Covista Inc. (CVSA) Q2 2013 Earnings Report, Transcript and Summary

Joan Bates Daniel M. Hamburger - Chief Executive Officer, President and Director Timothy J. Wiggins - Chief Financial Officer, Senior Vice President and Treasurer Patrick J. Unzicker - Chief Accounting Officer and Vice President of Finance

Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division Sara Gubins - BofA Merrill Lynch, Research Division Kelly A. Flynn - Crédit Suisse AG, Research Division Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division Zachary Fadem - Barclays Capital, Research Division James Samford - Citigroup Inc, Research Division Paul Ginocchio - Deutsche Bank AG, Research Division Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division Jeffrey M. Silber - BMO Capital Markets U.S. Trace A. Urdan - Wells Fargo Securities, LLC, Research Division Peter P. Appert - Piper Jaffray Companies, Research Division Corey Greendale - First Analysis Securities Corporation, Research Division Brian Karimzad - Goldman Sachs Group Inc., Research Division Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Good day, ladies and gentlemen, and welcome to the Fiscal 2013 Second Quarter DeVry Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And with that, I would now like to turn the conference over to your host, Ms. Joan Bates, Senior Director, Investor and Media Relations. Please go ahead.

Thank you, Keith, and good afternoon, everyone. With me today from DeVry management are Daniel Hamburger, President and Chief Executive Officer; Tim Wiggins, our Chief Financial Officer; and Pat Unzicker, our Vice President of Finance. I'll now paraphrase our Safe Harbor statement. This call will contain forward-looking statements. Actual results could differ materially from those expressed or implied. We undertake no obligation to publicly update or revise any such forward-looking statements. Please consult our most recent 10-K and 10-Q filings for a more complete description of factors that could affect our financial results. Telephone and webcast replays of today's call are available until March 5. To access the replays, please refer to today's release for more information. I'm sure you noticed, we pushed our call back 30 minutes from the time we normally started. We did this in response to the feedback we've received from you, so we appreciate these suggestions and ask that you keep them coming. And with that, I'll turn the call over to Daniel.

Thanks, Joan, and thank you, all, very much for joining us today. I'll begin with an overview, and then I'll follow -- ask Tim to -- and Pat to follow up on that with the financial results and then I'll wrap it up. And as you saw in today's results release, we made progress executing on our performance improvement plan this quarter. While revenues were down modestly year-over-year, operating expenses, including discrete items, were lower both sequentially and versus prior year, especially at our institutions in transition. The decline was driven by our operational excellence initiatives, the deferral of advertising expenses for the second half of the year and by costs that vary directly with enrollment levels. So let me update you on our progress with the performance improvement plan. As a quick reminder, the plan has 3 priorities: aligning our cost structure with enrollment levels; regaining enrollment growth; and making targeted investments to drive future growth. Now first, aligning our cost structure. We continue to see our efforts here paying off. During the quarter, we generated real estate savings by consolidating our Wood Dale, Illinois operations to other nearby locations, and I'm very proud of the team's execution on this relocation. And I think it's a strong example of the sense of urgency that we have because this effort was conceived, planned and executed in a very short period of time. And we're continuing to review other properties to further optimize our locations. Tim will discuss that in a few minutes. We're also optimizing our course scheduling at DeVry University to improve class size and course option. These changes will reduce costs while maintaining academic quality. We've also consolidated Becker's customer service operations with DeVry Online Services, expanding service coverage while reducing costs. So all these actions and others are designed to create a leaner cost structure. Last quarter, we increased our goal for efficiencies and value creation for the year to at least $60 million. Well, we now believe we can generate at least $80 million from efficiencies for fiscal 2013. As a result, we expect our total expenses to be down from the prior year. Now moving to the second priority in our plan, regaining enrollment growth. At DeVry University, the November session was impacted by continued cyclical weakness, adjustments following our workforce reductions and Hurricane Sandy didn't help. We did see an improvement in new student recruiting sequentially from the November to January session, and we're encouraged by the improving trends. Conversion rates are up. Start rates are up. We saw a new student enrollment growth at 21 of our 49 campus metros in January, and our graduate employment results at DeVry University are also improving. And so we're making solid progress, but it's coming slower than we'd like. Based on what we're seeing now, I'd say it's much less likely that we'll see growth in new enrollment at DeVry University in the second half of this fiscal year. At Keller Graduate School of Management, we also experienced declines in enrollment during the quarter. According to Bloomberg Businessweek, many business schools are experiencing declines in applications. Some of the most prestigious public and independent schools are down substantially. Yale School of Management down 9.5%; Michigan State Broad College of Business down 18%; and Indiana University's Kelley School of Business down 21%. So those programs aren't immune and neither is Keller. However, I think it's important to note that this is not a seminal issue for DeVry University or even private sector institutions but a cyclical issue across higher education. All private sector colleges and universities are down. According to the National Student Clearinghouse, for the first time in a generation, enrollments declined across the entire higher education system in 2012 across the United States. Most telling, even community colleges, inexpensive and taxpayer subsidized as they are, were down 3.1%. A Moody's study noted that prospective students are hesitant to commit to pursuing a degree and that the perception of the value of a diploma seems to be in question. Well, anytime someone says, "College isn't worth it anymore," I always respond, "Well, do you have kids?" "Yes." "Okay. Which one of them are you going to advise not to go to college?" We know there are millions of jobs going unfilled because of the skills gap. According to the Georgetown University Center on Education and the Workforce, 2/3 of all jobs today require a college degree, and that's up for 1/3 30 years ago. The fact is that the return on educational investment of a college degree remains very strong. The Census Bureau reports that the difference in lifetime earnings between a college and a high school graduate is $1 million. Another study by Georgetown University takes that a step further. In comparing bachelor's and high school graduates, the college grads steadily gained jobs even during this recent recession. All those without a degree were the worst hit. The study reports that since 2010, more than 2 million jobs have been gained by those with a bachelor's degree or higher. And studies like these demonstrate that the return on educational investment remains very high, especially in the high-demand fields in which our institutions participate. We think prospective students and families know this, too, but right now, many are waiting, just not sure if this is the right time to commit to college. This leads us to believe that there may be pent-up demand building to be released as the economy improves. But in the meantime, one question you may have is, do we have to wait for the cycle to come back before we can grow? And the answer is no. We can compete and we can grow, and we have a plan to do that. And Carrington and Chamberlain are Exhibits A and B here. At Carrington, we're pleased to say that our turnaround plan continues to make significant progress. New student enrollment was up nearly 13% in the quarter. Improvements to our processes and our recruiting efforts are driving higher-quality inquiries and higher conversion rates. In December, we implemented new elements of our branding campaign for Carrington and is gaining momentum. We've refined our messaging and how we reach prospective students using local and network television and social media. While it's still early, these efforts are increasing awareness of Carrington's value proposition, and of course, that includes the individual attention and career focus that we provide our students. At Chamberlain College of Nursing, new student enrollments grew 88% in the January session. Now enrollment was positively impacted by a change to the academic calendar that increased the number of enrollment periods for campus-based students in this fiscal year. There were no campus-based new student enrollments in the January session of last year. Excluding the extra intake, the growth rate would have been a little less than 50%. Growth was driven by record enrollment in our RN to BSN and MSN degree programs. And so at Carrington and Chamberlain, we're making good progress. We still have some work to do with DeVry University. When you take it as a whole, new enrollment across the DeVry education group was up over 5%. And now our third priority is making targeted investments to drive growth and diversification. During the quarter, Chamberlain began offering 2 new certificate programs in nursing education and informatics for nurses already holding a Masters of Science in Nursing. And we recently received approval from the Higher Learning Commission for a Doctor of Nursing Practice or DNP degree program, and that's set to begin in May. We're very excited to offer our first doctoral level nursing program at Chamberlain and believe it will only add to Chamberlain's reputation for quality. We're also selectively investing in new campuses. We opened 2 new Chamberlain locations in the quarter, Indianapolis and Cleveland. We recently received HLC approval for a new campus in Tinley Park, Illinois, and that will be our third Chamberlain location in the Chicago area scheduled to open in May. And 2 major capacity expansions remain on track, one at the Chicago campus for DeVry University and Chamberlain and the other, our expansion of the American University of the Caribbean School of Medicine campus in St. Maarten. Strategic investments and acquisitions are also on track. The integration of our 2 most recent acquisitions in Brazil continue to exceed our expectation, namely Faculdade Boa Viagem or FBV and Faculdade do Vale do Ipojuca or FAVIP. These institutions have strong management teams and an exceptional reputation for quality. We're building on strong foundations in Brazil, executing on our integration plan and sharing best practices across our institutions. And so we're pleased with our progress in all 3 priorities of the performance improvement plan. At the same time, we know we have much work left to be done. We've been asked lately about competition, so we wanted to speak to that. While competition is increasing, of course, I don't know any industries where that's not the case, we wouldn't cite it as the biggest factor affecting our enrollments. We believe the #1 cause of that has been United States' prolonged economic weakness and resulting consumer sentiment. Our own data illustrate the limited impact competition has had on those who enroll in our programs. We surveyed those who inquire with DeVry University but don't enroll, and we asked them where they went. In the past, about 60% of them didn't enroll in any university. And now with increased competition with stealing students away, you'd expect that number to go down, but it's actually up to 80%. So we don't have perfect information, but this indicate -- I'd say this data indicates the issue's much more the prospective students are hesitating to enroll at all. One particular segment of competition people have asked about is MOOCs, massive open online courses. Today, they offer self-paced, nondegree courses for free but without a professor, without academic support, without student services and without career services. They seem to cater to students who are already pretty well-prepared academically and who are looking for an efficient approach to learn certain subjects. They don't provide the structure necessary to serve our target segment of students who seek career-oriented degree programs. So while higher education as a whole has been going through a cycle of lower enrollment, let me paraphrase a statement from an analyst on a recent conference call who said, "We believe the sector is best examined name by name, not by the sector overall." And this is where DeVry's differentiated model of quality plus diversification sets us apart. Over the past decade, we've diversified into high-demand fields like health care, which now accounts for about 1/3 of our current revenue and has grown 8% year-to-date. Our country is in desperate need of physicians and nurses. Last year, we graduated more than 1,000 doctors, nearly 5,000 nurses. Most of whom will serve in primary care where the need is greatest. At the same time, we continue to expand in high-growth markets, including Brazil, where we currently serve 27,000 students across 5 cities in Northeastern Brazil. DeVry Brasil has grown more than 50% this fiscal year. That's diversification. And when we talk about quality, the best measure is successful student outcomes. In 2012, 94% of the graduates from Chamberlain's BSN campus programs, systemwide, passed the National Council Licensure Exam or the NCLEX. Some of our campuses were at 100%. We also view our corporate partnerships through our Keller Center for Corporate Learning as a marker of quality and a valuable competitive advantage. In fact, we've seen a 21% increase in enrollments from this channel this fiscal year. Recently, we have signed an agreement with Rite Aid, and we have renewed our agreement with Walmart. We provide educational programs to their employees. These major retailers understand that investing in their employees improves their productivity and retention. They have selected DeVry because we can provide a wide range of programs across our institutions, flexible delivery option and because of our reputation for quality education. Our partnerships extend to world-class health care organizations. Ross University School of Medicine recently expanded its affiliation with the Cleveland Clinic. Ross medical students have the option of completing internal medicine and surgery training at the Cleveland Clinic's teaching hospital near Miami. Chamberlain is also expanding our partnerships. Last quarter, I mentioned Chamberlain's partnership with the National League of Nursing, the NLN. This quarter, Chamberlain partnered with Sigma Theta Tau International. That's the Honor Society of Nursing, and we've established the Sigma Theta Tau International and Chamberlain College of Nursing Center for Excellence in Nursing Education. The people running the center will have really long business cards, but let me tell you, they won't mind because they get to provide career and leadership development for nurse educators and to promote nursing education globally. So quality plus diversification equals growth. That's DeVry's formula for creating value. And quality plus diversification distinguishes us from many others in higher education. And so with that overview, let me turn it over to Tim for a discussion of the financial results.

Thanks, Daniel. Good afternoon, everyone. Before I walk through the enrollment and financial results in detail, let me start by commenting on our cost reduction efforts. At the end of last fiscal year, we committed to $50 million in cost reductions for fiscal 2013, then in the first quarter, we announced an increase to $60 million in reductions. We've been hard at work focusing on increasing efficiencies and creating value throughout the entire organization. And so I'm pleased to say we've now increased our target to at least $80 million of total savings to be delivered this year at our institutions in transition. Total costs and expenses for these institutions were $1.18 billion in fiscal 2012. So this means these costs should be $1.1 billion or less this year or about a 7% decrease. The cost savings are being driven by structural changes made to these institutions like revisions to staffing models, course scheduling and eBooks. They are also being impacted by costs that vary directly with enrollments like adjunct faculty, bad debt and books in light of lower enrollments at DeVry University. In the second quarter, total costs came in below our plan as a result of tight control and the deferral of some expenses into the third quarter. One key area of deferral was advertising, which was down nearly $7 million sequentially due to market conditions, efficient use of resources and the availability of quality inquiries. Looking to the third quarter, we now expect total costs and expenses to be up sequentially about 3% to 4%. The biggest driver is expected to be advertising spending for the third quarter, which should be more in line with first quarter levels. We also anticipate higher seasonal spending due to seating 2 sessions in the quarter versus just one in the second quarter and increased spending related to new campus openings. Turning to enrollments. At Carrington, new and total student enrollments grew this quarter. New enrollments were up nearly 13%, with total enrollments up slightly for the first time since the downturn. The Carrington team has worked hard to refocus the brand, reorganize the admissions function to better serve students and build upon its leadership position in allied health care education. Chamberlain, Ross and AUC continue to experience enrollment growth as the need for nurses, physicians and veterinarians in the U.S. remains high. Ross and AUC posted single-digit total enrollment growth in line with our long-term expectations. So you can see that the new investments we've made over the last few years are paying off. So our growth institutions continue to meet or exceed our expectations for enrollments, and we can now call the turn on Carrington new students. At DeVry University, while we don't expect to see new undergraduate student growth during the second half of this fiscal year, we're encouraged by what we're seeing in terms of conversions and start rates. It's the inquiries at the top of the funnel which continue to be challenging. So with that context, second quarter total revenues were $505 million, down about 4% versus the prior year. Year-to-date revenues were $998 million, down 5%. In the second quarter, revenues for our institutions that are in transition, DeVry University, Carrington and Advanced Academics, were $321 million, down about 13% versus the prior year. This was partially offset by our growing institutions where revenues increased 18% to $184 million. That was fueled in part by the acquisitions of Falcon, FBV, and FAVIP, as well as expansion at Chamberlain. Excluding the restructuring charge this year and the impairment charge last year, total operating costs and expenses for the quarter of $430 million declined 1% compared to last year. For the 6-month period, expenses were $867 million, down about 1% from $874 million last year. During the second quarter, total costs, excluding discrete items at our institutions in transition, were down nearly 9% or $29 million versus a year-ago quarter as a result of our continued cost management. During the quarter, we consolidated 3 facilities: an administrative office facility in Wood Dale, Illinois; as well as facilities at Carrington College and DeVry University. We expect savings of approximately $3 million annually from these consolidations. We also incurred a $5.9 million after-tax restructuring charge during the quarter related to these consolidations. Total costs, excluding discrete items at our growing institutions, increased 17%, which was less than revenue growth and consistent with our plans for continued growth at Chamberlain and DeVry Brasil. Cost of educational services increased by 1% during the quarter. Costs were down at our institutions in transition by 8% year-over-year, and this was offset by a 21% increase in costs at our growing institutions, driven by our recent acquisitions and expansion at Chamberlain. Student services and administrative expense declined nearly 4% as compared with the prior year. Costs at our institutions in transition were down 10%, largely reflecting our cost reduction initiatives. Costs at our other institutions increased 7%, which was more than offset by our cost reductions. Reported net income was approximately $50 million for the quarter and $82 million year-to-date. Earnings per share was $0.78 this quarter and $1.27 year-to-date. Second quarter net income of $56 million was down 10% versus prior year, and earnings per share of $0.87 was down 5%. This is excluding the restructuring charge in the current year and the impairment charges and gain on sale of assets in the prior period. We provided a reconciliation of these earnings results in today's release. Our effective tax rate was 21.6% for the second quarter of fiscal 2013, and that compares with 28.1% for the full year fiscal 2012. The lower tax rate in the second quarter was due to lower mix of domestic source income expected this year, so please keep DeVry's international diversification in mind as you build your models. We expect that our effective income tax rate for operations for fiscal 2013 will be in the 23% to 24% range in the third quarter and slightly higher in the fourth. With that overview, let's shift to our operating segment results which are further detailed in our release. Starting with the Business, Technology and Management segment, revenue was down 14% during the quarter versus prior year and a little less than 15% year-to-date. DeVry University undergraduate revenue per student was flat in the second quarter compared with the prior year. Excluding the restructuring charge, total segment expenses for the second quarter decreased 10% as compared with the year-ago period and 8% for the 6-month period, demonstrating our continued progress on cost reductions. Segment earnings, excluding discrete items, were $39 million in the quarter, down just over 32% versus the last year, driven by revenue decline and resulting margin compression. For the 6 months, segment earnings were down just over 46%. Within the Medical and Healthcare segment, revenue was up more than 9%. Growth at Chamberlain is being driven by the 4 new locations added over the last 1.5 years in Miramar, Houston, Atlanta and Indianapolis, combined with increased enrollment at our existing locations and online. The addition of the new Cleveland and Tinley Park locations will help sustain Chamberlain's growth in the coming years. At DeVry Medical International, we continue to invest in the Ross medical and veterinary campuses, and construction of the new AUC facility remains on track to open in September. Excluding discrete items in both the current and prior years, earnings for the Medical and Healthcare segment in the quarter of $28 million increased nearly 22% from the prior year. Finally, revenue with the International, K-12 and Professional Education segment increased 27% in the quarter and 23% year-to-date. Revenue grew 6% at Becker, driven by the acquisition of Falcon Physician Reviews in April of 2012 and demand for the new course materials Becker issued for the 2013 CPA exam. At DeVry Brasil, revenues increased 69% this quarter. More than 12% of that increase was through organic growth, with the remainder driven by recent acquisitions of FBV and FAVIP. We remain on track for $90 million of revenues from Brazil this year, and we continue to explore numerous growth opportunities in that country, both through organic expansion into new programs and locations, as well as through acquisitions. The segment's earnings increased 37% during the quarter versus the prior year by increased operating leverage within DeVry Brasil and Becker. Turning to the outlook for the third quarter. We expect operating expenses to be up sequentially, driven by new locations at our growth institutions, as well as the realization of certain deferred expenses from the first half. However, we expect total costs will decrease for the full year versus a year ago, driven by total costs -- driven by cost decreases at institutions in transition. We'll continue to execute on our performance improvement plan to generate at least $80 million in operating expense savings at our institutions in transition that we've committed to for the full year. We anticipate Carrington will experience positive new student enrollment growth in the second half of the year at a rate similar to that achieved in the first quarter. I'll close by addressing the question I've been asked lately. What are our expectations for tuition pricing in the near term? The answer is tuition varies by institution. At DeVry University and Carrington, we expect tuition to be flat with this year's rate. At Chamberlain, we anticipate a slight increase, while at Ross, AUC and DeVry Brasil, we'll see increases in the 5% to 6% range. We also consider the awarding of scholarships in our determination of tuition levels. We continue to expect scholarships to be in the low $50 million range this year, up from about $42 million last year. The way we like to think about it is tuition should reflect the return on educational investments graduates can expect to receive throughout their careers. For example, we know employers, including 95 of the Fortune 100, place a great value in a degree from a DeVry institution because they regularly hire our graduates. We know that the highest rates of job growth in the coming years are in the health care and technology sectors -- areas where we have high-quality institutions and programs. We also know that our students can reduce their investment by completing a 4-year degree in 3 years. I'll now turn the call over to Pat to talk more about our balance sheet and financial position. Pat?

Well, thanks, Tim, and good afternoon, everyone. Our liquidity and financial position continue to remain solid. Cash flow from operations for the first half was $180 million versus $219 million last year, reflecting our lower earnings, the cash and marketable securities balance of $219 million at the end of the quarter compared to $288 million last year and we continue to remain debt-free. Our cash and marketable securities balance is lower than last year, reflecting investments for acquisitions. Our net accounts receivable balance was about $140 million versus $145 million last year. The lower accounts receivable balance was a result of decreased revenues and our continued focus on collections management. Our bad debt rates continue to reflect the focus on the receivable collection process, with year-to-date bad debt expense down to 2.1% of revenue as compared to 2.3% last year, an indicator of the value proposition of our programs and our teams' disciplined execution in this area, even during these tough economic times. Capital spending for the first half was $48 million versus $63 million spent last year. Our capital spending was down, driven by our strong focus on capital deployment and a delay in spending on a couple of projects. Current year spending focuses on expansion within our Chamberlain College of Nursing, Ross University School of Medicine and the American University of the Caribbean. We expect total capital spending for the fiscal year to be in the $130 million to $140 million range as we reinvest our earnings in academic quality and targeted growth initiatives. Now during the quarter, we repurchased about 539,000 shares of our common stock for about $12.8 million or an average of about $23.84 per share. We completed our seventh $100 million program and began executing our eighth $100 million program in November. So we remain committed to a solid balance sheet, with strong financial flexibility to reinvest in quality and growth. Now let me turn the call back over to Daniel.

Thanks, Pat. We look forward to your questions. And just before we open up the line, let me address some concerns we've heard about the regulatory environment and accreditation and some of DeVry's points of distinction. We understand there's a concern about gainful employment and will that come back and so forth. Well, under what was previously proposed, none of DeVry's programs failed the tests. We remain confident in the strong value propositions of our programs. Second concern we've read about lately is recourse on private loans. Across DeVry's institutions, private loans are a small percentage of our students' total financing, maybe 2%, and loans where we shared default risk are a very small percentage of those. So we have minimal exposure to this issue. Another concern people have asked about is accreditation. As you're aware, the Higher Learning Commission, the HLC, accredits DeVry University and Chamberlain College of Nursing. Chamberlain has recently been through reviews by HLC as part of the approval process in our new programs and campuses. HLC commended Chamberlain on the quality of our programs. DeVry University recently completed its visit with the HLC. And while we're awaiting the final report, the visit seemed to go well, and the visiting team was complementary. Also, Ross University School of Medicine recently received 5-year reaccreditation from its accreditor, the Dominica Medical Board. So it's always great to hear when accrediting bodies acknowledge our commitment to quality. Looking ahead in the regulatory front, most people think it's unlikely for the HEA reauthorization to get done this year. We agree with that, and we're using this time to have proactive dialogues with policymakers and other thought leaders. We continue to advocate that strong regulation is necessary in order to protect taxpayer and consumer interest. We believe regulation must be based on 2 pillars: outcomes-based metrics and standards of professional practice such as strong disclosure and transparency for students. And this system of accountability must apply to all institutions, one set of rules for public sector, private sector and independent colleges. Getting this regulation right is important, both to hold colleges accountable and to lay a framework that supports strong institutions. We need strong public and private institutions to meet the need, and the need is growing. The Department of Education recently published its projections of education statistics for the next 10 years. And the report not only projected long-term enrollment growth, it noted that the share of adult students is expected to grow in the coming years. Likewise, the shares of black, Hispanic and female students are expected to increase. I shared this with someone the other day and they said, "Demographics is destiny." These are student segments DeVry institutions serve very well, and this forecast contributes to our confidence in our ability to grow over the long term. And so to wrap up, we continue to execute in our performance improvement plan, making solid progress in the second quarter. There's more work to do as we look to further narrow the decline at DeVry University and to sustain our momentum at Carrington. Our focus on quality and diversification is helping us as we work through the cyclical weakness and gives us confidence in DeVry's long-term performance prospects. Joan?

We do have a number of callers in the queue. [Operator Instructions] So with that, I'm going to ask Keith to give our participants the instructions for the Q&A portion of the call.

[Operator Instructions] And your first question is from the line of Jeff Volshteyn with JPMorgan. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: A housekeeping question, really. Given the new disclosure on enrollments, the recent disclosure enrollments, could you just walk us through different segments and talk about seasonality, as well as the differences in the number of starts between the year-ago period and upcoming quarters?

Sure, Jeff, this is Pat. I'll take that question. As it relates to DeVry University, both the undergraduate and graduate programs, we have 6 sessions per year. Those sessions start in July, September, November, January, March and May. And there's really no, in terms of year-over-year comparisons, that's pretty much lockstep. For our Chamberlain College of Nursing, this year, for the on-site students, those students pursuing a baccalaureate science degree in nursing, we had 4 new start periods instead of a typical 3, and we're doing that to better align our calendar with other traditional schools. So we had a start in January, which we normally wouldn't have had. And then going forward, we would have normally had a start in March for the on-site students, but that start has been shifted back to May. And then going forward, for Chamberlain College of Nursing, again, just for the BSN students, the on-sites, we'll have new student enrollment periods in May, September and January. And then, of course, our online programs at Chamberlain, both the RN to BSN and the MSN, have the 6 session starts very similar to DeVry University. So I hope that helps. And then, of course, our DeVry Medical International, that is unchanged. Those new enrollment periods are September, January, May. And then Carrington student starts, there's basically 6 session intakes a year. And we did have a little bit of seasonality with those starts, and I can give you the number of start periods. One moment here. I'll follow up with you in our scheduled call later on that one.

Your next question is from the line of Sara Gubins with Bank of America Merrill Lynch.

You mentioned 21 schools saw positive start growth. I think it was for DeVry University. Any distinctive characteristics around those schools, geography or particular program mix that might help explain where the growth is coming from?

Right. Those are -- Sara, those are metros, and I would say not a lot. It's really -- as a manager, you sort of appreciate the differences with local management sometimes. A little bit of strength in California, I would say. I think that's one area that the public sector colleges are a little bit constrained, and students tell us that they're not able to get a full schedule all the time. And, of course, they can get full schedule both on-site and online at DeVry University and graduate and many students do graduate in 3 years, let alone 4 or 5 or even 6 sometimes at other places. So I think that's probably the difference. What's encouraging to us is sort of at the beginning of the downturn, everything was down. And now, as a manager, you start to see things starting to come up in different areas. And you can start to share best practices and what are you doing here and what are you doing there that's working. And so that's actually a higher number of metros that are up here than I was able to report last quarter. So we're encouraged by the trend. We're not satisfied with where we are. Clearly, we hoped to be a little better by now. So that's where we are with DeVry University new student enrollment.

Great. And then on the cost side, any chance you could help quantify how much you think costs will be down on a year-over-year basis for the full year. And maybe help us understand what the run rate is into fiscal 2014, given that it sounds like you're actually getting $80 million in '13 as opposed to that being a run rate.

Right. So it's Tim. Sara, a couple of thoughts there. One that initially, as we looked at the year, we expected the $50 million of cost reduction in the institutions in transition, and that costs would be up at the growth institutions supporting the growth so that we'd have a net increase. It's now based on our current view at $80 million of savings, down slightly, not a lot, but we continue to work. We did see, by the way, some cost reductions at some of those institutions that are growing just based on this overall belt-tightening that we're working on. So as we exit the year, we're going to have a run rate a little north of $80 million at this point, but we're not done here. We have the second phase of our operational excellence programs that are focusing on more of these midterm structural issues. We'll continue to look at our real estate footprint. And then we have yet a third wave of those that are longer-term in terms of deeper operational efficiencies that we continue to look at.

Your next question is from the line of Kelly Flynn with Crédit Suisse. Kelly A. Flynn - Crédit Suisse AG, Research Division: Question relates to DeVry undergrad starts. I'm hoping you can give us a little more color on what you might be expecting for the March session, and then you said a couple of times you don't expect them to grow for the year. I'm wondering what gives you pause on that, given that you saw such a nice improvement in January. And then I have one follow-up.

Okay. Yes, I just -- I'm not saying it's impossible. We just think it's a little less likely that we'll see new students turn to positive during the back half of this fiscal year. And we've talked about that before, so I thought that was important to share that. We're encouraged on the positive side by conversion rates up, start rates up, I mentioned like the 21 metros. So everything that's happening inside the institution, including the graduate employment rates are strong, too, is good. It's overall inquiries sort of at the top that's the main issue. And, for example, we saw Google inquiries for all of education down 7%. So it's just the general -- it's the top of the funnel which is really driven more by the consumer sentiment that's out there that's affecting really all of higher ed, not -- and take DeVry out of it, take even the private sector out of it, you just look at all of higher ed, even community college is down a little bit. That's why I just want to sound a note of caution, we don't want to get ahead of ourselves. Kelly A. Flynn - Crédit Suisse AG, Research Division: What about for March? I mean, do you expect it to be down at a slightly less -- a lesser rate, if you will, or maybe similar rate?

At this point, I'm not prepared to give sort of a number on that but just x sort of overall sense. Kelly A. Flynn - Crédit Suisse AG, Research Division: Okay. And then I had a question about revenue per student for DeVry University. I think you said it was flat year-over-year based on your calculation. I was wondering if you could give us a little help on what to expect for that for the remainder of the year. And also, why is it not worse, given some of the scholarships? I think you had last time said you expect to be down a little bit.

Okay. Why is it not worse, right? Kelly A. Flynn - Crédit Suisse AG, Research Division: Yes, I mean, it's good, but I'm saying what's helping out there?

Okay. Pat?

Good question, Kelly. This is Pat. For DeVry undergrad, as you had pointed, our -- as we had said, our revenue per student was flat year-over-year, driven by a couple of things. So we had an increase in average course load year-over-year, and that pretty much offset our increase in scholarships, as well as the other behavior we saw based on the change of our pricing structure. Now as we move forward into the second half of the year, we would expect our revenue per student at least from a sequential basis to decrease and likely be down versus the prior year as well.

Your next question is from the line of Bob Craig with Stifel, Nicolaus. Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division: I was just wondering where you think we are in the spectrum of cost savings. Obviously, going from $50 million to $80 million, a huge jump. How much of the heavy lifting has already been done? And what I'm trying to get at here is, what might some of the carryover be in the fiscal '14 on an incremental basis?

Well, Bob, one of the things that, I guess, is kind of a 2-edged sword is one of the reasons that our cost savings increased is that we're seeing enrollments that are softer than we expected at DeVry University. So we continue to execute on these more structural elements, but as I mentioned, some of the variable costs impacted us as well. But we've set a multiyear objective here to have our cost increases, the biggest installment we thought would be this year, but we have expectations that continue to drive meaningful savings in the following 2 years. And we're working under those assumptions, and we don't see anything based on the work we're doing that won't allow us to continue to drive some of these structural changes, like real estate, for example. Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division: Okay, that's helpful. And this is a follow-up. I think, Daniel, you might have mentioned last quarter, you're looking at potentially doing some other things or increasing the level of scholarships. Where are you in terms of that investigation? And could we see some action later on in the year?

Yes, I think our scholarships are up over the prior year but in line with our expectation. And we are conducting a very careful scholarship test at DeVry University. And so that analysis is ongoing. So I'm not able to give you a future expectation yet. I just want to emphasize that rather than just roll something out as important as that, DeVry has a very strong culture of test and control to make sure we really understand the implications before we roll it out. So it takes a little longer, but in the long run, that's always served us very, very well.

Your next question is from the line of Gary Bisbee with Barclays.

It's Zach Fadem for Gary. Can you tell us or give us some information about how your completions and job placements are going at Chamberlain? And I ask for a couple of reasons. You've seen such rapid growth there, and you should be having some -- quite a few grads by now. And we've seen some negative reports -- or not negative reports but just reports that's showing that new nursing school grads are having a more difficult time securing employment. So curious if you could comment on that.

Sure. Our nursing graduates are doing very well. I don't have specific figures for you, but they are doing very well. They are getting jobs. I'm quite comfortable about that. May not always get the first choice job, but they're getting positions in nursing. And sometimes you have to work for a year or something to get the shift you want or the hospital you want or the department you want, that kind of thing. I know what you're talking about. We've seen those kinds of stories all the time. You tend to see those every economic cycle as the economy weakens. Historically, it's been the case that more nurses who may have left the workforce reenter the workforce, perhaps, in some cases, a spouse who lost her job, or they up their hours. So maybe their hours had been part-time, they take it to full-time, that kind of thing. And, therefore, you always get articles that say, "Oh, there's no more nursing shortage anymore." And then what traditionally has always happened is many of the nursing schools sort of back up and say, "Oh, there's no more shortage," which could sort of add to the cyclicality of this very issue. And that's one of the reasons we have a nursing shortage in the country. And at the same time, last data I have is 100,000 qualified applicants turned away from the nation's nursing schools, and that's one reason that we think it's important that we add capacity that help do our part to solve that shortage. And I'm glad to say that we do that without the taxpayers funding into that capital expenditure. So it's a great deal for the taxpayers, it's a great deal for the student and it's a formula that's working very well at Chamberlain right now.

Okay. And just a follow-up question. Can you tell us a little bit about how your new tiered pricing structure is having an impact at DeVry University and whether you think that it will help you drive new student growth at some point?

Not a big change there. And so I wouldn't set any expectations around driving a lot of growth. So it helps to encourage students to enroll full-time, and it's actually having that effect. As Pat mentioned, we have a little bit higher courses per student, which is good, that's what we want to see. And it helps incent the student to keep going and accelerate the pace of completing their degree. So that's more the impact that I think it has.

Your next question is from the line of James Samford with Citigroup.

I understand obviously the cyclical factors in terms of job market being a factor for people not willing to sign on the dotted line and take on the next stage of their growth. And we all obviously think the, call it, value of a college degree is certainly worth the tuition for most of the schools out there. But I want to push back a little bit on the fact that it seems like everybody is also very adverse to debt right now, and I think that's a risk factor. I was wondering, where do you think you are in terms of relative pricing, relative to traditional colleges? And is there a room for improvement in terms of at least getting the value to be more obvious to students to drive growth?

That's a great question. We are concerned about student debt as everybody is, and we've taken steps to help control that rate of growth. We try to lower that debt for our students. So that's important. In terms of affordability, DeVry University, just to use one example, is in the bottom 1/3 of private college tuition. And in terms of what are we doing to try to make college more affordable, I got to tell you, we take every opportunity to keep down costs, increase the ROEI, not just the ROI, the return on educational investment for students. Examples of that are students can finish a 4-year bachelor's degree in 3 years. That saves them money. They earn an extra year's salary, starting their career earlier. We have a long track record of holding our rate of tuition increase below the rate of public sector and independent colleges in the United States. In recent years, we've even frozen tuition in many programs. We offer institutional scholarships, $40 million, $50 million, I think, we've noted this past year to help students. And we also help students connect with outside sources of financial aid. We try to accept -- we try to be very transfer credit-friendly educational, military experience for credit. We also allow students to test out our courses through examinations to save them time and money. And we talked about the reduced credit hour rates for students who attend full-time. So those are a few examples of the kinds of things that come to my mind about how we're trying to help improve affordability for our students.

And just a quick follow-up on the international side. Any other sort of market opportunity that you're looking at outside of Brazil? Or is right now the focus primarily Brazil?

Sure. Brazil showed up as the #1 opportunity through our analyses that we did 5, 6 years ago, and we took a couple of years to find the right opportunity. We're very careful about that, but we knew it was important even if it took a little longer to find the right partners. And we feel we did. And every time we rerun that analysis, Brazil continues to come out, along with United States, as the top most attractive market. After that, we look to Asia, Southeast Asia, in particular, as a place that we continue to look at. We have been in India, for example, since 1997 with Becker, and we'd like to extend that in other forms of education. So I'd say probably Southeast Asia.

Your next question is from the line of Paul Ginocchio with Deutsche Bank.

Just, Daniel, I guess you don't want to try to reoffer any guidance when you think you'll turn back positive on new enrollment in DeVry undergrad. Is that right?

Yes, that's right. We're not there yet, but we'll keep you posted. We understand the need for that. So...

Okay, great. And then just on the RN to BSN, I know that's a very competitive online offering with a lot of the public schools getting in. Just wondering how you sort of were able to reaccelerate that, given all the new competition.

Yes, actually, that's exactly what we've done, and we've had a record class here. And even though people say, "Well, it's more competition. How can you grow with competition?" Well, you can. You offer a very strong value proposition, and then you execute very carefully through the whole process of serving your students from helping them enroll to helping them stay in college and graduate and then gain employment and repay their loans, that whole cycle. In particular, I think Chamberlain has just continued to improve its reputation or brand, if you want to use that term. The kind of partnerships, partnering with the NLN, partnering with Sigma Theta Tau International, these are significant -- these are sort of head-turners in the world of nursing. So we're very proud of those partnerships, and we're going to do everything we can to live up to and honor those partnerships. Partnering with hospitals and working with them to educate -- put Chamberlain's value proposition for the RN to BSN, as well as our MSN and now doctoral, DNP program, in front of their nursing staff who wants -- who want to continue their education, those are some of the levers that I would say we're pulling that are contributing to that success.

If I can stick one in about the advertising, was there any certain brands that you -- I think you said advertising was down year-on-year, 7%. Was there any certain brands where it's down more than others or it's across the board?

At DVU, a little bit of timing there, which I think was alluded to -- we alluded to that. And we're just -- we're feeling confident that -- I know there has been some big giant increases in advertising some other people talked about. We're pretty confident in the strength of our brands and our ability to get more efficient. And we really held ourselves accountable to get more efficient, use social media, digital media and things like that to improve our efficiencies in marketing. So we continue to grow the reputation and the brand presence while being efficient with the use of those resources.

Your next question is from the line of Jeff Meuler with Baird. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: I want to ask a follow-up on that last question with DVU. It sounds like most of the front-end metrics are good with the exception of inquiry flow. So just wondering your thoughts on why not increase advertising expense. You guys have had 2 quarters in a row now of deferred advertising expense. It seems to me like if you increase the ad expense, you could drive some of those inquiries. I just wanted to know your thought process around that.

The reason is, we want to be very careful stewards of capital, of our owner's capital and our resources. Where we see those opportunities, we'll do that, and there have been past quarters where we even had surprises and apologized for not getting it up in advance, but it happened very quickly. We saw an opportunity and we took advantage of it here. We just want to make sure we don't spend it just to spend it. Where we see opportunities, we'll do that. We'll usually test it and then roll it out. So we're testing a lot of things, and we won't be shy, Jeff, I would say, where we see an opportunity to increase the advertising spend. Whether that's going to be a productive way to attract and educate more prospective students about the opportunity of a DeVry University degree, we'll do that, and that would apply to all the institutions.

And I would add, Daniel -- it's Tim, Jeff -- that we anticipate sequentially increasing that spend around 11%. So it's a function of where we see the opportunity, and we don't want to waste it. But we also want to position ourselves where we need to position ourselves. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just wanted to ask you a question on your philosophy regarding how you communicate the expense savings to the Street. When you say at least $80 million, is that $80 million a conservative number of things that you've already identified and are pretty confident that you should -- you can capture and you're continuing to look for additional opportunities? And as you find additional opportunities, you would increase that target. Is that how we should think about it?

Well, we certainly have been able to do that so far, and we did use the words at least. So we're comfortable with the $80 million, and we're continuing to look. The things that could derail that is if we had a sudden influx of new students that would flip those variable costs the other way. But I think you'd -- if that happened, you'd be happy about it.

Your next question is from the line of Jeff Silber with BMO Capital Markets.

You both alluded to the fact that the issue with DeVry University seems to be inquiries at the top of the channel being challenging. I'm just curious how you're changing your message to students -- prospective students to make it less challenging to entice them to enroll.

Sure. We're really focusing on DeVry's long-time reputation for being the career university. I know that some other people may have talked about that or are trying to do that for the first time. We've been at this for decades, and we've got a long track record of a data, third-party review data back to 1975. And since that time, we've had graduates in the active job market who had been employed within their field of study within 6 months of graduation. So that's the kind of message that we think is important to tell. And we're trying increasingly to work with the employers. More and more of the employers particularly in areas like IT, I mean, it's amazing out there. There's not a lot of unemployment among programmers, sys admin [system administrators], DBAs, infrastructure. And we continue to do a better job of demonstrating that to the prospective student. But it's just a little more challenging right now because even with that data, we see our back-end, if you will, being very strong. Just on the margin, many students and their families are just hesitating on that. And it's interesting. It's not just in education. I just saw a Wall Street Journal/MSNBC poll that was in The Wall Street Journal a couple of weeks ago. They polled American public, and 60% of people said they saw the coming year, this year, as a time to hold back and save because harder times are ahead. So it's just that hesitancy that's out there. So -- but that's the career message that we're emphasizing to try to counteract that, Jeff.

Your next question is from the line of Trace Urdan with Wells Fargo Securities.

Two enrollment-related questions, Daniel. I wonder if it's possible to describe the DeVry undergraduate sort of weakness and then relative recovery from that weakness in terms of IT versus other disciplines and maybe specifically business. That's the first question. And then the second question is, I wonder if you could put some of the comments you made about the market environment in context relative to Ross Medical. Are you seeing that the economy is impacting demand in that particular school? Or is that more a situation where you've got sort of capacity restrictions still that mute the pace of growth in that business?

Okay. And I am looking forward to the day where someone pronounces your last name properly, but I appreciate that question. And I would say for DeVry University undergraduate, not a lot of trends to report to you. On the margin, just online, a little bit better than on-site. Health care technology -- and technology, a little bit better than business. Business is a little weaker. But not major trends, just sort of a little bit on the margin as I looked at the data. Let's see, one interesting -- we have a new -- relatively new bachelors in health care administration. So that's a relatively new program. That's an example of kind of investing in a new program to drive growth that we mean when we say that third plank of our platform in the performance improvement plan. In terms of Ross, the market environment at Ross University School of Medicine, same for American University of the Caribbean School of Medicine, the top level demand continues to be very strong. And I would say that we have added to our capacity, along the 4 years of medical school, both the foundation for medicine the first 2 years and the clinical clerkships in the third and fourth year of medical school. And I would say that Ross University School of Medicine is not capacity-constrained. Right now, we can grow.

Your next question is from the line of Peter Appert with Piper Jaffray.

So, Daniel, this is a bit of a follow-on to what Trace was just asking. But I'm noting the dichotomy in the start performance between Carrington and DeVry University, and it's particularly noteworthy since I think, and maybe I'm wrong in this, that the demographics of the student populations for those programs would be similar. So can you sort of compare and contrast why is one doing so well and the other not?

Sure. And part of it is the -- what did they say? The bigger the boom, the bigger the bust or the bigger the bust, the bigger the boom. So Carrington had a bigger downturn than DeVry University, and it is a different demographic among many of the segments of students. DeVry University is mainly bachelors and graduate school program, as well as Keller, a little bit of associate degree, whereas Carrington is mainly associate degrees and certificates. In fact, certificates are a little bit bigger than associate degrees. So those are shorter-term programs, kind of start -- career-starting programs. Many of those students do go on later to a bachelor's degree maybe at Carrington or DeVry University or somewhere else. So it is a little bit different demographic. And I would say, the shorter -- in general, shorter-term programs tend to be more cyclical and more subject to the consumer sentiment than longer-term programs are.

Okay. And then, Tim, a bunch of people have asked you about the trajectory in cost. Let me ask you this way. I think given the trend in enrollments, it would be reasonable to expect you could report up margins in fiscal '14 versus '13?

No, Peter, what -- the way I'd have you think about it is, is that DeVry University, Daniel mentioned, that our enrollments are running about 2 quarters or so behind where we expect to be. And one of the unfortunate things is it drives revenue down in the current year, but it also is emptying out the pipeline. So that puts us kind of behind where we'd like to be. And so we're going to likely see further erosion of total students because we haven't crossed over to the growth mode yet, and that's going to be putting pressure on margins next year.

Your next question is from the line of Corey Greendale with First Analysis.

Listening to the commentary about the advertising spend, I think I heard that one reason that you didn't spend as much, and maybe you start [indiscernible], you just didn't think the opportunities were there. So question is, is it sort of -- is you attitude the students will go to school when they are ready to go to school and the economy will determine that? Or do you think there are things you could do to maybe start serving students who might not have otherwise, be it technology or added services, anything like that?

Sure. Our attitude is definitely not the first part of that, not just we're just going to have to wait. And so that means launching new programs and then there's advertising associated with that. But I think what you saw is just a little bit of timing. Some of the projects that we're working on at DeVry University marketing weren't quite ready, and we wanted to make sure we used the resources most effectively and efficiently as we could. So there was a little bit of timing. Tim pointed out that's going to come back. So we've given you a little bit of a heads up there. So, no, I think there are opportunities. We're just being careful to make sure that we align those resources against the best opportunities.

Okay. And then I just had a quick follow-up on your commentary about the MOOCs, and I agree with everything you said. But looking forward, one would think that if there were curriculum areas where the MOOCs could be a threat to traditional schools and also traditional proprietary schools in that camp, would be technology just because there's ways to, via objective assessments, tell whether people have obtained the skills they need to do certain jobs. So just to push back on that a little bit, do you think a couple of years out, do you foresee that there might be more of a threat for MOOCs? And is there anything you could do strategically about that?

We're recently watching it, and we've run -- if you want to think of that, we've run MOOCs for quite a long time. Students who are not accepted to DeVry University, for example, are not just turned out onto the Street, they're offered free remedial courses, not really a MOOC because they're offered on-site and even with a facilitator and despite that the students just ask for more people, more facilitation or more professor time. So what we -- we just see this idea of self-paced content. So in other words, if you think -- so is the Internet going to do to education what's it's done to other media segments, newspapers or songs or movies or something? I guess if you define education as media, something that someone just consumes, sort of a one-way street, that's one way to think about it, but that's not really education. Education is a 2-way street. It's a relationship. You're not just consuming. So there's a professor. There's supporting services. There's career services. There's interaction with other students. There's student life. And so it's not just a matter of consuming that, almost like cramming it into somebody's head or taking the blue pill, the red pill in that movie, whichever one it was. And so for students who need and are looking for a career and a credential and a degree to get that, it's hard to see how self-paced, free, no resources to be able to fund the kind of support services is going to meet that need. I'm not saying it doesn't meet any need, it may, but not really the targeted student that we've traditionally focused on. So I just see having less of an impact there.

The next one is from the line of Brian Karimzad with Goldman Sachs.

On the high school students, I know in fall of '11, you said that the inquiries and interest there had fallen off pretty dramatically, and that impacted the starts this last fall. How did the high school channel perform in terms of general interest this past fall? And I have a follow-up.

Sure. I think not much news to report there. It's an area that we like to see do better. We did reduce some of the coverage of markets where we have the high school presenters and the people who went out to the high schools. Just as part of being as efficient as we can, it's still a good thing to do, it's part of our outreach to the community. But in times like these, we have to be that much tougher with our deployment of resources. So kind of more of the same there. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Okay. And then just to refresh us, what percent of the DVU students are typically taking the course load that could get them to graduate in 3, 4 years? And generally, what percent of those actually do graduate in that time frame?

I think of our graduates, I believe it was around 20% of the graduates graduated in 3 years, the last time I saw that data. But that's off the top of my head, so please don't hold me to that. Well, I'll go look that up and we can follow up. And actually, much higher percentage at Chamberlain. But I think that's the number for DVU. So I think we have to stop there, but I would like to thank everyone for your questions and remind us that our next results call is scheduled for April 23 when we'll announce third quarter fiscal '13 results and March enrollments. Thanks, everyone, for your continued support of DeVry.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us, and you may now disconnect. Have a great day.