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

Corey Greendale - First Analysis Securities Corp. Peter P. Appert - Piper Jaffray & Co. Trace Adair Urdan - Credit Suisse Securities (USA) LLC Jeff P. Meuler - Robert W. Baird & Co., Inc. Jeffrey Marc Silber - BMO Capital Markets (United States) Neal K. Shah - Valtura Capital Partners LLC Andrei Stetsenko - Farley Capital L. P..

Good afternoon, and welcome to the DeVry Education Group Second Quarter 2017 Conference Call. All participants will be in listen-only mode. 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 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 Reports 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 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 February 16. To access the replays, please refer to today's release for information.

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

Thank you, Joan. Good afternoon, everyone, and thank you for joining us on today's call. Our second quarter results reflect our progress in expanding and diversifying our revenue profile, while continuing to carefully manage our cost.

The overall operating fundamentals of our organization are improving, as we execute our strategic plan in a disciplined manner and further strengthen our value proposition among perspective students and employers. Our second quarter results were in line with our plan.

Revenue was flat with last year's second quarter, while operating income rose 27%, reflecting our fourth consecutive quarter of operating income improvement, excluding special items. We now believe we'll deliver earnings growth for the full year that is slightly ahead of what we communicated last quarter.

Over the past eight months, I have had the opportunity to meet with many of our fellow owners, including a good number who recently started following our company, as well as those who have been shareholders for some time. As a result, I have a better understanding of their views of our organization, and what they expect from our management team.

I'm heartened by the feedback I've received and I am more determined than ever to pursue the growth opportunities in front of us.

I believe we're executing well in pursuing our core objectives, but we still have a lot of work to do, especially with regard to improving enrollment trends at several of our institutions, and driving further efficiencies across our portfolio.

I believe our vision and strategic plan, and the diligent approach we're taking will increase shareholder value. As most of you know, in late 2016, we successfully settled some high-priority regulatory issues related to FTC and Department of Education litigation.

This has consumed a significant amount of management's time over the past year, and we're thrilled to have this behind us. As a result, we are now well positioned to focus 100% of our efforts on portfolio management in terms of operating improvement, external advocacy and strategic planning opportunities.

Looking ahead, I think we can agree that if we put our students first and deliver the most compelling in-demand program in the most efficient manner, we can generate healthy returns on the substantial investments we've made in our institutions.

And everyone can benefit, our students, their employers, and our owners, as we operate in a more focused and profitable manner. We are making solid progress in reducing our overhead costs, not only at DeVry University, but also throughout the organization. Underlining our momentum, we've also strengthened our culture and our management team.

Talented educators and staff have never been more committed to our mission. We're focused on better utilizing our resources to address the needs of today's students and employers with the goal of filling the global workforce skills gaps that are prevalent in our society, particularly in healthcare, technology and professional education.

We'll measure our success according to our progress in improving persistence, completion and postgraduate employment, while improving the financial performance of our operations. We believe quality education and superior outcomes for our students can and will also lead to better results for our owners.

We recognize that execution is everything, and I'm confident we can continue to demonstrate ongoing progress in delivering on our core objectives as the year unfolds. So, let's take a moment to review each of them. When I took over as CEO, I told you that I had four strategic priorities.

We made progress on each as we shift the DeVry Group culture to one of accountability and planning for long-term success. To summarize, first, we're fostering a heightened culture of student-centric focus and academic excellence across each of our institutions.

At its core, achieving this objective is primarily about taking a practical and well-informed approach to designing and delivering programs that will make our graduates more attractive job candidates, giving them a clear advantage in pursuing employment.

To do this, we're continuing to roll out a range of programs that are closely aligned with the needs of employers. And increasingly, we're delivering these programs through a more flexible system, that spans in classroom and online learning as we adjust to our students' busy schedule.

The impact of these programs will take time to surface, and we believe we're headed in the right direction. We're continuing to make progress in reducing DeVry Group's exposure to Title IV funding.

We remain on track in meeting our goal of limiting the revenue that each of our institutions derived from federal funding to 85% or lower by the end of the fiscal year. Second, as our results indicate, we're making ongoing progress in stabilizing our revenue, increasing operating income and EPS, and growing the intrinsic value of DeVry Group.

We have to be focused on execution. We're not where we want to be with revenue growth, but we're clearly seeing measurable improvement in our profitability and we believe our performance can and will improve.

As we move to a portfolio management focus across our organization, we're also better analyzing and addressing performance and outlook at each of our institutions, and elevating accountability across all operating areas with an emphasis on delivering results and improving our return on invested capital.

Third, we're continuing to move forward in leveraging our organizational synergies, and broadening cost reduction across our footprint. During our fiscal 2018 planning process, one of our primary goals is to identify further opportunities to operate smarter.

During the quarter, we again reduced cost at our home office with overhead spending decreasing nearly 8% year-over-year, excluding special items. Maximizing operating efficiencies has become an integral part of our culture, and we expect to deliver further progress in this area as the year unfolds.

And fourth, as I noted, we're pleased to have resolved the matter with the FTC, which includes entering into our agreement with the FTC that we announced in December. Student services and access to federal student loans were not impacted by this settlement. And at no time has the academic quality of a DeVry University education been questioned.

In addition, we remain committed to working directly with the administration, Congress, and a range of partners to implement initiatives to strengthen our industry from driving greater transparency in the student recruitment process, to expanding the resources available to help students manage college loans, to standardizing how we define the success of our graduates.

Our efforts will only lead to better outcomes for the considerable number of students, many from modest or challenged economic backgrounds, who require a different path on many levels to achieve economic success.

We're educating and training the workforce of tomorrow, and we are innovating our approaches to ensure that our students can achieve their life goals. Our industry has great promise. And as we deliver on our vision, everyone benefits, including the many businesses and institutions that pursue our graduates.

We fill a role that is so critical and serve as an important alternative for an increasing number of people. Now, let me review each of our segments beginning with Medical and Healthcare, which is our largest contributor to revenue and earnings.

We continue to see healthy and growing demand for a wide range of medical professionals 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 and act as highly credible referral sources for our schools. Simply stated, the marketplace demand is there. We just need to better execute.

Chamberlain once again delivered a solid quarter of operating results with revenue up 7.8% and operating income up 22%. Well-designed and proven programs continue to effectively tap into the significant demand for skilled nursing professionals. This is a valuable business for us and one where we can continue to see good returns on investment.

As we noted on our last call, we're seeing some moderation in the overall rate of Chamberlain's top-line momentum due in part to a change in the school's BSN curriculum where we decreased the program list to align with State requirements. This change will continue to modestly impact near-term revenue.

But Chamberlain will remain a robust performer for us given the proven quality of its in-demand programs and the institution's strong enrollment growth.

With the sizable campus footprint, we are continuing to focus on strengthening our operating management and recently appointed a new Chief Operating Officer at Chamberlain, Delphine Mendez de Leon, a Director of the Board of Trustees of Columbia University School of Nursing, Delphine is a talented and respected leader who will help us to further strengthen our program and build on our solid reputation.

We're strengthening our admissions process and while it could moderate growth in the near-term to some extent, it should also lead to better academic performance, higher NCLEX pass rates and a higher persistence, which will only benefit our performance over the longer-term.

Late last year, Chamberlain was designated as a 2016 Center of Excellence by the National League for Nursing in recognition of sustained efforts in Creating Environments That Promote the Pedagogical Expertise of Faculty. Chamberlain was one of the 15 schools honored at NLN Education Summit Honors Convocation.

Among other recent initiatives, Chamberlain began increasing Family Nurse Practitioner student enrollments in January. As we discussed last quarter, the FNP cap was voluntary. Now, the institution can expand FNP student enrollment as it ensures it can provide a quality clinical experience for this high-demand program.

Our new BSN concentration serving Hispanic communities, which was launched in Phoenix last spring continues to perform well. We remain excited about this new program and the many opportunities that Chamberlain is pursuing.

And finally to give you an update on our campus opening plan, we were recently granted initial approval to construct a campus in New Orleans. The next step will be obtaining site approval with a forecasted opening of September 2018.

With regard to other plan builds, we're continuing to work through the regulatory process with regard to building new schools in Boston, Philadelphia, and New York. We currently have 20 campuses in 14 states. Turning to DeVry Medical International, our performance remained mixed during the second quarter.

On the plus side, the veterinary school continues to generate solid results. Attesting to the institution's reputation, Ross and the Johns Hopkins Bloomberg School of Public Health signed an agreement during the quarter to explore research collaborations and joint educational activities to benefit students at both institutions.

This marks the first such relationship with a veterinary institution for the Johns Hopkins Bloomberg School. Ross' One Health approach to veterinary education instills in its students an interest in exploring more holistic approaches to solving world health problems that extend across animals, humans and ecosystems.

There is a mutual interest at the Bloomberg School in addition to addressing food safety and animal borne disease. Our primary focus for Ross is expanding the school's presence among international student enrollments. On this score, the school recently appointed a new dean Dr.

Sean Callanan who previously served as a professor of veterinary pathology, as well as director of postgraduate studies at Ross. Sean is a native of Ireland with a doctorate in veterinary medicine from the University of Glasgow. A priority for Dr.

Callanan is to fully tap into the global potential that Ross offers by expanding the school's base of partners, and improving outreach to international students. With regard to our medical schools, as we had anticipated, new student enrollments were once again down at both institutions.

Previously, we used a centralized marketing function for both medical schools as well as for Ross Vet that wasn't effective in an increasingly competitive environment. That approach has changed. We're conducting a search for new leadership of the Medical and Healthcare group.

We've also moved forward in establishing separate marketing, admissions and alumni relations program at each school. We expect to see the benefits of our new marketing campaigns in the September semester, but we may begin to see some impact as early as the May semester.

Suffice it to say, getting our marketing efforts right and returning our medical schools to growth is a key priority for me.

These are excellent institutions and valuable institutions for our portfolio, and demand for MD programs remains very healthy, primarily due to the large surplus of students looking to become MDs and the limited spots available at schools in the U.S.

Both of our schools continue to graduate very well-trained professionals who are sought-after in their medical field. We are generating solid results with regard to key metrics, including test pass rates, persistence and graduation rates.

Highlighting the strength of our reputation, in January, American University of the Caribbean School of Medicine and Bronx-Lebanon Hospital Center signed a ten-year affiliation agreement to enable AUC medical students to complete clinical training at the hospital.

This agreement builds on a six-year collaboration that has enabled more than 1,000 AUC students to train at Bronx-Lebanon, the largest voluntary not-for-profit healthcare system serving the South and Central Bronx areas of New York. Overall, AUC has clinical training affiliations with 21 U.S. hospitals and health systems.

In 2016, 268 AUC students trained at the hospital. Nearly 200 AUC graduates currently practice in the State of New York. We are very proud of our talented students and the many graduates who serve as medical doctors in hospitals and other healthcare facilities across the nation.

Finally, as we implement our new marketing initiatives to drive enrollment growth across DMI, we're also carefully managing costs as reflected in the nearly 4% reduction in total expenses in the second quarter.

Now, let me turn to Carrington, which remains in transition as we look to reverse negative enrollment trends in a challenging market for career education institutions.

We are seeing more encouraging signs that enrollment is improving as we've become more effective in differentiating the WASC accredited school from the many ACICS accredited institutions that are struggling. We are also experiencing improved persistence.

We are working with selective states to raise the cap on the number of new students we could admit to our vocational and practical nursing programs. A number of competing institutions in the allied health market have had to close their doors due to losses or accreditation issues.

We're strategically partnering with those institutions to enroll those when practical and when it's a good fit for those students. One example is our recent agreement with Brown Mackie College to assist with teach-outs and admit students from a number of their locations as transfer students.

Carrington is in a solid position to admit the students who are qualified over the next several months through modest increases in cap level. While this does not alone represent a substantial opportunity, it is certainly a positive for us, and provides a template should other transfer students need assistance.

In addition, we are continuing to transplant programs into new locations where they currently aren't being offered, and where we see market demand. Examples include pharmacy technology, veterinary assisting and medical billing and coding. And we are also offering smaller stackable programs that are more affordable for students.

We will be offering a new phlebotomy certification program later in the fiscal year that's stacked well with select current program offerings. We're focused on optimizing our operational model.

Recently, we strengthened the marketing model, streamlined our management teams from 18 down to four by selecting the best talent to these roles, and finally, we changed the culture to focus on a growth-oriented model.

So, the Carrington team is focused on results, and we remain optimistic about the institution, given the quality of our program offerings, the strategy we are executing under our new leadership, and the overall demand in the healthcare marketplace.

We're also continuing to make progress in reducing our cost exposure at Carrington, as we move to streamline its operating models. In our International and Professional Education business, Becker continues to offer attractive upside and is an engine for growth in the portfolio.

It has a solid long-term outlook, and we plan to expand our offering of test preparation programs, and resources serving high-demand industries. We are executing a strategic plan to diversify Becker's revenue profile in related arenas that offer attractive revenue growth and margin potential.

Our plan is to build on Becker's strong reputation and well-established market share in the accounting and CPA arena. We also plan to grow revenues domestically and internationally in our continuing professional education programs and in ACAMS. We've completed a significant majority of the integration activities related to ACAMS.

We continue to expect the contribution from ACAMS to be neutral to earnings per share and provide solid EBITDA growth in the current fiscal year. The Becker and ACAMS teams are beginning to introduce ACAMS programs to the Becker customer base and vice-versa. There are a broad range of cross-selling opportunities to attract new students.

We can also provide value to Becker alumni who are seeking to build on their expertise in related areas, spanning accounting for prevention, risk assessment and anti-money laundering detection and enforcement.

In addition, the international opportunity remains compelling for ACAMS, as many governments and financial institutions look to strengthen their anti-money laundering capabilities. ACAMS is seeing good traction in Europe and Asia, and its client list is growing, especially among the world's largest banks.

With regard to Becker's healthcare programs, in December, we received I-20 approval, which allows Becker to sponsor international students who wish to study for USMLE certification in the U.S. Many of these students are already medical doctors in global markets, but wish to further bolster their credentials by passing the USMLE.

Turning to DeVry Education of Brazil, persistence levels across our Brazil portfolio remain healthy, and our schools have very strong reputations and student satisfaction scores.

However, we are continuing to see a slowdown in the new student starts due to the changes underway with the government's management of the BS program, as well as ongoing economic pressure in the country.

We are, however, gaining share as the overall higher education market works through the current slowdown, and we're seeing enrollment growth at select schools. We're taking the final steps to launch a new Ibmec campus in São Paulo which will bolster our access to a sizable student population in the main economic center of the country.

And we are also making progress in using Ibmec's prestigious brand in law and business to co-brand with Damasio in over 200 locations where Damasio offers bar exam test preparation.

Overall, Brazil remains a long-term growth market, and we're well-positioned to take advantage of the expanding middle class, increasing college penetration and favorable regulatory system. As we seek to improve new student enrollment, we're also reducing expenses and consolidating various functions to improve efficiencies.

Let me offer some perspective on DeVry University. We are making progress in launching our new slate of program offerings, which are more directly aimed at meeting student preferences and employer needs. These programs are primarily shorter, stackable programs spanning the technology, healthcare and business fields.

They have been designed to provide students with enhanced flexibility and greater affordability to support their pursuit of in-demand skill-sets.

We remain on track in launching courses in emerging fields such as coding, the Internet of Things and high-tech manufacturing, with programs delivered through certificates and boot camps , in addition to our associates, bachelor's and master's degrees.

It's early in the rollout of the new program offerings, but we are encouraged by the interest we're seeing to-date. Overall, we're continuing to see a modest narrowing of student enrollment decreases, but recognize that time is of the essence as we execute on our plans. We're also better optimizing our student efficiency metrics.

DeVry University's average class-size continues to grow as we optimize our course offerings through the use of our scheduling algorithm, while also leveraging our use of our HD video connected classrooms. In January, we began marketing what we referred to internally as the DeVry Tech value proposition as part of our new marketing campaign.

That being, DeVry stands for technology and its core role in all of modern business. Inspired by DeVry University's founder, inventor, entrepreneur and educator, Dr. Herman DeVry, we're aligning all aspects of today's DVU to support the DeVry Tech value proposition.

One of the ways we're doing this is by infusing a foundation of tech skills, which we call the tech path into all of our program offerings.

So, whether a student is taking a healthcare program, a business program, or a technology program, they will graduate with not only an expertise in their chosen major, but also with a strong foundation of technology skills that will help them bring together people, processes, data and devices to help solve business problems for their employer.

We believe this approach will further establish a reputation for DeVry University graduates as highly valued employees recognized for using technology to solve problems. With regard to our graduate programs, we've introduced a new shorter and more affordable MBA program for students who have undergraduate degrees in business or a related field.

The new MBA is 36 credit hours and can be completed in 20 months to 24 months. The program is aimed at improving our competitiveness and attracting a broader pool of students to Keller Graduate School of Management. As we execute our plan, we remain committed to maintaining positive economics at the University.

As the fiscal year progresses, we continue to focus on balancing the investments that will reignite growth and help us to achieve positive economics. Now, before providing my closing remarks, I would like to turn the call over to Patrick for the financial review..

Thanks, Lisa, and good afternoon, everyone. We're pleased to report improved results for our fiscal second quarter versus the prior year. We're continuing to take a disciplined approach to containing costs, while executing our strategy to restore enrollment and revenue growth.

The underlying economics of our organization are beginning to improve, as we build operating leverage and deliver solid EPS growth. We believe our longer-term outlook remains attractive given our increased exposure to a number of growing in-demand sectors, as we execute our plan and seek to drive additional cost efficiencies across our organization.

We believe we can further enhance cash flows and deliver returns to our owners.

Now turning to the specifics for the quarter, total DeVry Group revenue was largely flat year-over-year at $456 million, driven by growth at Chamberlain and the International and Professional Education segment, offset in part by the continued decline in enrollment at DeVry University and Carrington and weaker enrollments at Ross University School of Medicine.

Total costs, excluding special items for the second quarter were $385 million, decreasing 3.7% from last year. Total pre-tax special items in the second quarter amounted to $66 million, including regulatory settlements, restructuring charges, and a non-cash loss on a campus held-for-sale.

We grew operating income by 26.6% excluding special items, as a result of our cost-savings initiatives. Net income, excluding special items, was $54.7 million during the second quarter, which resulted in earnings per share, excluding special items of $0.85, up 25% from the year-ago quarter.

Our tax rate, excluding special items, was 21% for the second quarter. Now, starting with the Medical and Healthcare segment, revenue of $234 million was down slightly at 0.2% in the second quarter, as a result of declining enrollments at Ross University School of Medicine.

Now, despite revenue being slightly down, we grew segment operating income, excluding special items by 14.2% over the prior year. Chamberlain revenue grew nearly 8% for the quarter. For November, new students increased 3.2% and total students grew nicely at 10.2%. For January, new students declined 3% and total students grew 6.6%.

The weaker new student enrollments in January was due to enrollment caps on certain campuses, which was partially offset by continued enrollment growth from our RN to BSN and Family Nurse Practitioner programs. Looking to the remainder of the fiscal year, we expect low to mid single-digit new student enrollment growth at Chamberlain.

DeVry Medical International revenue decreased 3.6% during the second quarter. In January, new student enrollments decreased 10.8% and total students decreased 8%, in line with our expectations. For the year, we expect DMI revenue to be flat with the prior year. Carrington revenue declined 14% during the quarter in line with our expectations.

New students declined nearly 23% and total students declined by 18%. The enrollment declines reflect fewer start dates in the second quarter, as compared to the prior year. In addition, we taught out a few programs.

Despite these factors, we're encouraged with the initiative the Carrington team is implementing, and we remain optimistic about the school's outlook, given the programs being put in place and the health of the sector overall.

And as a result, we expect to see a reversal of the trends, and returning to modest new student enrollment growth at Carrington in the second half of the fiscal year.

Now, turning to the International and Professional Education segment, revenue of $100.8 million increased 61.5% in the quarter, as we benefited from 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 almost 50% in the second quarter. The segment's operating income grew nearly 74% to $13.6 million during the quarter. Without the impact of currency, segment operating income would have grown 50% in the quarter.

Our Professional Education revenue increased 22.6% during the quarter, driven by the acquisition of ACAMS, which more than offset declines in Becker CPA and Becker Healthcare. Revenue at DeVry Brazil grew 83% in the quarter to $73.4 million.

This increase was primarily driven by the acquisition of Ibmec, the benefit from currency and total organic enrollment growth. Within the Business Technology and Management segment, revenue was down 23.6% to $122.4 million during the quarter, driven by continued enrollment declines at DeVry University.

Now in November, undergraduate new student enrollments increased 7.2% as a result of enrollment of former ITT students. Total students declined 20.3%. For January, new students declined 16.7% and total students declined 21.6%, reflecting a continuation of current trends.

However, as 2017 progresses, we are very focused on narrowing the rate of enrollment declines. We continue to reposition DeVry University to become a leaner more profitable institution. In the second quarter, excluding special items, we recovered 107% of expenses for every dollar of lost revenue for a total reduction in costs of $40.5 million.

We remain diligent in reducing expenses, and expect to achieve a very high rate of recovery going forward in excess of 90% for the full fiscal year. Operating income for the segment in the quarter, excluding special items increased nearly 30% over last year, and we remain on track to maintain positive economics for the full fiscal year.

For the third quarter of fiscal 2017, we expect total DeVry Group revenue to be down 3% to 4% year-over-year.

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

Third 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, Carrington, and the home office, offset somewhat by recent acquisitions in the International and Professional Education segment.

For the full-year, we expect revenue to be flat-to-down 1% compared to the prior year, and earnings before special items to grow in the low double-digit range, as compared to the prior year.

We expect to incur additional restructuring charges in the second half of the fiscal year as we continue to right-size operations to better align with enrollment levels. In fiscal year 2017, we expect that our effective income tax rate from operations will be in the 20% to 21% range before special items.

Now turning to our balance sheet and financial position, cash flow from operations for the first six months of fiscal year 2017 was $35 million, which was negatively impacted by the FTC cash settlement. Our cash and cash equivalents were $200 million at December 31, 2016, while outstanding bank borrowings were $225 million.

Our net accounts receivable was just over $150 million, up 23% from the prior year due to timing of cash receipts. Our bad debt as a percentage of revenue remained low at 2.2% compared to 1.9% last year. Capital spending for the first six months was $20.4 million compared to $41 million in the prior year.

We're targeting capital spending for fiscal year 2017 to be in the $65 million to $70 million range driven primarily by investments at DeVry Medical International and DeVry Brazil to enhance academic quality. During the second quarter we returned approximately $8 million to our owners through share repurchases.

We repurchased approximately 306,000 shares during the second quarter at an average purchase price of $26.55. With regard to our settlement with the Federal Trade Commission and other regulatory matters, we recorded a pre-tax charge of $56.3 million in the second quarter. Now, I'd like to turn the call back over to Lisa..

Thanks, Patrick. In summary, we continue to make progress on the four priorities I outlined at the beginning of the fiscal year. As an owner of DeVry Group myself, I understand the importance of continuing to foster a sense of urgency to execute our strategy, and I now have the right team in place.

We are encouraged by the early traction we see for our new programs aimed at serving attractive in-demand verticals across multiple institutions and markets.

Our international expansion and increased exposure to the healthcare and professional education sectors is paying off as we diversify our revenues, reduce volatility, and moderate our risk exposure.

Our focus in the second half of the fiscal year is stabilizing revenue through consistent enrollment growth across our portfolio and further improving operating efficiencies across our footprint.

The recent settlement of the major regulatory issues we faced alleviates the significant burden to our management team's time and we can now fully focus on executing our operating plan.

While we've made good progress in reducing costs, primarily at DeVry University and our home office, we are establishing a strong sense of institutional level accountability in our budgeting process to create operational efficiency in every institution, not just at DeVry University and the home office.

We will be undertaking a deep evaluation of our operations early this year to ensure we are operating in an efficient manner in all areas.

Our team remains focused and is excited about significantly strengthening the value proposition we deliver to our students, and the employers who pursue our graduates, while enhancing financial returns for our owners. These efforts are not mutually exclusive.

Rather, when we hold ourselves accountable for successful student outcomes in persistence, completion and post completion employment, and we do sell in an operationally efficient manner, we're able to generate outstanding returns for our shareholders. We intend to do exactly that.

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

We will now begin the question-and-answer session. The first question comes from Corey Greendale at First Analysis..

Hey, good afternoon..

Hi Corey. Good afternoon..

Hey, so few questions.

First question, can you give us a sense of the magnitude of the contribution from the ITT transfer students in the November new student number?.

It was about 600 students..

Okay.

And some sense of how those students are performing? What's their retention like relative to other students? And should we be expecting – I don't know how much credit they came in with, but are we going to see a term where a bunch of them kind of graduate at the same time?.

Yes, sure, so couple of things on that note.

So, we purposely did the transfers for ITT on a student by student basis because as you know, once they become DeVry University students, we own them and so we wanted to make sure that from an admissions and qualification policy, et cetera, they would be ready to participate in our programs and be able to persist and graduate along the lines of our students, our current students, our DVU students.

It's early, obviously, but we have not seen any difference in persistence from those students.

And then I guess the other piece to add is that we have made a commitment to those students as we think about our student services, et cetera, that they would only have the same cost that they would have had to finish up at ITT because obviously that's a burden on those students.

And so we've made sure that from a prerequisite perspective, et cetera, they were qualified and ready to jump into the program. So, so far, so good..

Good.

And then looking forward with that part of the business, I guess, first of all, I detected a little bit of a difference in the language when you're talking about DeVry University versus the various medical and healthcare schools in terms of – I heard I think Pat said that you're focused on improving it, but it didn't sound like as much guidance as you were giving for the other segments.

So can you talk about expectations for new undergraduate students going forward and just early indications on how the positioning and the marketing with the tech focus and some of the shorter programs, how those are doing?.

Okay. Sure, not sure about Tom (41:10), but from our perspective trends, as we had talked about on the last call are clearly continuing in terms of enrollments and new students, primarily being in some of the programs that we've either done that are newer, like the medical coding and billing that we talked about last time.

And/or from a length of program perspective, so the stackable programs where they can get certificates, et cetera, as well as the Bootcamps that are focused on the tech, Internet of Things, cyber security, et cetera, we're seeing good trends.

Again, early, but very good trends in those programs, though, did not mean to suggest that we don't feel that those are working from a DeVry Tech perspective..

Okay.

So if we were to assume narrowing of the declines beginning in the March term, would that be too aggressive?.

Yeah, I think it's early. We've seen a nice narrowing as we've moved through the fiscal year, obviously, from where we were in July session progressing to September, November even adjusting for ITT. So January down in the mid-teens.

We've actually done a little bit better than that, but we're pretty encouraged by the early response from a student generation and interest perspective..

Okay. And then – sorry, in looking at the full-year guidance, the slight downward revision of the revenue, it sounds like Q2 revenue it was in the range of what you expected.

So, I mean, it's not a big move but can you give us a sense of what piece of the business is resulting in you deciding to lower the full-year revenue guidance just a little bit?.

So full-year revenue guidance is just off a little slightly, and we could do a little bit better than that, just given where the Brazilian real is.

But just as we looked at medical enrollments and as we move through the rest of the business in the second half of the year, again, still very positive, but at the same time, wanted to make sure that we didn't have a big miss. And....

Then I think it's – sorry..

No, please continue..

I was just going to add that – Patrick touched on it, but it's really the length of time that this restructure in the Ross Med and AUC schools take to come into effect. We are optimistic that we will see some improvement as early as May, but we expect most of the impact to be in the September semester.

And so we're just being cautiously optimistic, but cautious there..

Okay. Thank you.

And then last one I had and I'll turn it over is with the biggest of the legal issues behind you, have you factored any legal cost savings into the revised operating expense guidance?.

Yes..

Yes, absolutely, correct..

We do expect – as we said, we had been over the past three years an elevated legal spend associated with our significant regulatory items for each of the past three years in the $12 million to $15 million range.

We do expect some follow-on consumer price action lawsuits, not unlike what we saw when the FTC filed their initial complaints, but we do and are very motivated to manage that expense down and will expect to see that tail off..

Great. Thanks very much..

Thanks, Corey..

Next question is from Peter Appert at Piper Jaffray..

Thanks..

Good afternoon, Peter..

Good afternoon. Lisa, you mentioned Chamberlain strengthening admissions standards that could potentially hurt near-term enrollments, and then Pat gave some thoughts on enrollments that actually sounded a little bit better than I would've expected.

So what's the dichotomy here?.

Do you mean in terms of talking about the rest of the full-year? We are looking at low- to mid-single digit new student growth, yes, in Chamberlain for the rest of the year. So not sure I guess....

I'm sorry, I guess the specific question was what gives you confidence that in the context of the numbers have slowed recently, you're down in the January period, you're tightening the admission, so it would seem that getting to low-single digit or mid-single digit growth would be an inflection..

Yes. So the dichotomy would be more around a little bit slower growth in our BSN, the on-campus enrollment as a result of the more selective admission standards, but we're pretty encouraged by the continued growth in our post-licensure programs, specifically in our Family Nurse Practitioner as well as RN to BSN....

Got it..

...which would result in a net up new student enrollment growth for Chamberlain in the second half of the year in the single-digits..

Got it.

And I assume at this point then you've got pretty good visibility into inquiry and application flow to give you confidence in those numbers? Is that fair, Pat?.

Yes, it's fair..

Okay. And then on Carrington, it's sort of same thing. It looked like it's been getting worse basically from a start perspective, and you are talking about up in the second half.

What drives the inflection there?.

Sure. And again we've got some pretty good visibility there, not certainty. So what's driving the inflection there, Peter, in the second quarter rather, the quarter ended 12/31, we did have fewer starts than we did in the year-ago quarter.

So if you think about the overall down in the 20s for the new, about half of that down variance was attributable to the fewer starts, as well as we taught out a few programs. And then the remainder half was due to we think our ability not to as effectively compete.

But as we moved through the quarter, our trends started to improve, and we're very encouraged by what we saw in December, and continue to be encouraged as we move through end of January now into February..

Yeah. And I would just add, we have had some caps in some states where we've had small lift in the cap for programs where states are actually coming to us asking if we can take more students. Obviously, we have to manage that with the creditor, et cetera, but we've been able to do that successfully.

Incrementally five to 10 student cap lift, but those are really in-demand programs. So we're able to fill those pretty quickly..

Right, that's excellent. Thank you. And then last thing and back to Chamberlain for a second. On the Houston issue with regard to the NCLEX pass rate. Can you just tell us where we are with that? And then there had been some concern I think in the market there might be risk in other campuses.

Can you speak to that, please?.

Sure. So specifically on Houston, we have three campuses in Houston – in Texas, one of which in Houston, we are discontinuing enrolling new students and that's started with this January's session. And we expect that to last about a year. We were very close, just under the minimum NCLEX requirement by I think within a percentage point. And then....

Two students..

...two students and that trend really began to improve as a result of our efforts and increased focus around the student success, particularly at that campus.

Overall, we are very motivated and have put a significant amount of resources around student success and ensuring, A, we're enrolling the right students; and then, B, our student support model, as we've made some pretty solid and meaningful investments in that to improve NCLEX scores.

And we are starting to see a nice improvement trend in our scores overall..

Yeah. And there are no other campuses that we are aware of, and obviously we track this, that are close to any of those minimums on the NCLEX percentages. In fact, a lot of them are far above that, as you know from prior calls. So I'm not sure where that's coming from, but we have not seen that and don't anticipate that.

And, of course, having this new Chief Operating Officer come onboard, gives us even more focus and confidence from a campus operations perspective. So we feel like that one is fixed. It was unfortunate that that got to that in the Houston campus..

Great. Thanks very much..

Thank you..

The next question is from Trace Urdan at Credit Suisse..

Hey, good afternoon..

Hi. Trace.

How are you?.

Good.

So, just for starters on DeVry undergraduate, do you guys feel now looking back that there were any ITT students in September starts or were they all concentrated in November?.

Nearly all, or a significant majority in November..

Okay. So, is it the right read based on your comments then that absent the ITT students coming in you would have expected the performance to be sort of similar to what sort of the rate of decline you saw in September and then again in January..

Yeah. A little bit better in the mid to low-teens but, yes..

Okay. All right. Fair enough. And then, you've referenced the medical billing and coding a bunch, and I wondered if you might just speak to the question and I ask this periodically, but it continues to be of interest.

What kind of range do you see in program strength between the programs that are performing well and those that are not performing well? So, maybe in percentage terms or any way you're comfortable, can you give us an indication of what the spread looks like there?.

Yeah. So, over the past several sessions, we have seen a very nice improvement in our Tech programs relative to Business, and our Healthcare Technology programs, medical coding and billing, relative to Business.

So, the trend from our perspective it's definitely heading in the right way as that's where we've really focused our brand awareness and brand attention around those programs..

Okay.

But is there a sense, Pat, that we might at some point hit year-over-year comp on the medical billing and coding, and then we might actually see a visible slowdown? I'm just trying to get a sense of how important that is because you guys mention it every call?.

Yes. So it continues to be pretty important in terms of the new medical billing and coding students within the past couple of sessions have represented in the high teens, low-20% of our total new students that we've enrolled. So we would expect that to start to flatten out in terms of that growth rate.

But now we are starting to expect and would like to see, obviously, continued growth from our new program rollouts..

Okay..

And Trace, we use that one as an example because it's been going the longest, so we are able to give more trends. But, as I mentioned, in terms of the Bootcamps, and then also some of the other shorter programs; cybersecurity, some accounting with technology focus, et cetera, they are newer so it's harder for us to say the trends.

But we're certainly seeing the demand. And, in fact, creating and customizing some of those programs around demand as we talk to employers, and go to the top of that demand funnel so that we can have the right program. So, as we move forward, we will be able to use other examples that have been in the program offering a little longer..

Okay.

And then, the new MBA program that you referenced in your remarks, Lisa, is that intended to replace the Keller MBA program? Or be simply an additional offering in the market?.

Yeah. It doesn't replace. It's an additional offering.

And again, that is a result of talking to both potential students, but also employers and some of the corporates we work with to try to be more flexible around what is it that those students really need to be ready day one, as we say, as we think about what we can do to be more helpful and agile for employers.

And then giving them a shorter window to complete that degree, because as you know, a big part of our strategy is getting more private pay, corporate pay, into our mix to diversify from that Title IV. So, that program is part of the response for that and it's been received quite well..

Okay.

And were you enrolling people into that program in the December quarter?.

No..

Okay.

So this is something that's coming in the March quarter?.

So, we enroll in the – again, the six session. So, we'll start to see that in the January and the March sessions, yes..

Okay. All right. And then it sounded – I was trying to parse the language around Brazil and it wasn't clear to me where you netted out.

Are you expecting that we could actually see a decline in starts in the March start?.

It's a little early to tell. But from an organic perspective, we certainly could be flat to slightly up. What we were saying is the overall market remains challenging, we're gaining share, and we're still a good six weeks out from the start, four weeks out from the start of the session..

Right. And so in the near-term, students or what we're seeing is students have at some of the institutions have been delaying their decision to enroll around FIAs and what will be available for FIAs.

However, when you look at the overall FIAs market, two things, one, we are well-positioned within that to be one of the schools, one of the groups of institutions that are able to get that FIAs funding. And then just in general, of course, we know that from a for-profit or private institution perspective, that's about 50% of the market.

So it doesn't have the same kind of focus from the government, or negative implication. It's just a matter of what's going to be – how much disruption is going to be in the FIAs as they figure out how to distribute that. So, we feel like we are well-positioned and we've got that under control for our institutions..

And when will that matter be resolved because March is the big intake there, right? So it this something that's still in flux?.

Certainly, I mean, in their first semester we were able to maintain our same share of FIAs contract. So we don't see that as an immediate threat. We just bring that up that that is a macro issue for the country and for the education system.

And we continue there to also increase out private pay, non-FIAs, which is a little easier there, frankly then DeVry University because it's a different model and people are paying monthly or in installments much like you would a car payment, for example. So it's a little different..

Got it..

We didn't mean to sound too down on that one. Yeah..

Okay, fair enough. Thank you. I'll let you move on..

Thank you..

The next question is from Jeff Meuler at Baird..

Yeah, thank you.

Could you give us a sense for Chamberlain that roughly the number of campuses that are operating at capacity or practical capacity for ground-based of students? And then system-wide across Chamberlain, roughly what is (57:26) for ground-based students?.

So there – Jeff, not all campuses are capped, it varies on a per state basis. But the way we like to think about it at Chamberlain, of our 20 campuses, how many are mature....

Right. We have 11 campuses that are three or more years of operation. So, obviously, with any build it to takes a couple of years to turn these campuses from negative to positive cash contributors. A little over half of ours have been three years and up. So obviously, some others will be coming online with the more positive cash flows there.

We are at 20 campuses. We won't be opening in fiscal 2017 but we are constructing a couple of campuses, and those will be teaching in fiscal 2018. And, of course, we just got approval for our New Orleans and we expect that to open in or around September of 2018.

And then we've got some other planned builds Boston, Philadelphia, New York, that are not up yet. So as we move forward into those new construction, some of the other 20 that are there, some of which are co-located, which is good for us from efficiency standpoint will start to contribute more..

Okay.

And then what is changing in terms of Chamberlain admission standards or process?.

on persistence, on completion and on employment, or postgraduate placement. And so, we want to make sure that we are putting the right tools in place so that we are getting students that succeed. We do serve a different, a new normal student, if you will. We serve perhaps a different student than some other institutions, non-profits, et cetera.

But at the same time, we need to make sure – and therefore, we have a lot of services for our students tutoring, et cetera, et cetera. Chamberlain is very good at that and produces extraordinary sort of day one ready nurses.

But we have put in place an admissions process that really helps us drive folks that are going to be successful on those NCLEX scores, et cetera. As you heard, we had issues at one campus with that..

Okay.

And then, just wanted to clarify, for the guidance when you say double-digit growth in earnings before special items that is after-tax EPS, if I could clarify that? And then given that the tax rate, I think, it came down 2 points, in terms of the guidance, what's driving that?.

Okay. Yes, to clarify the low double-digits earnings growth is EPS. And then the tax rate, we are benefiting from a bit of a strengthening or the mix of our proportion of international versus U.S. income..

Okay. Thank you..

The next question is from Jeff Silber at BMO Capital Markets..

Thanks, so much. Wanted to focus on the overall cost recovery numbers. I think you said in the second quarter it was 107% of the loss dollar amount of revenues, but you expect it to be about 90%-plus for the year.

Was there something specific that happened in the second quarter that allowed you to do greater cost reductions than we have seen historically and expect going forward?.

Our advertising expense on a year-over-year basis was a little bit lower than it was. And if we look at the full-year expense reduction that would come out of advertising, there was a higher proportion amount in the second quarter relative to quarter three and four..

Okay. That's helpful. And then in a couple of these segment discussions, you talked about international students, I think, when you were discussing DMI and when you were discussing Becker Healthcare Prep.

First of all, can you remind us in terms of DMI, what percent of your enrollment comes from overseas? And I'm just curious, and I know it's early but there has been a lot of noise about the new President, immigration reform and visa issues. Do you think that will have any negative impact on your business? Thanks..

So the first part of your question, within our medical and veterinary schools, our largest international population is represented by Canada, and that composes about 10% of our total enrollments across the three schools. There is about 2% spread across the rest of the globe, and then about 88% from the United States..

Okay, that's very helpful. And again, so it seems relatively small. I work for a Canadian bank, so hopefully, Canadians can still come to this country.

But, generally, are you seeing any noise or hearing anything that gives you some pause based on some potential policy issues?.

Sure. And you also asked about Becker, we actually just got approval for F-1 visas for Becker to provide test prep. We, in December, right, so recently. We have not had – I mean it's early. Obviously, it's the last couple of weeks but we have not had any issue with our students there based on what has happened so far. But, obviously, remain vigilant.

DeVry, our whole culture and mission is inclusion and diversity, and we are a global company with global students and global colleagues, so we're concerned. But to answer your question, no, we have not seen an impact on our enrollments, et cetera..

Okay. Thank you so much..

The next question is from Neal Shah at Valtura Capital Partners..

Hi, Lisa, Patrick and John.

How is it going?.

Good.

How are you?.

Good, good, thanks. Congrats on the quarter..

Thank you..

I just have a couple of quick questions. One is them is a little big picture and the other one is more specific. So, first of all, Lisa, I guess, since you started as CEO around three quarters ago, it seems like you've made a lot a positive changes. You've changed some of the team members.

You've gone through settlements with DOE and FTC and resolved the regulatory overhang.

I guess, what gives you confidence that the organization is buying into what you're doing and that you are reaching an inflection point in the business?.

Medical and Healthcare; Technology, Business; and Professional Education. People get that that's where the supply-demand is and where we need to operate and also where we have competencies right now that we can grow. They are aligned around what we need to do from an operational efficiency and kind of margin growth perspective.

And you've heard a little bit about how we are taking that from DeVry University that does it quite will across the entire organization. And then, really, how we need to focus on moving forward using really a portfolio management approach, which requires accountability for results.

And this team is really energized and excited around those three things. So while there have been a lot of change, I think people are really focused on the fact that we can be an academic education mission-based company, and at the same time be profitable and be part of the workforce skill gaps solution. So we feel aligned..

Great. Thanks for the detailed response. And I guess that somewhat dovetails into my second question which is around capital allocation. It seems like the business throws off a tremendous amount of cash flow, and the numbers are likely going up because of how well you're doing in terms of managing the business on the cost side.

Looking back over the last several years, it seems like you've been playing defense and maybe fighting against the regulatory headwinds, and now that you've settled all those outstanding matters, it seems like there's an opportunity to start playing offense.

You know, you mentioned on the call you're plan on growing enrollments in the medical and the nursing side and it seems like there's some secular growth trends such as addressing the nursing shortage. So, I guess, my observation is – and then my question next to that is (01:06:22). So the observation is that you are trading at huge discount to peers.

It seems like a 3 turns EBITDA multiple discount to the public comparables and a 4 turns to 5 turns EBITDA multiple discounts to where private market transactions have happened in medical and nursing schools in recent years.

What's odd is even on this call, a lot of questions are asked on DeVry University, but in our analyses using some of the parts value of the business, even if you assume DeVry University is worth zero, you get to over 50% higher than the current share price and you are growing EPS at a double-digit percentage.

So, there aren't that many companies like at trading at 12 times earnings. So, I guess, the question is or I guess the math is, with your cash flow generation, we think you can repurchase and retire 15% of your share count in short order and still maintain an adequate cash balance.

And why aren't you guys using this opportunity to buyback a significant amount of shares at current levels?.

Yes. So the good news, Neal, is that after the last two quarters when I answered that question by saying, capital allocation is important to us but we need to resolve our regulatory matters, I anticipated that somebody may ask me that question on the call. So, thank you..

Sure..

But, you know, the short answer is that, right, we are in a new day here. We have that behind us, and we recognize as a management team and as a board, which is obviously integral to these questions that we are trading below our – we are undervalued.

We are trading below our intrinsic value and we know that and we recognize that – we have confidence that this stock price is going to go up and going to increase based on what we know about what we as a management team can do.

And obviously, we all know that's when we buy, right, that's when you buy your stock to show that confidence because you know that the price is going to continue to go up. And I think that as a concept is one that we very much buy into.

And then what we need to do is make sure – aside from obviously CapEx and maintenance on our businesses, particularly our growth businesses like Chamberlain and these campuses we're opening, and as you mentioned, DMI, we got the big CapEx in DMI behind us because we really did a lot on those campuses and shareholders that have been around for a while know that we took academics and the facilities very, very – and take very, very seriously.

But the heavy lifting is done there. So, beyond that CapEx that we need to put into our growth businesses, we look at the balance there between returning capital to our shareholders and, in fact, investing and doing that by investing into our Company and then obviously growth that would be inorganic.

We did a little of that last year, as you know, with ACAMS. That platform was the right platform for us to go forward with growth in businesses that can give us margin expansion.

But we anticipate that we're going to be able to get back to our owners in short order over the next couple of quarters, certainly within this fiscal year, no question, about how we are going to address capital allocation.

And we're excited to be able to do that based on our own strategy and based on the collective thinking of our team and the board versus having to think about how will that be viewed by regulatory people, for example..

Okay, great. Yeah, we look forward to hearing updates on the capital allocation front. Thanks for taking the time to answer the questions. Thank you..

The next question is from Andrei Stetsenko at Farley..

Hi, Andre..

Hi, guys.

Just a quick follow-up question on that last question which is given that you have debt now, would you be willing to stay levered if that meant the opportunity to buyback more stock?.

I know he asked you a question when I saw you in the queue. The answer is, yes. We would be willing to look at that and, obviously make sure that we are doing that in a prudent fashion that our board approves of but, yes, we would..

Great. Thanks..

Okay great. So we've run a little bit over sorry about that. So we'd like to thank everyone for your questions, and remind you that our next results call is scheduled for May 4 when we announce our fiscal 2017 third quarter results. Thank you for your continued support of DeVry Education Group..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..