Joan Walter – Senior Director-Investor & Media Relations Lisa Wardell – President and Chief Executive Officer Patrick Unzicker – Chief Financial Officer and Treasurer.

Peter Appert – Piper Jaffray Jeff Silber – BMO Capital Markets Jeff Mueller – Baird.

Greetings, and welcome to the Adtalem Global Education First Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms.

Joan Walter. Thank you. Please go ahead..

Thank you, and good afternoon, everyone. With me today from Adtalem’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 Adtalem Global Education 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 in Form 10-K for fiscal 2017 filed with the SEC and available on our website at www.adtalem.com. Adtalem 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, December 2. To access the replay, please refer to today’s release for information.

And with that, I’ll turn the call over to Lisa Wardell..

Thanks, Joan. Good afternoon, everyone, and thank you for joining us on today’s call. As you can probably tell from my voice, Q1 is over and fall has arrived. During the first quarter, we faced some extraordinary challenges at Adtalem, as we confronted the impact of two back-to-back Category 5 hurricanes at our medical schools in the Caribbean.

I could not be more proud of the strength of our entire organization, the perseverance of our leaders and the determination of our students and colleagues, which were all quite evident in the weeks that follow these devastating events.

These disasters demonstrated our resiliency and allowed us to pressure test both our crisis response plans and our business continued abilities. We evacuated both the AUC and RUSM communities of students, faculties and colleagues with everyone safe and accounted for in the weeks that followed.

In addition, we were able to continue the September semester for both of our medical schools. A testament to two institutions and our home office team, who worked cross functionally and tirelessly for the good of our medical students and the entire Adtalem portfolio.

While I’m proud of our team for driving our transitional effort, it goes without saying that our hearts go out to those communities throughout the Caribbean and the United States, who suffered major damage and the loss of community members and who, clearly, face a long road to recovery.

We’re continuing to assess the damage to our infrastructure and manage the expenses associated with the evacuations and temporary relocations of the medical schools.

Just as I applaud the team’s crisis response, I’m equally grateful for the rest of our organization, which has continued to focus on our priorities and the execution of our operating plan. I’m pleased to report that our first quarter results were ahead of our plan, excluding the impact of the hurricanes.

We continued to benefit from the cumulative effects of the expense reductions we’ve taken during the past year, which have led to increased operating leverage.

As the global higher education industry continues to experience increased demand and a shift in education delivery modalities, we’re strategically adapting to the environment and expanding our presence in our core vertical, Medical and Healthcare, Professional Education and Technology and Business.

Our portfolio remains focused on evaluating the value – on elevating the value proposition, we delivered to each of our student segments by communicating to students in a way that resonates with their needs and lifestyle, while further strengthening our end-demand program offerings in our three core verticals.

We’re also managing a more disciplined product life cycle. And strategically expanding our offerings, as we gain a better understanding of what employers need to acquire, develop and retain talent. All of these initiatives are aimed at addressing the significant workforce skill gaps that are prevalent in our society globally.

I’m also pleased to report that Adtalem’s student commitments, which we announced one year ago, recently underwent an independent third-party review and have now been fully implemented. These commitments reflect our results to take a leadership role in improving transparency and accountability in higher education.

Based on past standard higher education policies, including reduced independence on federal financial aid and greater transparency for students regarding borrowing practices and academic program outcomes.

Among other accomplishments, the review confirmed that Adtalem’s institutions were all under the 85% voluntary federal funding threshold goal, we established last year, including Department of Veterans Affairs and Military Tuition Assistance Benefit.

I’m very proud of my colleagues from across our organization, who work together to deliver these unique commitments to our students. Building on our already strong foundation of policies and practices, we were determined to set new standards to help students achieve their education and career goals.

We’re generating healthy cash flows and we’re maintaining a strong balance sheet. And we’ll continue to strategically manage our capital allocation, delivering returns to our owners to increase share repurchase activity and investments in academic quality and growth initiatives.

The Medical and Healthcare segment remains a substantial vertical for Adtalem, given the breadth of our institutions, our strong brand and the attractive long-term global growth opportunities. Our Medical and Healthcare institutions represent a little more than 75% of our operating income.

Chamberlain is well positioned to pursue the supply demand imbalance in nursing and other healthcare professions, and to address the needs of our aging population and the increasing demand for skilled healthcare professional.

We’re focused on leveraging Chamberlain’s reputation, resources and university establishment to diversify the school’s offerings and pursue additional growth channel. Our Masters of Public Health program is performing ahead of plan, and we’re broadening our programs to fully capitalize on this sector opportunity.

We’re all very excited about the recent publication of a book written by Chamberlain University’s President, Susan Groenwald, entitled Designing and Creating a Culture of Care for Student and Faculty, The Chamberlain University College of Nursing Models.

The book describes Chamberlain Care, the unique organizational culture and work climate developed at Chamberlain University and to a great extent adopted across the Adtalem portfolio. It serves as a guide for any organization seeking to make culture and structural changes to improve student or employee satisfaction, engagement and achievement.

We believe it will strengthen Chamberlain’s brand and add to the very strong reputation of the institution.

At our medical and veterinary schools, we’re pleased to report that, before the hurricane, new student enrollment was tracking to show growth in the low-double digits for the September class, reflective of the changes we’ve made in marketing and admissions over the past month.

We’re also pleased to see recent increases in the average TPAs for the incoming students at both of our medical schools, with averages in the 3.2 range. We’re consistently attracting talented and hard-working students, who are committed to becoming successful MD. Students from AUC are continuing their studies in the United Kingdom.

While about 6% decided to take a break for the semester, 94% of students resumed class on September 29, at the campus of University of Central Lancashire. In January, we’re planning to hold classes for first, second and third semester students at AUC and St.

Martin, pending the results of our ongoing analysis to determine whether our campus and the St. Martin infrastructure are ready for students’ returns. Fourth and fifth semesters students will remain in the UK, where they will take advantage of an expanded number of clinical partners.

We are grateful to have UCLan, which is providing our students and faculty with quality lab and classroom facilities as our partner. Our Ross campus on Dominica as well as infrastructure of the entire island experienced significant damage, which will take time to address.

To ensure continuity of our program, in mid-October, we moved our students to temporary classrooms on a crew ship, which is docked at St. Kitts and Nevis. We appreciate the government of St. Kitts for facilitating our ability to dock at the St. Kitts court in close proximity to our Ross University School of Veterinary Medicine.

Approximately 78% of our students have stayed with us for the September semester, attesting to their determination to pursue their career goal of becoming a medical doctor as well as the quality of the education we provide and our disaster response, which provided the continuity they needed to get back on track for the semester.

About two-thirds of those students, who took a break this semester have indicated their intent to return in January of 2018. Patrick will provide more detail on the financial and enrollment impact of the hurricanes in a moment. Our Professional Education segment delivered healthy growth in revenue and operating cash flow during the quarter.

Becker remains a solid business with an attractive long-term growth profile, given its leadership in CPA test preparation as well as its focus on growing its continuing professional education program.

Becker’s excellence in education is demonstrated by the fact that 90% Elijah Watt Sells Award recipients in 2016 prepared with Becker’s CPA Exam Review course. This is an outstanding achievement when you consider that more than 100,000 candidates sat for the exam.

In total, since its founding Becker has helped more than 1 million candidates pass the CPA exam. Assessing to the quality and effectiveness of the organization’s program and teaching methods.

Mehul Patel, our new professional education vertical leader is focused on leveraging Becker’s reputation and large alumni base to extend our presence and gain share in the continuing Professional Education arena. The market for CPE-related courses is estimated to be $700 million in addressable opportunity in the U.S.

alone, where we currently have only a 1% share. We have a right to win in this market, and see considerable upside over the long-term, as we strategically leverage Becker’s reputation and diversify our peer mix. In fact, Becker recently signed a continuing education contract with one of the top accounting firm.

The largest such deal ever signed by Becker for continuing education courses. ACAM, which we have owned since July of 2016 is a leader in serving a very underpenetrated global market for accounting fraud prevention, which is estimated to be between $2 billion to $3 billion market globally.

As an asset-like member organization, the business provides attractive margin growth potential to three core revenue streams; membership, certification, and conferences. For prospective, ACAMS has now approximately 56,000 registered members, representing a 40% year-over-year increase.

And the recent ACAMS conference in Las Vegas attracted over 2,500 attendees, up 8% year-over-year, with participation from sponsors and exhibitors increasing 10%. Post-conference survey feedback from attendees was exceptional.

We expect ACAMS to deliver at least 20% on a compounded basis for the next five years, employing about $100 million business by 2021. In addition, we continued to build international momentum for the core ACAMS products, which present significant upside to the current model.

In our Technology and Business segment, Adtalem Brazil continues to represent a solid growth opportunity with high academic standards and strong national rankings, educating more than 110,000 students through 14 institutions.

We’re committed to strategically launching new programs aimed at addressing supply demand imbalances across the country as well as pursuing distance-learning opportunities. This past summer, the Brazilian government changed regulations on opening and operating distance-learning businesses across the country.

The approval process for launching these facilities was streamlined, making this segment more economically attractive to larger institution. This is a very large market opportunity. Adtalem Brazil will begin offering a group of bachelors and associate degree program via distance-learning in February.

These programs will be offered under the Unifavip brand and will be launched through the Damásio network of 220 learning centers, which has the infrastructure and staff in place to support distance-learning degree. Our leadership in Brazil continues to deliver improving profitability and solid cash flows despite ongoing macroeconomic challenges.

As the Brazilian economy shows improvement, we are well positioned to further expand margins, given the operating leverage in our model. In our US Traditional Postsecondary segment, we’re continuing to roll out that past program that DeVry University through new shorter, stackable programs and a streamlined marketing organization.

Our DeVryWORKS initiative has been an increasingly larger contributor to DVU stabilization. The program has gone from 3% to 4% of new enrollments one year ago to about 14% of new enrollments today. We continued to manage our expenses and move to further decrease our real estate footprint.

We are in the process of consolidating an additional eight campuses, which will reduce our footprint to 51 campuses. At Carrington, we’re beginning to see the benefits of the institution’s revived marketing initiative.

It’s been about six months, since Carrington repositioned its marketing strategy, and we’ve seen a steady increase in the number of inquiries. We’re starting to see positive signs that give us confidence that new student enrollment will begin to stabilize in the second quarter of this fiscal year.

In terms of curriculum, we’re continuing to focus on adding shorter, stackable quality program. Our Phlebotomy program had a successful launch in Reno in August. The program is 12 weeks in length, has a relatively low tuition rate and its non-title force. So it’s very much in line with our payer diversification strategy.

We’re adding continuing education program such as question that support dental assistance and hygienist as well as an IV certification course. This allows for additional Non-Title IV revenue and aligns that program with the needs of healthcare organization and workforce partners. Now, let me turn the call over to Patrick for the financial review..

Thank you, Lisa, and good afternoon, everyone. We’re continuing to make progress in executing our strategic plan, and our Q1 results, excluding the impact of the hurricanes were ahead of our expectations. We’ve achieved a notable cultural shift across our organization through our transition to a portfolio management approach.

We’re driving stronger cost discipline, increasing operating accountability and measurement across our organization as well as a heightened emphasis on increasing our operating profitability and return on invested capital. We’re also seeing tangible signs of improvement in select areas of our portfolio beyond cost efficiencies.

Overall, we remain very optimistic about our long-term outlook, given our exposure to growing in-demand sectors and our ability to execute our strategy in a highly efficient manner and deliver enhanced cash flows to the benefit of our owners.

With regard to the financial impact of the hurricanes, revenue was reduced by approximately $7 million during the quarter. We expect to realize most of lost revenue in the fiscal year as both AUC and Ross Med have resumed their respective September basic sciences academic construction.

We incurred approximately $14 million of incremental costs and expenses net of expected insurance recoveries during the quarter. Operating income was lower by approximately $21 million from reduced revenue and additional cost incurred because of the hurricanes.

Now we expect to incur additional expenses in the second and third quarters relating to maintaining alternative teaching sites for both AUC and Ross and remediating the property damage to the campuses in St. Martin and Dominica.

We expect incremental cost to be reimbursed under our insurance policies, having already met our deductibles during the first quarter. Turning to the first quarter. Total Adtalem revenue of $421 million was down 6.4% from the prior year.

The growth at Chamberlain, Adtalem Brazil and our Professional Education segment was offset by declines at DeVry University and Carrington and the impact of the hurricanes at our medical schools. Excluding the impact of the hurricanes, revenue would have declined by 4.8%.

Total costs, excluding special items for the first quarter were $399 million, decreasing 3.2% from last year. Excluding the impact of the hurricanes, total cost excluding special items would have declined 6.5%.

During the quarter, we, again, reduced costs at our home office with overhead spending decreasing 10.4% year-over-year, excluding special items. Through our continued focus on improving our operating effectiveness, we also reduced costs at Chamberlain and Becker.

Total pretax special items in the first quarter amounted to $8 million from restructuring at DeVry University and our home office. Operating income for the first quarter decreased 41.2% to $22.4 million, excluding special items as compared to last year. Now, excluding the impact of the hurricanes, operating income would have increased nearly 14%.

Net income, excluding the special items was $18.9 million during the first quarter, which resulted in earnings per share, excluding special items of $0.30. Our effective tax rate, excluding special items was 15.7% for the first quarter compared to 22.5% in the year-ago quarter. Now let’s review our segment performance.

Starting with Medical and Healthcare, revenue of $191.3 million was down 4.2% in the first quarter. Segment operating income decreased by 40.2% over the prior year to $26.2 million. Chamberlain revenue grew 2.2% for the quarter. In September, new student enrollment declined 0.8% and total students grew, nicely, at 4.5%.

Solid new enrollment growth in our post-licensure programs driven by continued market demand for our MSN, family nurse practitioner specialty track was offset by decline in our BSN pre- licensure programs, as we continue to refine our admissions process. For the full year ahead, we expect mid-single new student enrollment growth at Chamberlain.

Revenue at our medical and veterinary schools decreased 12.4% during the first quarter, primarily due to the impact of the hurricanes. In September, new student enrollment increased 0.7% and total students decreased 6.9%, as a result of students taking a break in the semester – in the September semester, as a result of the hurricane.

We expect medical and veterinary enrollments to grow in the January semester, as we work to get back to historical enrollment levels. Turning to our Professional Education segment. Revenue increased 15.3% to $40 million in the quarter, driven by the growth of ACAMS, which exceeded our expectations.

This segment’s operating income increased by 73.5% to $10.5 million during the quarter, as a result of the revenue growth at ACAMS. In our Technology and Business segment, revenue of $62.4 million increased 7.2% in the quarter, primarily driven by increased student persistence and favorable currency rates.

Without this currency effect, revenue would have still grown by 4.3% in the first quarter. The segment’s operating income was $1.9 million in the quarter compared to a loss of $2 million in the prior year.

And finally, in our US Traditional Postsecondary segment revenue of $127.9 million was down 19% in the quarter, as a result of declining enrollments at DeVry University and Carrington. Segment operating loss, excluding the special items was $13.3 million in the quarter compared to a loss of $6.9 million in the prior year.

Revenue at DeVry University declined 20.8% to $95.7 million during the quarter, driven by continued enrollment declines. In September, undergraduate new student enrollments decreased 17.7%, while total students declined 21.4%.

In the first quarter, excluding special items, we recovered 89% of expenses for every dollar of lost revenue at DeVry University for a total reduction of costs of $22.3 million. We are making adjustments to our DeVry University marketing model, which is expected to result in lowering our cost per new student.

Also, we have further plans to reduce the size of several of our locations as we rationalize our cost structure to improve operating income and cash flow. Carrington revenue declined 13.1% during the quarter. New students declined 7.8% and total students declined by 20.8%. Turning to our outlook.

For the second quarter of fiscal 2018, we expect total Adtalem revenue to be down 4% to 5% year-over-year. Revenue growth within the Medical and Healthcare segment, along with the growth in Professional Education and Technology and Business segments is expected to be offset by planned revenue declines in the US Traditional Postsecondary segment.

Second quarter of fiscal 2018 operating cost 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 our home office. Second quarter expenses will be impacted by the timing of that we see of insurance proceeds for the reimbursement of hurricane-related expenses.

We expect to incur additional restructuring charges, as we continue to rightsize operations to better align with our enrollment levels. For the full 2018 fiscal year, revenue is expected to decline 2% to 3% compared to the prior year, and earnings before special items are expected to grow in the low-single digit range as compared to the prior year.

As previously noted, given the evolution of our portfolio and the sizable seasonal contributions from Becker and Adtalem Brazil in our third and fourth quarters, our earnings performance will be weighted to the second half of the year. Our effective income tax rate, excluding special items was 15.7% for the quarter.

The tax rate was favorably impacted by shifting earnings to lower tax jurisdictions and a tax benefit related to stock-based compensation and a tax benefit to reflect a change in the state tax rate. In fiscal year 2018, we expect our effective income tax rate from operations to be within the 19% to 20% range before special items.

Now turning to our balance sheet and financial position. Cash flow from operations for the first quarter was $90 million. Our cash and cash equivalents were $274 million at September 30, 2017, while outstanding big borrowings were $135 million, leaving us with great opportunity with respect to our balance sheet.

Our net accounts receivable was $190 million, an increase of 3% from the prior year. We closed the quarter with bad debt as a percentage of revenue at 2.5% compared to 2.3% in fiscal 2017. Capital spending for the quarter was $14 million compared to $11 million in the prior year.

We’re targeting capital spending for fiscal year 2018 to be in the $60 million to $65 million range, excluding hurricane spending, primarily driven by investments within our Medical and Healthcare and Technology and Business segments for new campuses at Chamberlain and to enhance academic quality.

During the quarter, we returned $50 million to our owners through repurchasing approximately 1,478,000 shares at an average purchase price of $34.08. Our first quarter share repurchase program exceeded our share repurchase activity for all of fiscal year 2017.

The significant increase in the pace of our repurchases under the program is supported by our confidence in our strategic plan and our continued believe in intrinsic value of Adtalem shares is meaningfully higher than our current market valuation. Now let me turn the call back over to Lisa..

Thanks, Patrick. Our organization showed tremendous resiliency during the quarter, as we move rapidly to confront the extraordinary challenges from the hurricane and insured our student continued their education.

We are seeing the benefits of our diversified portfolio of schools an attractive range of in demand program as several of our institutions were able to drive improved results during the quarter. Overall, we’re following a solid strategic road map to execute on our four strategic priorities and build on the successes we achieved in the past year.

Student outcomes remain a priority and we are united at achieving our mission, which is fully aligned with delivering better financial performance. We believe our ability to address the unmet workforce skills gap in our vertical, while continuing to improve the underlying economics of how we operate will lead to enhanced value for our fellow owners..

Thanks, Lisa. I’d now like to ask the operator to open the call for question-and-answer session..

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Peter Appert of Piper Jaffray. Please proceed with your question..

Hi, thank you. Lisa, I was hoping, you could give us some more color on the dynamics around nursing enrollments, specifically what you’re doing that’s impacting the BSN program? What gives you confidence and the ability to get to mid-single digit growth for the year? Thank you..

So I’ll start off here, Peter, as [indiscernible] We’ve made some leadership changes coming into earlier in the quarter, as it relates to Chamberlain. And it was a big focus on process improvement for the campus-based enrollments. From our perspective this is not a top-of-the-line or top-of-the-funnel problem, it is execution.

And as we move now to the next start for January, and as we look at our application flow and where we are, we’re increasingly confident that we’ll have nice growth for the BSN program in January..

And any specific impact in terms of – I think, Lisa had mentioned changes at admissions requirements or standards or something.

Could just expand on that?.

Sure. So we had made some changes to our admissions matrix and requirements. And we’re starting to come up on the one-year anniversary of that. Those changes were made to ensure that we’ve got successful student outcomes and results on the back end of the process. So we’re going to start to get a benefit of anniversary-ing that as well..

Okay.

And then Pat, can you talk about the RN to BSN and what the trends are there in terms of enrollments?.

Sure. Yes. Enrollments, they have slowed a bit. But as we look at the September session, enrollments still grew in the 1% to 2% range. And we did get very nice growth in the post-licensure programs overall largely driven by the MSN with the RN to BSN contributing to that as well.

But we just quite work there yet with where we wanted to be with the BSN campus starts. But again, as we move into this January session, we’re becoming increasingly optimistic to returning that to sustainable growth..

Yes, let me just add. We did have some hurricane impact in Texas and Florida for that RN to BSN, so we’re confident moving into the new calendar year..

Got it, thank you. And I’ll direct all my questions to Pat. Yes. The DVU numbers continue to look like challenging frankly, in terms of the enrollments or here what you’re saying in terms of repositioning, et cetera. But it’s hard to see from our states that you are seeing any improvement in terms of the attraction in that business.

Where are you in the process of thinking about, strategic options for DVU?.

Yes, so I would start by saying, look, we don’t – I don’t believe in miracles other than what happened in the wake of the hurricane to get folks out those islands. But beyond that, that there’s no silver bullet for DVU. You guys know all that. You got the facts that we have and we’re being transparent with that.

That’s why we continue to manage the cost. That’s why we made management changes and significant bold move, as it relates to our marketing spend, reallocation to digital as well as some of the programming that we talked about for sometimes.

But I want to be really clear that we hold ourselves accountable to this portfolio management lend that we’ve been talked about now for several quarters.

And we have seen what you’re seeing and, while we do see the positive, particularly, as it relates to DeVryWORKS, that percentage of our new student enrollment going up 3% to 4% to close to 15% of our new student enrollments. We recognized that it’s been slow going here.

And as a result, we have consistently said that we look at this quarter-to-quarter, this is not something that we take likely, as it reflects on the portfolio. So we understand the sense of urgency there..

Thank you. And then, can you maybe color on the flow of applications within the MD programs post hurricanes.

Has there been some significant impact, I’m wondering how would impacts, potentially the admissions outlook for next fall, for example?.

Yes, so it is – well, first of all, I would start with, sort of, January, May. I think it’s a little early for the fall, but we have not seen a significant negative impact at all. In fact, one of the two schools is ahead of plan in terms of increase in admission.

So we – it’s there and both right in line of where they would be for January and going into May. So we are obviously solving for that making sure that obviously, part of that is where classes are going to be located, et cetera. AUC is a little ahead of Ross Med. So they have been able to announce where that January semester is going to be.

The first and second semesters will be going back to St. Martin, except for second, third, and then fourth and fifth will remain in the U.K. And we’ve said no negative result for that..

Got it. Thank you. And then last thing, Pat, the pace of buyback activity picked up obviously, which is great in the first quarter.

And I’m wondering, what we should think about for the balance of the year?.

Sure. So we let our belief and confidence in the plan drive that, that informs our intrinsic value of where we feel that we should be training, as we demonstrate, that we can fully execute on our plan and returns our institutions to sustainable growth and we see a gap of where the market value is up today versus where we think we should be.

And we’re understanding of what it takes to close that gap. So based on that current valuation, that if we’re going to continue to trade where we are today. We would continue to expect a consistent level of share repurchase activity..

Consistent at the level of the first quarter, you’re suggesting?.

Yes..

Great. Thanks very much..

Thanks, Peter..

Thank you, Peter..

Our next question comes from Jeff Silber of BMO Capital Markets. Please proceed with your question..

Thank you so much. And let me say, my kudos, you guys getting back up to speed so quickly in the Caribbean. It really is amazing..

Thank you..

I just had a couple of questions about that and maybe just more mechanical from an accounting perspective.

For students that decided not to continue to do their education, did you recognize any revenues either in the third quarter or the current quarter, excuse me, the fiscal first quarter or the current quarter?.

So at American University, the Caribbean, based on the timing of the hurricane and when it hit relative to the timing of the September semester, there was, in fact, no revenue recognized and all for the basic sciences portion. Of course, which represents about half of their revenue.

For Ross Med, there was about 15 days of classes were starts in September. And again, we have a provision for refund anticipating those folks who would draw based on our refund policy on pro rata. So that would be – is factored into the revenue that we recognized in the first quarter. For the quarter 930 [ph]..

Thanks.

And in the current quarter, again, if the students did decide not to continue, do you get to recognize that revenue?.

No. So if those students – and again, a very small portion, as we said about 6% are sitting out at AUC, with a significant majority of those, we expect to return in January. And then similarly, Ross, significant majority of those students could return in January. So then, as those students would reenroll, we would recognize revenue.

As we start to just deliver instructions to those students in the January semester..

I appreciate you clarifying that. And then on the $20 million in lost income that you cited in the fiscal first quarter. You mentioned that you should be able to recoup that net of the deductible.

How will that be reported when those monies come in?.

Sure. So you just breakdown the $21 million impact of the hurricanes in the first quarter, about $7 million of that was on the top line.

So we would then see that revenue shift into the balance of the year with majority of that being picked up in the second and third quarters, as those students return or those classes that regard resumed in the quarter ended 12/31 and going forward. And then for the expenses, in total, we incurred about $25 million of incremental expenses in Q1.

And a little more than half of that was related to the evacuation and care of our students and faculty. And then a little less than half, of course, was related to the write-down of assets for what we’ve identified that has been damaged. So of that $25 million, I kind of think about at this way.

We’ve got a deductible of about $13.5 million in total, which we now fully satisfied in the first quarter. So you get the net impact of about $13.5 million to $7 million lost on revenue that gets you to the $21 million shortfall on operating income. And if you were to apply tax rate to it, that’s worth about $0.26 a share..

Okay. Well, you anticipated this question, I appreciate that, Pat. You’re going to through that.

And again, in terms of the timing, do you know when the proceeds will be received?.

So the timing, we did record a receivable of about $11 million against that total $24 million expenses in write-off. And that cash will hit significant majority of that cash hit based on our submissions of proof-of-lost in this current quarter. And then as we occur expenses on business continuity, et cetera, that – those are reviewed and reimbursed.

So that’s what we said why our expenses down 1% to 2%. Some of that is being impacted by what we see as a delay in the timing of when we incurred the expense and then the subsequent cash proceeds most likely in the third quarter. But there’ll be somewhat of an ongoing include cost up until we finalizing the claim..

All right, I understand that.

And again, are we just talking about the business interruption in insurance proceeds, are we talking about any type of physical damage in terms of the recovery?.

This will be both..

This will be both. So it’s all inclusive in there. Okay, thank you for – I really appreciate that. If we can shift gears, you mentioned that you’re going to be making some changes to the marketing model at DeVry University.

Can you give just give a little bit of color on that?.

Yes, so it’s similar to what we’re talking about before, as we think about the way that our students receive or want to receive information and is far more of a digital media paid search, kind of referral model. We have seen that work far better when some of our institutions, other institutions, Chamberlain as an example.

And then also, on top of that, really thinking about our marketing and the sort of allocating the spend to more program specific marketing versus the overall DeVry University brand.

So a lot of our marketing has been focused on DeVry University, where in fact as you really feel that the social media and paid search [indiscernible] if you will, it really needs to be focused on those programs, lot of which we talked about over the last couple of calls in terms of program stacks and specific to tech path and technology and more the certificate programs, et cetera..

Okay, great. I appreciate the color. Thanks so much..

Our next question comes from Jeff Mueller of Baird. Please proceed with your question..

Yes. Thanks. Good afternoon. Just, I guess, first, could you help me out with the Q2 guidance commentary. What is it mean the second quarter expenses will be impacted by the timing of receipt of insurance proceeds.

What’s the impact on the Q2 guidance? Can you quantify that?.

Yes, the impact there is, we’re anticipating that will incur expenses in the second quarter, which we will receive the reimbursement for most likely in the third quarter.

So that would, obviously, map some of the underlying expense savings or said otherwise without the hurricane, we should – would have been expected a little bit better expense performance..

Okay, that’s helpful. And then just on the comments about the Medical and Healthcare starts trends and then the hurricane impact, just given when the hurricanes fell in the month and relative to one, I guess, the academic start date would have been.

Can you just help me understand what was going on there? I think it was – we’re tracking the double-digit growth, but I thought the hurricanes hit after the campus started?.

Yes, so the hurricanes hit literally right as AUC was starting. So AUC was not able to deliver any of the basic sciences in its curriculum during the month of September or not until the right at the end of the month.

So those students are – where we were – if that senses would have held without students those who chose not and the – for those – said another way, for those students who chose either to withdraw or set a semester return in January, based on the preliminary senses for both Ross and AUC, we would have been up in the low teen percentage versus being up just almost 1% accounting for those students, who withdraw or said we need to take a little bit of time off, just given what they went through and where we join us in January..

Okay. And then on the commentary of Chamberlain admissions requirements, is this to address, the I guess the NCLEX passage rate, which I think the delta between you and the national average has been widening out.

And what else are you doing to address NCLEX passing rates?.

So there is number of things that we’re doing as it relates to entrance to our curriculum, partnering with ATI which we had a press release or Chamberlain had a press release that’s pretty descriptive of how we want to continue to support or enhance our support our students there.

And then we just want to ensure that from our admissions matrix in process that we have got students, who – we feel very confident, will graduate and score well in the NCLEX. So it’s a confluence of those items..

Do you have a – can you help quantify how many students are being – are failing to meet the current criteria that would have met the criteria prior to changing the grid?.

We don’t necessarily look at it that way. We see opportunities that with our enhanced admission matrix and our improved admission processes based on the good inquiry flow that we have in the big supply demand and balance for nurses. We’re very confident that we will return to growth in January..

Okay. And then, you guys have a great multi-year track record of offsetting revenue declines at DVU. And then I just want to see, if this is just kind of one-quarter fluke, but the capture rate declined and the loss, I guess, widened year-over-year.

So just how much opportunity you have to continue to take expense out, if revenues going to continue to decline at DVU?.

Great question. We – the rate of expense recovery for DVU will increase rather as we move forward now into the second, third and fourth quarters.

Part of that is influenced by our change in our marketing strategies and reallocating some of our marketing spend, while reducing it at the same time as well as and some additional cost structure changes that we have been acted early in the second quarter or late in the first.

And you’ll start to see the benefit of that flow through here, when we report our second quarter earnings..

Okay, thank you..

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Ms. Joan Walter for closing remarks..

We’d like to thank everyone for your questions today. And remind you that our next results call is scheduled for February 6, when we’ll announce our fiscal 2018 second quarter results. Thank you for your continued support of Adtalem..