. As we had noted during our last call, we were anticipating a decline in new medical student enrollments. In September, new student enrollment decreased 18.7% and total students decreased 5.8%.

Despite weak new enrollment, we continue to expect full-year revenue growth in the low-single digit range, due to tuition increases and improving new student enrollments in the January and May semesters, as we make progress in improving the effectiveness of our medical school marketing and recruiting efforts.

Carrington revenue declined 7.9% during the quarter, while new students declined 9.5%, and total students declined by 12.2%. The school's results were ahead of our plan, and we are encouraged by the direction of the comprehensive evaluation of the institution being undertaken by our new President, Dr. Donna Loraine.

As part of this review, we will continue to seek avenues to further reduce cost and regain our market share. Now turning to the International and Professional Education segment, revenue of $93 million increased 58.5% in the quarter, as we benefited from the recent acquisitions and year-over-year growth in total enrollment.

The increase in the Brazilian real as compared to the U.S. dollar also increased our reported revenues. Without this currency effect, revenue for our International and Professional Education segment would have grown 51% in the first quarter. The segment's operating income was $4.1 million during the quarter, doubling from $2 million in the prior year.

Without the impact of currency, segment operating income would have grown 23% in the quarter. Our Professional Education revenue increased 36.6% during the quarter, driven by the acquisition of ACAMS, which more than offset declines in Becker CPA and Healthcare.

With regard to ACAMS, as Lisa noted, we now expect the acquisition to be neutral to earnings per share and EBITDA in the current fiscal year, rather than a modestly dilutive impact as originally anticipated. Also, we estimate $7 million of amortization of intangible assets associated with the ACAMS acquisition in fiscal year 2017.

Revenue at DeVry Brasil grew 75.1% in the quarter to $58.2 million. The increase was primarily driven by the acquisition of Ibmec as well as organic enrollment growth.

Within the Business Technology and Management segment, revenue was down 24.2% to $120.9 million during the quarter, driven by continued enrollment declines in the July and September sessions at DeVry University.

In September, undergraduate new student enrollments declined 14.3% and total students declined 22.9%, representing an improving trend as September's rate of new student decline diminished significantly as compared to July. We expect to see a continued improvement in the rate of decline for new student enrollments in our November session.

Now, we continue to carefully manage our cost structure as we move forward in creating a leaner, smaller, and ultimately, more profitable institution. During the first quarter, excluding special items, DeVry University recovered 88% in expenses for every dollar of lost revenue, for a total reduction in costs of $33.8 million.

We remain diligent in reducing expenses and expect to achieve a very high rate of recovery going forward, in excess of 90% for full fiscal year 2017. The operating loss for the segment in the quarter, excluding special items, was $6.3 million, compared to an operating loss of $1.6 million last year, during a seasonally weak quarter.

We remain on track to maintain positive economics for the full fiscal year. For the second quarter of fiscal 2017, we expect total DeVry Group revenue to be flat to up 1%.

Continued growth, particularly in the International and Professional Education segments including positive contributions from the Ibmec and ACAMS acquisitions will be partially offset by declining revenue at DeVry University in Carrington.

Second quarter operating costs before special items are expected to decline 1% to 2% versus the prior year, as a result of cost reductions at DeVry University, offset somewhat by recent acquisitions in the International and Professional Education segments.

For the full year, we continue to expect revenue to be flat compared to the prior year, and earnings before special items to grow in the mid-single digits as compared to the prior year.

We expect to incur additional restructuring charges in the current fiscal year, as we continue to right-size operations to better align with current enrollment levels. In fiscal year 2017, we expect that our effective income tax rate from operations will be in the 22% to 23% range before special items.

Now turning to our balance sheet and financial position, cash flow from operations from the first quarter was $97.8 million. Our cash and cash equivalent were $189 million at September 30, down from $436 million in the prior year, mainly due the acquisitions of Ibmec last December and ACAMS in July of the current fiscal year.

Our net accounts receivable balance was $184 million, down 0.9% from the prior year. Our bad debt as a percentage of revenue remains lower than most at 2.3% compared to 2.1% last year. Capital spending for the first quarter was $11.3 million compared to $22.8 million in the prior year.

We're targeting capital spending for fiscal year 2017 to be in the $70 million to $75 million range, driven primarily by investments at DeVry Medical International and DeVry Brasil to enhance academic quality. During the first quarter, we returned approximately $8.3 million to our owners through share repurchases.

We repurchased approximately 371,000 shares during the first quarter at an average purchase price of $22.27 per share. Going forward, we are committed to driving further cost reduction across our organization and increasing capital generation at several of our institutions, including Brazil, Chamberlain, and DeVry Medical International.

With regard to our settlement with the Department of Education, we have issued a letter of credit of $68 million, representing 10% of DeVry University's Title IV disbursements in fiscal year 2015. The letter of credit has a 5-year term and was issued under our revolving credit facility. Our capital generation remains stable.

In the first quarter, we generated $59 million of EBITDA, representing a 13% margin before special charges. We also generated $86 million of free cash flow. Now, let me turn the call back over to Lisa..

Thanks, Patrick. In summary, we're off to a promising start in fiscal 2017 as we made progress in executing against each of our four core objectives. Most importantly, we're moving forward and stressing our value proposition to students and employers, while improving our operating performance.

We're making tangible progress in strategically diversifying our program offerings and reducing the volatility of our revenue sources, while improving operating efficiencies across the organization.

As I noted, virtually all of our operating income now comes from growing institutions serving the Medical, International, and Professional Education markets. The financial performance of these institutions has been largely masked by the issues we faced at DeVry University.

However, as we make progress in turning around the university, we'll be in a position to generate considerable operating leverage. Overall, as I mentioned, we have a lot of work to do, but we're operating with a strong sense of urgency and we're getting things done.

I believe we're making the right decisions to return our organization to growth and profitability. As we execute our strategy, we'll continue to seek avenues to extend our expense discipline efforts across the entire organization, which should further support operating leverage as overall enrollments turn positive.

And with that, let me turn the call over to the operator for the Q&A session..

And today, our first question will come from Jeff Silber of BMO Capital Markets. Please go ahead..

Thank you so much. Wanted to focus first on Chamberlain. You mentioned the reasons for the slowing growth in starts. I'm just wondering can we parse out on a same-school basis if there were any starts growth. And I'm also curious why you still have confidence that that division can generate high-single digit to low-double digit growth this year. Thanks..

Hi. Thanks, Jeff. So, in terms of the actual Chamberlain as a whole, as we had mentioned and discussed last call in last quarter, the fundamentals around growth for the actual demand for nursing in our programs remain strong.

We had a couple of different issues primarily around cap on the FNP side that we had basically voluntarily placed, as you will recall, because of a clinical capacity issue on the back-end. We continue to have a strong interest in FNP.

That program is growing and we now have resolved that issue and have made some good progress in identifying those clinicals to the point where we feel comfortable, and our business unit leaders, they feel comfortable lifting that cap.

When we talk about the campuses in general, as you know, while we don't have new campuses opening this year, out of our 20 campuses we've got strong growth, we have 11 of them mature more than three years, as you know.

And we have continued growth on all of our other areas, as Patrick mentioned, for the RN to BSN, we had the strongest new student enrollment in that program this quarter and we don't see that trending the other way.

So, we continue to feel that there's growth there and that some of the issues that we had or hiccups, I would say, last time have been resolved..

Okay. Great. I'll follow-up with some more color off-line. And then just shifting gears over to the BTM segment, you mentioned the progress you've made in terms of cost recovery and how you'd expect that to continue and potentially even improve.

But that was a -it's a pretty big hole in terms of the first quarter in terms of the operating loss, yet you still think it will be – I think you called it economically positive for the year again. If you can give us some more color how you think you're going to get there, that'll be great..

Sure, Jeff. It's Pat. Just with respect to – it was a big hole with respect to the operating losses, $6.3 million compared to last year. But from a seasonality perspective, we have for the past couple of years had operating losses in the first quarter.

Overall, we feel very confident on our full-year positive economics in terms of the timing of our expense reductions and how that will pace out for the rest of the remainder of the year as well as how we feel with some increasing comfort around the top line revenue where we will be positive economics for the full year..

Okay. Great. Thanks so much..

And our next question comes from Jeff Meuler of Baird. Please go ahead..

Yeah. Thanks. This is Nick Nikitas on for Jeff. Lisa, you mentioned the moderating top line growth for Chamberlain impacted by the decreased average credit hours.

Was that something you guys had previously planned heading into the year or was it an adjustment that was made during the quarter, if you could just kind of talk a little bit more about that?.

Yeah, sure. No, we planned that during this fiscal year. So we anticipated that in plan. This was something that we needed to do to become more competitive or around about seven credit hours per student in that program.

And we needed to do that from an affordability perspective for the students, and so we knew that coming into the year, anticipated that. And it's working to plan as we go into the back-half of the year here..

Okay.

And then just looking at the margins, those are up pretty substantially for Medical and Healthcare, and with no new campuses being launched until next year, how should we think about the margin progression and profile for medical and healthcare over the remainder of this year?.

Sure, Nick. In terms of the margin improvement, it's being driven by a couple of things. First off, by Carrington, where we're benefiting now from the actions to realign their cost structure with enrollments. So, on a year-over-year basis, that's having a positive impact on enrollments.

And then as you've noted, with a little bit slower investment in Chamberlain this year just based on how the timing of the campuses will open, that will have a pretty nice impact year-over-year, probably say $5 million to $6 million of a positive impact driven by a lower level of investment in new campuses in 2017 as compared to 2016..

Okay. That's helpful. Thanks. And then just one last one from me with DVU, solid improvement in the new starts number there and I think you said you expect further improvement in the November period.

So if you could just talk more about what you're seeing, I guess, both from a lead flow and a conversion perspective and just more broadly across the industry?.

Yeah. So I'll start. First of all, we are seeing that trend continuing and we're feeling comfortable that that's going to go into the November and January starts. Couple of things there, one, around our program offerings and we talked a little bit about the stackable program.

We've had some, we mentioned, very early success last quarter, for example, with medical coding and billing.

We have seen that success continue, and those programs really paying off as we get not only the new students but increased persistence across some of those key core programs that are somewhat shorter than the 4-year degrees, but we're seeing good enrollment progress and don't anticipate that changing. We're getting good progress there. I'm sorry.

I'm forgetting the second part of the question..

Yeah. Just in general, the lead flow and conversion trends..

Oh. Got it.

So yeah, again, if we go back to our sort of enrollment persistence and completion here, we're seeing some really good trends in terms of students that are not only in the new programs, but across campuses and across our full DVU programs as we're focusing more on that healthcare and technology initiative, and driving that within the program.

So we anticipate that that's going to continue through the back-half of the year. We've got some good signs on that already and we're pretty confident around that and on the positive economics associated with that..

Okay. Great. Thanks..

And our next question comes from Jeff Lee of Credit Suisse. Please go ahead..

Thank you. Earlier I believe you'd indicated that while the FTC is okay with acquisitions that fit a (45:05) regular pattern of business, they don't look as favorably on uses of cash such as share repurchases when a possible settlement is being negotiated.

So how do you reconcile that characterization with your repurchase of stock during the quarter?.

Yeah. Well, so first, I will start and then let Patrick chime in.

I would say that just in general, while that is the case that the FTC and other agencies look at these buckets differently, I do think that in general, they're looking across all of our capital uses and needs and this will come up, so I'll mention it here, we are very encouraged by the constructive conversations we're having with the FTC.

As you know, we have settled our issues with Ed and I believe that the FTC looks favorably upon that action and we're getting some positive momentum and movement in those discussions with the FTC.

I think here we're talking about really the difference between a program that was in place at the time that has some longevity to it, that as you know, manages across dilution.

And this is not a one-time sort of huge, immediate, one-time share buy-back that may look as if we are viewing that capital as something that we return to owners and not use for our students. Patrick, anything to add? No? That's how we view that..

Okay. Great. Thank you very much..

Sure..

And our next question comes from Peter Appert of Piper Jaffray. Please go ahead..

Thanks. Good afternoon.

Lisa or Pat, do you have any preliminary data on the gainful employment stats?.

We've continued to have estimated projections for those. Obviously, we did receive the draft rates and those draft rates are relatively in-line with our expectations in terms of where we thought we would have some programs perhaps falling into the zone, most notably with Ross vet.

We have options that we're pursuing to ensure the program continues to remain eligible for Title IV. And we'll continue to pursue those before the final draft rates, the final rates are published. And obviously that program can be in the zone no more than four consecutive years. That's the largest program that we're focused on.

We do have some other programs that are in the zone that are much smaller enrollments, where we've taken pricing actions anticipating this or other alternative programs such as stackable degrees where we have medical billing and coding, that allows students to continue into Associates in healthcare information technology.

So we know what our areas of opportunities are and we're very much focused on those, and obviously the vet program being the top area..

Right. And the only thing I would add to that is, we've been working on this for quite some time, right? So we can back into a lot of those numbers and effects on the programs and we have been taking a really conservative approach to that, to say what's going to fall in there and how can we be ahead of the game as it relates to that.

And to the extent that those programs can remain in place and we can address some of the affordability for students, obviously that's a win-win for us as we go out and make these commitments to students, and as we announced yesterday, some of that around affordability. So we're tackling that one head-on..

Right.

And so I take it then that there are no programs that are failing at this point?.

Not of any material significance as it relates to our strategy on a go-forward basis..

Got it.

And related to that, you mentioned this, Lisa, the 85% target in terms of the Title IV limit, are you there already or do you need to make more adjustments on the pricing to get there?.

Yeah, in some of our institutions we are. And where we are not, we're close, but we know exactly what we need to do from a pricing perspective and affordability perspective to get there. I think sometimes when people look at the facts there that are published, we don't think about the military and VA tuition assistance that's in those stats.

So it's not that I'm saying that this is not a bold move that we're making, it certainly is. We've just been working very hard for quite some time to put in place what we need to put in place so that we can be adhering to those principles as a leader in the industry by the end of this fiscal year..

Got it. And then, Lisa, you mentioned, I think, or maybe it was Pat, the prospects – or you were talking about this quarter as an inflection point and an inflection in earnings as the year progresses.

I want to make sure I understand how to interpret that statement, because the guidance would suggest that the percentage gain in earnings, just thinking about this on an EPS basis that you reported in the first quarter, is well ahead of what you're saying you're going to do or would be implied you're going to do for the year.

So, is there a disconnect there?.

Yeah, so the inflection point, first I'll take that one, and then I understand kind of the potential of a perceived disconnect. So the inflection point comment was based on, now this is our third consecutive quarter where we've had operating income either flat or up relative to prior year excluding special charges.

With respect, Peter, to this quarter's operating income being up excluding special items, 18%, and reconciling that to our outlook in terms of expecting earnings growth in the mid-single digits, this quarter was relatively strong to our expectations, and we do expect a little bit of a kind of seasonality or choppiness perhaps in the third quarter, but on balance for the full year, we're still very comfortable with earnings growth in the mid-single digit range..

Got it. Okay. Thank you. And just one last thing.

In terms of the better results at DVU, Lisa, would you attribute any of that to changing competitive dynamics or do you think it's all just about the, I guess, the combination of easier comps and these newer programs you're offering?.

Sure. I would say both, no question.

Although when we talk about the changing competitive dynamics and some folks leaving the marketplace, that's going to be something that's more into the next section, frankly, because we are looking at those students and that process on a student-by-student basis, again, to make sure as they're coming into our program that they can persist and graduate, obviously.

So, not so much this quarter, which I think is why we're quite confident, because we will see some of the impact of that as we move into the November session..

Got it. Great. Thank you..

Certainly both of those pieces. Yep..

Our next question comes from Alex Paris of Barrington Research. Please go ahead..

Good afternoon. This is Chris Howe sitting in for Alex Paris..

Hi, Chris..

Most of my questions have already been taken – hi. But I do have a question in regard to the Chicago Medical Training Center and the USMLE preparation. Just surrounding that partnership, you mentioned some additional centers that were in discussion.

How should we think about this opportunity as we move forward?.

It's a growing opportunity and we think about it with respect to USMLE review as really starting to gain some good traction of offering the review to students in U.S. medical schools. So we see this as a nice foray into that and to get some traction with a successful launch here..

Okay. Thank you. That's very helpful. I'll jump back in the queue..

And this concludes our question-and-answer session. I would like to turn the call back to Joan Walter for any closing remarks..

Great. Thanks, Dan. We'd like to thank everyone for your questions and remind you that our next results call is scheduled for February 2 when we announce our fiscal 2017 second quarter results. Thank you for your continued support of DeVry Education Group..

And ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect..