Covista Inc. (CVSA) Q4 2014 Earnings Report, Transcript and Summary

Good day, and welcome to the DeVry Education Group Fourth Quarter and Year End Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Joan Walter, Senior Director of Investor and Media Relations. Please go ahead.

Thank you, Laura, and good afternoon, everyone. With me today from DeVry Education Group's leadership team are Daniel Hamburger, President and Chief Executive Officer; Tim Wiggins, our Chief Financial Officer; and Pat Unzicker, our Vice President of Finance. I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of DeVry Education Group that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied. These factors are discussed under risk factors and elsewhere in our quarterly reports and Form 10-K for fiscal year 2013 filed with the SEC, which is available on our website at www.devryeducationgroup.com. DeVry Group disclaims any obligation to update any forward-looking statements made during the call. Additionally, during the call, we may refer to non-GAAP financial measures, which are intended to supplement, but not substitute, for our most directly comparable GAAP measures. Our press release, which contains the financial and other quantitative information to be discussed today, as well as a reconciliation of non-GAAP to GAAP measures, is also available on our website. Telephone and webcast replays of today's call are available until August 29. To access the replays, please refer to today's release for information. And with that, I'll now turn the call over to Daniel.

Thank you, Joan. Thanks to everybody for joining us on the call today. During the quarter, revenues increased modestly. And it feels good to say that as we've been narrowing the rate of decline in the last several quarters and now we've returned revenue growth. We also saw growth in both new and total students at DeVry Group overall. New students were up 8.1% and total students were up 2.1%. Strong enrollment at our growing institutions continue to mitigate the challenging environment for DeVry University. Factors contributing to our results this quarter included the following: we delivered solid growth at Chamberlain, DeVry Medical International, DeVry Brasil and Becker; we made progress in our goal of turning around and transforming DeVry University, despite the decline in new student enrollment; and we continued to reduce costs while investing in the quality of our programs. So our strategy of quality plus diversification, plus long-term thinking, has positioned us well for both the challenging environment in U.S. business and technology education and for growth opportunities beyond that. This strategy has 2 overarching objectives: turnaround and transform DeVry University; and continue our growth via diversification. Let me provide an update in our progress toward these overarching objectives. As a reminder, our plan to turnaround and transform DeVry University includes attracting the right students into strong programs; reducing our cost structure, while maintaining and even enhancing our service to students; regaining DeVry University's technology edge; and then developing and supporting the team to execute the plan. The plan starts with our enhanced programmatic focus. That means ensuring that our programs are designed to best meet the needs of our students and employers and better communicating the value proposition of each program. Near term, our priorities include optimizing our portfolio of programs, which could include the consolidation of some program offerings and the enhancement of others, improving the efficiency and effectiveness of our marketing and recruiting processes and then refining our pricing strategy with the goals of increasing new students and encouraging persistence. Let me say a little bit of more about that. Beginning in the July session, we restructured several elements of tuition pricing. We increased the number of credit hours a student must take per session to receive the full-time discount and reallocated some of the savings to increase funding for other scholarship programs. For the upcoming session in September, we're offering the merit-based Career Catalyst Scholarship for up to $20,000 to eligible students. In addition, we plan to enhance our scholarship programs at the graduate level in fiscal 2015. One of our strongest messages is the value employers attach to a DeVry University Education, as they consistently hire our graduates to fill their jobs and send their existing employees to us for continuing education. We announced the latest graduate employment results in today's release and they remained above our goal of 90%. Actually, 90.9% of our graduates in the active job market were employed in the field of study within 6 months of graduation and they're earning an average of about $44,300 annually. And increasingly, we're working with large employers to help them attract, retain and upscale their workforces. Today, DeVry University service more than 3,700 students from 400 corporate partners, as well as government agencies and even the world of sports. We serve as an official education partner to Team USA. In this quarter, we announced a new relationship as the exclusive educator of the National Football League Alumni Association. So that's an update on our actions to stabilize enrollments, maintain quality and get back to growth at DeVry University. The end of our fiscal year is a good time to take a step back. While we didn't achieve our goal for new students, over 40,000 new students enrolled in DeVry University this past year. That's 40,000 people who selected us to help them achieve their educational and career goals, 40,000 students who see the value proposition of DeVry University as the career university. Let me update you on one other point in the DeVry University turnaround and transformation plan and that's reducing our cost structure, while maintaining and even enhancing our students -- our service to students. We worked hard to control costs throughout the year and we reduced them by nearly $100 million at DeVry University. One recent example of our value creation efforts is our negotiations with publishers. This has reduced cost for us and for our students, while enhancing revenue as well via increased adoption of eBooks. Tim will provide more color on reducing costs in fiscal '15. Now DeVry Group's second overarching objective is to continue our growth through diversification in our health care, professional and international institutions. To do this, we're making investments in quality and infrastructure to support this growth. At Chamberlain College of Nursing, we delivered strong enrollment growth this quarter, particularly in our Masters and Doctoral programs and there continues to be strong market demand. We're also continuing to expand the number of Chamberlain campuses. We received approval from the Higher Learning Commission for our second location in Houston, which will open this fall. We've previously targeted 2 to 3 new campus openings for fiscal 2015 and the good news is that we're now targeting 4 pending approvals. Chamberlain also continues to exemplify our commitment to academic quality. We recently announced that Chamberlain's President, Susan Groenwald, will be inducted as a fellow of the American Academy of Nursing and the National League for Nursing's Academy of Nursing Education. Dr. Groenwald's induction into these prestigious academies we recognize as our significant and sustaining contributions to nursing -- into nursing education, specifically through her early work in oncology and her more recent leadership of Chamberlain. Let me move on to DeVry Medical International. Last quarter, I reported that our medical school graduates from American University of the Caribbean School of Medicine and Ross University School of Medicine earned more than 1,000 residency positions at hospitals in the United States and Canada. For this quarter, I'm very pleased to announce that in the most recent reporting period, students at both AUC and Ross achieved 97% first-time pass rates and Step 1 of the United States Medical Licensure Exam. And that's the USMLE. That's a strong marker of quality and it's on par with the outcomes achieved by U.S. medical students. And at Ross University School of Veterinary Medicine, we also continue to make investments to support academic quality. During the quarter, we launched 4 centers of research to support the university's mission to provide students with a research-based educational experience. We're very proud of the cutting-edge research opportunities that we're able to provide to our students at Ross Vet. At Carrington, we delivered positive enrollment growth. We exited the fiscal year profitable at the institution level. We announced in June that Carrington College California received final approval from its institutional accreditor to add the campuses of Carrington College to existing -- its existing campus network. And in July, we announced we had obtained approval to change the name of the institution to Carrington College. I know it's a little confusing, but you don't have to worry about that anymore because it's one college, Carrington College, and bringing the 2 colleges together allows us to operate more efficiently. It also provides more resources to support academic quality and it's better for our students. Recently, the CEO of the largest health care system in Idaho congratulated us on this achievement and he noted that it's a true differentiator. I think it bears noting that in the current tough environment in the career college segment, the fact that Carrington is growing and that it achieved this accreditation approval really sets us apart. Carrington continues to play an important role in DeVry Group's overall strategy. The current college segment is the largest segment of U.S. post-secondary education. Jobs requiring associate degrees are actually growing faster than jobs requiring a bachelor's degree. And this segment faces little competitive threat from traditional colleges adding online programs. And as much as we like this segment in and of itself, we also like it as a feeder to DeVry Group's advanced degree programs, in what we like to call a ladder of learning for students. What do we mean by that? Well, increasingly, Carrington students are moving up the ladder to the bachelor's degree level at DeVry University and at Chamberlain. Our diversification strategy is also paying off at our International and Professional Education segment. Our reputation in Brazil is strong and growing. We serve more than 33,000 students at our institutions. We continue to experience strong enrollment as we invest in quality and infrastructure to support long-term growth. We expanded geographically during the quarter with the acquisition of a small institution located in João Pessoa in the State of Paraíba. We'll offer degree programs in business administration, accounting, engineering and logistics technology. We're very excited about the opportunities for us in Brazil to grow both organically and through our strong acquisition pipeline. We believe we have a strong management team, an excellent acquisition and integration playbook and reputation as the acquirer of choice in Northeast Brazil. At Becker Professional Education, revenues were up 5% in the quarter. Taking a step back, Becker has grown at a compound annual growth rate of nearly 12% for the last 10 years. Nearly 90% of that growth was organic, with the remainder coming from our acquisitions. Becker now operates in 55 countries around the world. It's core CPA test preparation market continues to grow modestly, while it's newer offerings, including ACCA, CPE and USMLE exam review, are experiencing solid growth. Becker recently announced 6 new partnerships that expand its training platform to help students prepare for the ACCA exam around the world. This builds upon Becker's leading position in India, China and other countries that are large growth markets for CPA candidates. So to summarize this second objective, our diversification in higher growth career fields, degree levels and geographies continues to position us for long-term growth. This strategy has driven year-over-year revenue growth at all of our health care, professional and international institutions and we expect the same in fiscal 2015. I'll now turn the call over to Tim and Patrick to review the financials and enrollment results. And I'll wrap up with a discussion of our longer-term outlook.

Thanks, Daniel. Good afternoon, everyone. I'll start with overall financial results, then go through our reporting segments. In the fourth quarter of fiscal 2014, revenues from continuing operations were $485 million, up modestly over the prior year. DeVry University revenues were down as expected, with all other institutions growing their revenues in the fourth quarter. Full year revenues from continuing operations totaled $1.9 billion, down 2% from fiscal 2013. For the year, revenues at our growing institutions increased 17% to $842 million. The increase was offset by a 13% decrease to $1,085,000,000 in revenues at our institutions in transition. Excluding special items, total costs from continuing operations for the quarter were $426 million, down nearly 3%, reflecting our reduction initiatives. For the full year, costs, excluding special items, totaled $1.7 billion, down slightly from last year. Full year costs at our institutions in transition decreased 9% to $1,067,000,000. Full year costs at our growing institutions were $637 million, an increase of 20%, driven primarily by new programs in campuses and recent acquisitions in Brazil. We reported net income of $37 million for the quarter and $134 million for the year. This resulted in earnings per share of $0.58 for the quarter and $2.07 for the year. Earnings per share from continuing operations and excluding special items were $0.73 for the quarter and $2.62 for the year. Our effective income tax rate was 10.8% for the quarter and 15.4% for the year. This lower rate is a reflection of the income tax benefit from our fourth quarter restructuring charge. We expect that our effective income tax rate from operations for fiscal 2015 will be in the 17% to 18% range. With that overview, let's now shift to our operating segment results. Starting with the Medical and Healthcare segment, revenues of $198 million were up almost 16% during the fourth quarter. Segment revenues for the year were $769 million, up 14% over prior year, highlighted by strong enrollment growth at Ross, AUC and Chamberlain. Operating income, excluding special charges for the Medical and Healthcare segment in the quarter was $36 million, an increase of 26% from the prior year. For the year, segment operating income grew 26% to $148 million, exuding special items. This was driven by solid growth in Chamberlain's post-licensure programs and a continued narrowing of operating losses at Carrington. For the year, this segment accounted for about 2/3 of DeVry Group's operating income, excluding special items. At DeVry Medical International, new students in the May semester grew about 7%, while total students grew just over 2%. Chamberlain new student enrollments grew 38% in May and 61% in July over prior years. Total students grew 36% in May and 39% in July. These increases reflect strong demand for our pre-licensure BSN, our post-licensure RN to BSN, Family Nurse Practitioner and Doctor of Nursing Practice degree programs. Carrington revenues grew nearly 5% during the quarter and 3% for the year. As expected, we exited the year with a profitable fourth quarter at the institution level. New students in the period increased nearly 10% from the prior year and total students increased 3%. We're very pleased to have achieved revenue growth in the current environment in the career college segment. Turning to the International and Professional Education segment. Revenues increased 19% during the quarter, driven by strong growth at DeVry Brasil. For the year, segment revenue increased 16%. DeVry Brasil and Becker each reached a significant milestone, crossing the $100 million revenue mark for the year. At Becker, revenue grew 5% and DeVry Brasil revenue grew 31% in the quarter. Our DeVry Brasil, a little more than half of the increase was driven by the recent acquisition of Facid and the balance of the increase came from solid organic growth at Unifavip and other institutions. The DeVry Brasil continues to exceed our expectations and we anticipate solid growth from them in 2015. For the quarter, the segment's operating income was $21 million, up 20% over the prior year, excluding special items. And finally, within the Business, Technology and Management segment, revenues were down 13% during the quarter as a result of lower enrollments. These lower enrollments were partially offset by higher undergraduate revenue per student, up about 1% in the fourth quarter as a result of an increase in average course load. Segment revenues were down 15% for the full year. New student enrollment continues to be choppy. New undergraduate students were down about 5% in May and 13% in July versus the prior year. Total undergraduate students were down 14% in May and 12% in July versus the prior year. Total graduate course takers declined about 16% in May and 14% in July. As we work to increase Keller brand awareness, we're seeing initial signs that the graduate market may be improving. Excluding special items, the segment generated operating income of $3 million in the quarter and $31 million for the year compared to last year's operating loss of $900,000 for the quarter and operating income of $99 million for the year. I'm pleased to report that our emphasis on cost control at DeVry University helped us achieve nearly $100 million of cost reductions in fiscal 2014. As one example of this, we accelerated our real estate optimization efforts. In fiscal 2014, we closed 5 and reduced our square footage in additional 19 locations at DeVry University, resulting in the reduction of nearly 183,000 square feet without exiting any markets. In fiscal '15, we'll continue our focus on optimizing the real estate footprint. Cost controls continue to be a focus across the DeVry Group with all of our institutions, except DeVry University, expected to grow revenues in fiscal '15. Our cost reduction efforts are primarily focused at DeVry University. Given new student enrollments haven't turned positive, we know revenues will be down again in fiscal '15. We remain committed to rightsizing and maintaining positive segment economics and therefore, are targeting $70 million of additional cost savings for the BTM segment this fiscal year. Looking ahead to the first quarter, we expect all of our institutions to grow revenue, except DeVry University, which should lead to a modest increase in revenues over the previous year. We anticipate that operating costs will also be up modestly for the quarter over the prior year, driven by our growth institutions. I'll now turn the call over to Pat to talk more about our balance sheet and financial position. Pat?

Thanks, Jim, and good afternoon, everyone. Cash flow from operations for the year was $263 million and our cash balance was $358 million at June 30 as compared to $197 million last year. DeVry Group continues to be an efficient user of our shareholders' capital. Capital expenditures for fiscal year 2014 were $79 million, which was primarily deployed within our medical and health care and international institutions to support academic quality and drive future growth. For fiscal '15, we expect capital spending to be in the range of $100 million to $110 million, with approximately 80% being deployed to our medical and health care and international institutions as we invest in new programs, locations and infrastructure. Our net accounts receivable balance was $133 million, down about 5% from the prior year as a result of lower revenues at DeVry University. For the year, bad debt as a percentage of revenue was 2.7%. During fiscal year 2014, we incurred nearly $33 million in pretax restructuring charges as a result of workforce reductions and real estate optimization made throughout the year. We will continue our discipline of managing our expenses to align with our expectations. Overall, we enter fiscal 2015 in a strong financial position as the result of our ongoing cost control and cash management efforts. At our health care and international institutions, we will continue to invest for long-term growth via our diversification strategy and we'll look to growth markets like Brazil where we can build upon existing programs and services to meet unmet demand. Now let me turn the call back over to Daniel.

Thanks, Pat. As we start this new fiscal year, it seems appropriate to discuss our vision, strategy and goals for the future. We're becoming increasingly confident that we're reaching an inflection point in our efforts to return to growth as we expect the revenue growth to be delivered in the fourth quarter to continue into the first quarter of fiscal 2015. We're excited about the future of career-oriented education globally and here in the U.S. You probably saw the recent New York Federal Reserve study, which once again confirms what we all know, that a college degree is a solid investment. They calculated the return on investment for both associate and bachelor's degrees to be about 15%, surpassing typical returns for stocks and bonds. As we see the media cycle turn to more stories about how college is a good investment, we hope to see increased confidence among prospective students as well. Our long-term vision is to become the leading global provider of career-oriented educational services by excelling in 3 areas: health care education; business and technology education; and international and professional educational services. We've fundamentally transformed DeVry Education Group. We've made strong investments in health care education with the acquisitions of Chamberlain, Ross University, AUC and Carrington. Likewise, in international education, our investments in Brazil and Becker are paying off with record revenues this quarter. To give a visual picture of our transformation, you can refer to Chart 2 in the press release. And you see that in 2002, 70% of our enrollments were in technology. Today, 20% are in technology, 40% in business and 40% in health care programs, which weren't a part of our organization back then. Similarly, we're more diverse from a degree level perspective and geographically as well. On the past, nearly all our revenues were generated in the United States. Today, almost 1/4 of our revenues are in markets outside the U.S. This figure will continue to grow as we expand both organically and via targeted acquisitions abroad. So what does our diversification mean for our financial results? We're targeting double-digit organic revenue growth within our Medical and Healthcare and our International and Professional Education segments over the next 3 to 5 years. This should result in double-digit operating income growth and strong cash flow generation from these segments. And while we're not planning for significant growth in our BTM segment, we expect DeVry University will continue to generate solid cash flow. Given our solid financial position and successful capital deployment and acquisition track record, we expect to create additional value via a further diversification in health care, international and professional education. So to summarize, we made good progress in the past year and we were accelerating our efforts to improve DeVry Group's overall performance. We're turning around in transforming DeVry University by focusing on delivering quality academic programs and student service more efficiently. We'll also continue to focus on investing in the expansion of our health care, professional and international institutions, given our strong cash flow and financial position. Before we turn the call over to your questions, I'd like to thank Darren Huston. Darren recently stepped down from DeVry Group's board as he was recently promoted to be the CEO of Priceline, so he's a pretty busy guy. We wish him all the best and thank him for his service to DeVry Group. And with that, we're eager to hear your thoughts and questions. Joan?

Thank you. So I'd like to ask our operator, Laura, to give our participants the instructions on how to ask a question.

[Operator Instructions] And the first question will come from Paul Ginocchio of Deutsche Bank.

First, just wondering if you -- so just a quick question on, have you seen any benefit or do you think you'll see any benefit from maybe some of the issues at some other sort of associate and certificates schools that are in the news? Has that happened yet? Or do you think that's to come? I wondered if you're hearing that from some of your admissions advisers? And then I've got one follow-up on programmatic changes.

Sure. Thanks, Paul. I can understand that question and I think it's a good question. And the answers at this point, we really don't know. I just don't see evidence or have data to back that up. I think though it's not an unreasonable hypothesis over time that if capacity comes out of any endeavor that those that remain may have some opportunities and our focus is going to be just to continue to serve the students who we see and do the best job we can of doing that.

Great. And then just on the programmatic changes at DVU. Just wondering maybe the trends at IT versus business within DeVry undergrad. And if you had your druthers, would you have a little bit -- would you rather have a little bit more IT versus business?

Yes, excellent question and we look at that all the time. I would say that right now, in July, we saw -- in the most recent couple of periods, especially July, business was a little bit stronger than technology. A good example of that is our bachelor's in accounting, which has actually grown 8% over the last 12 months. That's a good example of this programmatic focus strategy in action because we've got the DeVry University undergraduate, then the Keller graduate master's in accounting and the Becker review for the accounting exam, all in one program. And by bringing them together as a specialized program for students, it can actually save them time and money toward becoming a CPA. And that's an example of what we mean by programmatic focus. Then the other part of your question, you're right, DeVry University has a very strong reputation in technology, so that's a big opportunity for us. If we can just do a better job of articulating that value proposition in technology programs and get their growth up to the level of the business programs, that alone will be a nice opportunity for us and we're certainly focused on doing that.

If I could just ask one quick follow-up with Tim. Tim, could you help us just size the losses in Carrington this year, so we know what's not going to repeat? Maybe round to nearest $5 million or $10 million, if you can.

Sure. Thank you for that rounding. So $10 million would be the nearest number on a fully loaded basis. We expect to significantly improve that next year. Last year, Paul, the story was, as you recall, kind of low-single-digit revenue growth, high-single-digit or mid- to high-single-digit cost reduction and that's how we were reducing the losses. When we look into '15, it flips a little bit. Now we're looking for kind of mid-single-digit revenue growth and low-single-digit costs. So we're kind of changing the focus there and we expect to continue to improve the results slowly. It's a tough space, but we expect to see improvement. On a fully loaded basis, we expect still to have a small loss. Could we be breakeven fully loaded? Possible, it's a bit of a stretch, but solid improvement in FY '15.

If I can sneak one more in, Tim, just on DVU. If you look across all the campuses, are there -- is -- if you got rid of 5 or 10 more, would that dramatically improve the margin profile of BTM? Or is it more spread out? Is it the 20% creating the 80% of drag? Or how do you think about the campuses?

Sure. Well, we have -- we've got a commitment here to maintain positive economics in the BTM segment and we know revenues will be down in '15 just given the new student numbers. So we've got a tall order here. We've committed the $70 million of cost reduction in that segment. And certainly, a continued focus on real estate is important. We think the real estate is a competitive advantage for us. It helps our students in terms of their learning outcomes. So we're going to continue to be aggressive. I think we mentioned that there were 24 locations that were impacted. So I think it's a continued focus for us. As we look at the margins for the BTM segment, we still expect them to be positive, fully loaded, likely down in that low-single-digit area. But we also like what's going on from the programmatic side and we think this is a period of really turning around and transforming the institution.

And the next question will come from Corey Greendale of First Analysis.

So following up on the BTM segment. Is there anything you can point to specifically that might have been a driver behind the fact that the new student decline widened in July? And do you have any kind of early indications of the September new student number, given that you're doing the Catalyst Scholarship again?

Yes, excellent questions. I would say, just stepping back and look at the enrollment trends and the outlook, we continue to operate in a prolonged cyclical period of weakness that we think is having an impact across higher education. Students lack confidence in the job market and are hesitant to make a commitment to go to college. And while there's a hesitancy to go back to school, we think consumer confidence may slowly be coming back. We did see positive jobs report in the last week. One thing I would point out is just I think a misperception on some people's part -- certainly not yours, Corey, but on some and I'll just give the opportunity to correct that -- that these factors only impact private sector institutions, but many independent and public sector institutions are being impacted as well. We saw University of Maryland University College struggling. University of Akron is cutting 20 programs, raising tuition to close a major budget deficit. Even law schools, applications are down 37% compared to 2010. That just came up the other day. Half the colleges in the country are down and total colleges -- college enrollments in total are down. Community college enrollments are down 3 years in a row, as inexpensive and taxpayer subsidized as they are. So that's kind of the bad. What we do -- we see some early signs that we may be reaching this inflection point that we mentioned. Enrollment in MBA programs may be starting to see a tick up. We know some peers reported better enrollments. New course takers at Keller Graduate School of Management showed a sequential improvement in July. You couldn't see that, but we're excited to see what we can do for Keller students in September. I would say we're optimistic about the future. As I look forward, there's a large untapped market of people who started but never finished college. More than 31 million people enrolled in college during the last 2 decades but did not finish, so that is -- that's a factor. And of course, we see opportunities in some of the higher growth areas and segments like nursing and medical. So that's kind of a bigger backdrop. And you asked about September and it's still early in the recruiting cycle. I would say undergraduate, we're not expecting a change in the current trend, but again see a bit more strength at the graduate level. So we're excited to see what we can do for Keller students in September.

All right. So it's interesting. So in the past, it seemed like there was at least a correlation between the times you were offering the Career Catalyst Scholarship and improvement to the extent that you may not see that. At this time, how do you think about scholarshipping going forward?

Well, again, I think that's an excellent question. We are offering the Career Catalyst Scholarship for September and scholarships are really a part of our strategic pricing strategy. It's got 2 goals: increasing new student and encouraging persistence. And so that's one of the things I really like about the Career Catalyst Scholarship because it's got both an attractive $20,000 total value, but it's administered $5,000 in the first year, $7,000 in the second year, $8,000 in the third year. And further, if somebody asked, well, what about the fourth year? Well, you can get a 4-year degree in 3 years at DeVry University. So it reemphasizes that value proposition with a speed to degree. It could be that there are now more scholarship offers out there and it may be a little bit harder to get attention on an offer like that. But we do have that out there. The other thing that we've done is implemented what we call the DeVry University Fixed Tuition Promise and we're very proud of that. So that's part of our promise to you, the student, is that your tuition is never going to go up while you maintain your enrollment at DeVry University. So that gives people -- I think it helps to address concerns about affordability. So those at some of the things that we're doing about pricing here in the near term.

That's helpful. And then another follow-up on the cost side. So you've done a really nice job managing the cost structure to the enrollment levels at DeVry University. I'm not arguing you shouldn't do that, but can you speak to how much of those cost savings may be coming from things like marketing, admissions, growth initiatives? And what I'm getting at is, are we beginning to hit bone on that, such that the cost cutting may be hurting the revenue side?

No, I don't think we're doing that. It really is not hurting the academic quality and it's not hurting our ability to increase awareness of the university or, you mentioned, marketing, getting our name out there, enhancing our reputation. We're getting more efficient in our marketing and recruiting expenditures. So when we were doing that is we're finding sources of more qualified inquiries. So we need fewer of them. And therefore, that's more efficient way to conduct the recruiting process and that's an example of being more efficient in the marketing and recruiting process. So no, I think we're being pretty disciplined there and certainly not chasing a new student beyond the point of incremental economics. But on the other hand, to your question, I don't feel uncomfortable that we're endangering our ability on the other side.

And just one last clarification, Daniel, is when you say you're expecting double-digit operating income growth in Medical and Healthcare internationally, are you talking about organically or are you including acquisitions in that?

That's organic. And I think Pat wanted to make a comment about the prior question as well. So certainly comment on that one as well, Pat.

Sure. On the double-digit operating income growth, that's organic and over our planning horizon. And then back to your question on the source of our cost savings. About 2/3 of that is coming from matching our staffing levels with our enrollments and the remaining 1/3, kind of think of it split between real estate optimization, other centralization, vendor negotiations. And to your point on marketing, within DeVry University, our marketing expense was down just a little bit on a year-on-year basis, about 4% lower in FY '14 versus FY '13. So to Daniel's point, still spending and focusing on that but becoming more efficient with that spend.

And our next question will come from Sara Gubins of Bank of America Merrill Lynch.

You talked about revenue per student for undergrad being up about 1% in the fourth quarter on an increase in average course load. How should we think about that for 2015? Would it carry through? Or would some of the changes that you're making in the pricing structure suggest that we should see revenue per student down again?

Sure, Sara. This is Pat. Within DeVry University undergraduate, based on the changes we are making in the pricing structure and being very strategic in our use of scholarships, we would expect to see revenue per student, on a full year basis, down somewhere in that 1 to 2 percentage point range. This upcoming first quarter, maybe flat to slightly down and then picking up as we move through the year.

Great. And then with the $70 million in cost savings that you're expecting, could you tell us about the kinds of charges that we should expect in fiscal '15?

So the portion of the $70 million of cost savings, we recorded the charge here in the fourth quarter and then we expect to see some charges as we move throughout the year. We currently have a voluntary separation program that we're offering where we record a charge in the first quarter and then some other real estate charges as we move through '15.

Any sense of magnitude?

Not at this point in time, no.

Okay. And then just last question, if you could talk to us about retention trends, particularly in undergraduate, what you've been seeing.

Sure. Persistence was up a little bit in July. And persistence is a major part of the turnaround and transformation plans at DeVry University and a long-term focus for us at DeVry Education Group overall. In some of the things that we're doing to improve persistence, one element of the persistence improvement plan that comes to my mind is we've really improved the technology in the reporting to help identify and predict students who might be at risk of falling behind in their studies. And so very rapidly, even like on a daily basis, alert our student support people, our student success coaches and our faculty to go surround that student, go help them out and see what can be done to help them persist. So those are the kinds of very tactical, very operational but incredibly important activities that we employ to support our students. And by kicking that up, I think we've set some goals to improve persistence.

And the next call -- or I'm sorry, question, will come from Peter Appert of Piper Jaffray.

So Tim, I'm wondering if -- or Daniel, the $70 million cost reduction at DVU that you're targeting, is that, by your estimates, sufficient to hold the margins at DVU steady for the year? And I'm asking this in the context of wondering if there's more flexibility to step that up in the context of how the year seems to be starting on a fairly weak note from a start perspective.

Great question. One of the reasons that we overachieved our cost savings in fiscal '14 is that we saw softer enrollment trends than we wanted. So we're kind of -- we have a list or a very specific set of actions to drive the $70 million. And if we do that, we're likely going to see some degrading of the operating margin, but maintaining positive. It's hard to get 100 cents of the dollar recovery. So the $70 million is a tall order. But I think, to an earlier question, we're still of pretty good scale. We just did over $900 million of revenue. The institution has been this size before. And so it's -- really, the challenge is to try and maintain the high quality of education and resize ourselves for the current reality. We feel very strongly that there's a segment of students in a curriculum that's targeted them that has a tremendous amount of value and we don't ever see that segment going away. The point is, how do we get right size to it? So if we see softer enrollments, there are more things to do. We're really just trying to chase and resize and transform the institution for that current reality. Now Daniel mentioned technology is part of that class, size is part of that, centralization of services is part of that, resizing the real estate is part of that. So I think we will continue to chase that and maintain that positive cash flow and economics in that segment as best we can and we think we can do that.

All right. The -- and then on an unrelated topic. The momentum at Chamberlain, that's obviously been really impressive. I'm just wondering how you think about sustainable enrollment growth within that unit over the next year or the next couple of years.

Sure. We think there's a lot of opportunity to continue to grow in the world of nursing. Remember that we're focused at Chamberlain at the bachelor's, master's and doctoral level. That's really our sweet spot. And that's where we see the most growth in the world of nursing. There continues to be growth at the pre-baccalaureate level, too. But we think the biggest over the long term is there. And those percentages obviously will come down in a lot of large numbers. Some of that is driven by the master's and doctoral programs, which are fairly new and so they're growing at very large percentages but off of fairly small bases. So yes, we would see that coming down, but continued growth at Chamberlain is our expectation.

Could you put any finer quantification around that, Daniel?

Not at this point. But let us keep working on that and get back to you, Peter, as we go along here and keep you posted.

How about in terms of new campuses? How significant are they, the step-up in the pace of campus openings? I assume they're fairly small in year 1.

Yes, they're fairly small in year 1. We have some kind of color on the breakeven that we've done before, so you guys may want to jump in on that. But they're -- but just from a size perspective, I would just say that 4 on a base of 13 is reasonably significant. And it was very significant from the perspective of its more than anybody else in the country that's been able to do and get approved. And the driver of that is by demonstrating the quality of the outcomes and the quality of resources we provide to those students. So we're just super proud of Chamberlain and the ability to get as approvals. In terms of that kind of breakeven rough, we'll let Pat give -- maybe comment on that.

Yes, Peter, it takes about 18 months to 2 years for a campus to breakeven. And of course, a 4-year program, most do take that on an accelerated basis. So by the year 3, we consider that to be that campus starting to mature and then starting to contribute to the bottom line.

And the next question comes from Timo Connor of William Blair. Timothy Connor - William Blair & Company L.L.C., Research Division: I'll follow up on the Chamberlain campus progression. So...

Yes, Timo, that's probably the best pronunciation of your name we've heard and maybe ever. Timothy Connor - William Blair & Company L.L.C., Research Division: Goes with the territory. So the Chamberlain campus progression, you didn't open any in '14. I believe it was 13 in '13, was that campaign. So the I would assume that the campuses open in fiscal '12 and '13 were just now starting to be ramping toward profitability. Is that the right way to think about it?

Yes, I think that's about the right way to think about it.

The only thing I'll add is that we had 2 major expansions this year that were kind of the size of smaller campuses so -- in the existing locations.

That's an excellent point. Atlanta and Chicago basically doubled in capacity so, Tim, it's an excellent point. It's also like it really is effectively and more efficiently like 2 new campuses. Timothy Connor - William Blair & Company L.L.C., Research Division: Okay. Longer term, do you still expect margin expansion in Chamberlain? Obviously, the top line growth is very impressive right now and that's just going to -- the income is going to come along with that. But is there still opportunity to expand margins over time?

You know what, no, I think it's a short answer. I think what we're thinking about here is we're investing at a rate where we're trying to maintain the margins and continue to grow the campuses. Over time, what we expect to see is the campuses would become a larger proportion of the mix and their contribution margin is not quite as high as the online programs. There's obviously a different cost of delivering. So what we see is continuing to grow gross margin dollars, continuing to grow number of students served, continuing to grow these campuses, which we think are -- were very good at getting through the approvals and establishing those. And we really like what we're doing in terms of helping serve the health care -- them the health care needs. So I think continuing to grow the revenues, growing the dollars, but I don't see a lot of margin expansion.

Margin percentage.

Yes.

Yes. Timothy Connor - William Blair & Company L.L.C., Research Division: Right, right. And then the -- are you seeing any kind of snowballing impact in terms of rematriculation from Carrington to Chamberlain, people coming back to a DeVry campus to get another degree or advance their career?

Yes. Thanks for that. We call that the ladder of learning and I mentioned that earlier. That is something that I would say -- and I take this on myself, we did not do a good enough job of that in the first few years of Carrington joining the family here at DeVry Education Group. Unlike what we did with DeVry University undergraduate to Keller, we've done an incredible job there. There's a really nice pathway. Or DeVry to Keller to Becker, we've done it there. And so we see a real opportunity to improve that. We've put a team on it and more resources. And we're starting to gain a little bit more traction of Carrington students going on to either -- the nursing students at Carrington going onto Chamberlain and other students going onto some like the health care administration bachelors at DeVry University. And there's other opportunities like that across DeVry Education Group, such as an M.D., M.B.A., across medical schools in Keller and I think that, that school's working on some opportunities as well. So we really think that that's a nice opportunity for us, so appreciate the question. Timothy Connor - William Blair & Company L.L.C., Research Division: Okay. And then final one for me. Brazil is over $100 million in revenue and that's been very successful, both on acquisitive growth and then also organic growth. So I guess, looking back on it, how successful have you viewed the international expansion? And then how could you apply that to new geographies?

Looking back, I'd say it's been very successful. 5 acquisitions in 5 years and organic growth on top of each one of them. Each acquisition integration, by the way, more successful and more productive than the last. We just continue to learn from that and have, what I call, an acquisition playbook that allows the most recent one, Facid, the medical school in Teresina, about a year ago was, I mean, just fully integrated systems, processes, people, branding, everything, within about 5 months while beating the initial plan. Very, very impressive. So we continue to see more opportunities to continue that in Brazil across various areas of higher education there. Timothy Connor - William Blair & Company L.L.C., Research Division: And then new geographies?

New geographies, yes. I would say other parts of Latin America and then over in Asia would be the places for that similar kind of running of private universities. And then remember, we're in 55 countries with other forms of higher education, such as corporate training and exam review at Becker Professional Education. So there's multiple ways to participate in the growth of career-oriented education. We tend to first think about the DeVry University or Chamberlain College of Nursing or DeVry Brasil. But don't forget about some of the nondegree opportunities, corporate training, exam review, professional education. Those are very attractive as well globally. And that's the right way to think about those operations. The definition of those is definitely global. And with the footprint that we have now with Becker and the management team we have there, we feel very comfortable in continuing to grow that on a global basis.

And the next question is from Trace Urdan of Wells Fargo.

I kind of -- I wanted to go back to, Tim, some comments you made because I'm having trouble sort of squaring up some of your assertions. I mean, when you talk about rightsizing the BTM business, what do you have in mind there? Because, I mean, that seems inconsistent with your statement that you're determined to maintain positive margins in the BTM segment. I mean, if -- the statements that you were making about this business has been the size before and we want to get the margins back to where they are, that -- to me, that would suggest cost cuts well in excess of $70 million. So it seems like you're anticipating, at least at some point, that you will grow back to some bigger size than where you're at today. Can you comment on that?

Well, okay, sure. Yes. And what I meant to say -- I think the question I was trying to respond to with that was, can you -- is there more cuts that you can make? Are you not going to go negative? Yes, I think we're long way from getting back to the margins that we've experienced in the past because those come, in many cases, with rightsized and good efficient utilization of capacity and frequently growth. So I think what our objective with the BTM segment in the near term is to be a bit more aggressive with scholarships, while we work on the programmatic focus where we think that will help us stabilize enrollments and attract the kinds of students that need the high level of service that we provide or benefit from it. We think that we can get the BTM segment to a point where it's an efficient user of capital and solid cash flow generator. At the moment, I don't see significant growth form, but that may change as we look for white spaces and do some of the programmatic stuff. So I don't know if that's helpful. I think right now our focus is really around we know it takes 18 to 24 months from the time we get to new student growth to get the total student growth. So really, our objective in the near term is maintaining positive segment economics and that's a big enough challenge. And then once we get there, then we think we can get modest growth, starts producing positive operating leverage.

Okay. So I mean, I guess, that's a little bit more context for the statement about rightsizing. You're not really talking about rightsizing on the current level of revenue, you're just -- you're talking about kind of keeping it positive for now and sort of maintaining positive cash flow towards a time when you can return to positive leverage.

Yes. One of the things, as we look at rightsizing, some of it's a function of lease commitments. It's a function of students and where they are in their programs. But we really think that the programmatic focus is the way -- that's the part of the story that's transformational. We think we can be more efficient, Daniel mentioned that, using technology. So but the near-term challenge is, is as revenues fall, it's really hard to support the students and get 100 cents of every dollar out. We're more -- we're going to more aggressive next year, or this year now. But yes, you're right, the near-term focus is letting those -- the programmatic focus work and stabilize enrollments and then figure out kind of where we are and what our next steps are.

Okay. And thank you for that because that actually segues really nicely to my next question, which was you had expressed a lot of enthusiasm for the programmatic focus and I think that you even mentioned maybe some of the changes that are taking place. But it's not clear to me yet. That seems to be describing a lot of stuff that we can't really see right now and I'm wondering if you can maybe help to paint a picture of what we can look forward to in terms of the effect that that's going to have on the business and kind of what kind of time frame we're looking for. Are we just talking about being able to turn the starts around? Or is there more to it than that?

No, that's the key, is to get back to growth in each program. And what programmatic focus means is taking a look -- we've done a very good job of managing the university and messaging the university at the university level. We need to apply that same prowess to each and every program to make sure that we're not only tailoring the program to the needs of those students and the employers of those students, but then messaging that effectively to those students and to those employers. And a good example of that is accounting. I mentioned earlier by packaging that up and having under one roof, the bachelors, the masters and the exam review, you create that program and bringing that focus and that's what we started, was with accounting, putting that focus and then letting people know that DeVry University is one of the biggest accounting colleges in the country, a lot of people don't know that. So we didn't do a good enough job before that of letting people even know that we -- people didn't even know we had accounting. Well, putting that programmatic work together and then messaging and letting people know about it, that's programmatic focus. And it's different for different programs. And the way you go to market, the way you -- the different media you use, or for health care-related programs, you go out to the hospitals whereas electronics programs, you go into HP and Cisco and Intel, Motorola. So it's got to be different for every program. And so that's an area that we're investing in and actually increasing resources so that we can drive growth in each one of those programs and make sure -- Tim used the word white space, are we doing -- there were some white spaces where there's some programs that we should add. A good example of that could be cyber security. There's a huge need and growing need as the Russians are now stealing 1 billion e-mail addresses. Cyber security is huge. We've got like 5 different offerings in cyber security, but we can do a better job of filling in -- there's a few white spaces in some of the offerings and then again, messaging it. So it's both the what it is and then it's how you message it that we recognize we could do a better job of and that's why we're investing in this programmatic focus. And yes, the point is it's not cost cutting, it's drive growth. And as Tim mentioned, it takes a little bit -- it's going to take a little while for that really kick in. So in the near term, it's more of that, the 2/3, 1/3 of the cost reduction efforts that Pat talked, it's the pricing and scholarship that Tim talked about and then -- and that's the bridge to get to the impact of the programmatic focus.

Are there program leaders that are running P&L at this point for 2015?

Yes, yes, exactly. So there's leaders leading teams, cross-functional teams of folks from academics, from marketing, from student services and operations and so forth. And then there's a leader of each one of those programmatic areas. And they're in place -- there's some filling in of the teams still to be done and we're in the middle of rolling that out.

And might we then begin to start, from the outside, begin to see some of that different messaging and so forth kind of rolling out into the market during the course of the year?

Absolutely, yes.

And our next question comes from Jeff Meuler of Baird. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Just I think a follow-up on that last one. But I just want to ask philosophically, why is the strategy to just roughly maintain breakeven or positive free cash flow at the BTM segment? And I ask that from some of the things you've said, but in July, the starts were down 13% year-over-year and it doesn't sound like you're optimistic for too much better in September. And then Tim said there's going to been an 18- to 24-month lag once that returns to positive growth until you get back to growth. So I mean, it seems like it's going to be a while, best case scenario, before you get back to growth. And it's been declining for, I don't know, 4 years in a row now, pretty substantial every year. So why not just take more aggressive action now and not assume that you're going to get back to growth mode to get it to a reasonable operating margin and then if growth comes, you get leverage off of that?

Well, the strategy is not to maintain. The strategy is to get back to growth. What we're just saying is that in the near term, we're making that commitment to do what we can to keep in positive territory. And I think we've certainly been very aggressive over the last couple of years. It's been a couple hundred million dollars of cost restructuring and we're going to continue to do that. I think Tim's point was that $70 million, that's the plan, but there's more that we can do and that we will do if it turns out that we need to, exactly as we did in FY '14 where there was an initial plan and then we over delivered on that plan because we had to. So that's the way that we look at it here in the near term while we work the strategy, which is to return ourselves to growth at DeVry University.

I just -- I would add that one of the big challenges we have is supporting all the students that we currently have at the institution. So this is where -- we just can't get the cost out as fast as we'd like. And to Daniel's point, we do see a stabilization and return to growth and so how do you do all these things and not damage of the quality of what we're trying to do and supporting the students.

Right. If you were to -- sometimes, if you reduce the resources too much, you could actually hurt your persistence at your referrals. You could actually do more damage to the growth side of it. So it's a balance and that's how we see striking the balance. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then there's a lot of talk about the environment. You talked about the environment and confidence of prospective students and maybe I'm one of the people like you were telling Corey that's confused. But Daniel, I thought it interesting given how big of divergence there is between the BTM trends and the health care trends over a multiyear basis. So maybe if you could just help us think about the differences in the environment and what's temporary, what's structural between the IT and business world and the medical and health care world?

It's very interesting because here you have Chamberlain College of Nursing in the same markets, in the same city, in the same physical campus. They're collocated in most of those 13 campuses. And quite a divergence, as you pointed out. We think it's that, a, it's a perhaps a perception among those prospective nursing students that a clearer path from that investment to the return because people know that there's tons of nursing jobs out there, a huge shortage and mid-50s starting salaries. Plus coupled with just that passion to be a nurse that exists there. And you have that in veterinary school and in medical school and some other programs. And it's very interesting. As you look segment-by-segment, I mean, we did see some of the automotive educators reporting just recently. Very, very weak. And boy, they do such a great job over there. I mean, they're premier educators of automotive mechanics who do a wonderful job. And you wonder, why is that down? But again, I think it's the prospective students in that segment. Contrary to the fact, which is, on the back end, they all get jobs, they're just having a hard time seeing that. And it's something that many of the folks in this call might have a hard time seeing because this is a haves and a haves not economy, to quote Arthur Brooks at AEI, the economist. The haves economy is growing 5% or 6% he estimates. The haves not economy is growing at 0 at best. And so that grinding last few years of the economy has really weighed on that confidence. And so people are saying contrary to the facts and what the Federal Reserve study just showed again, that the return on going to college return on investment is very, very strong. Their personal experience might be, well, gosh, a friend of mine went to college and he didn't get a job, so I am hesitant. And also, we've had a new cycle over the last couple of years saying, "Oh, boy, college isn't worth it anymore." Well, we're starting to see new cycle shift a little bit. That was just one example of the story. I mentioned I saw it on CNN just the other day, a whole segment on college is worth it. And so think -- we think that as you start to see that new cycle change and you start to see it go to can't find programmers, can't find accountants, can't find nurses, that hopefully people will see more confidence. And then we'll see some of that pent-up demand that we believe has been building here start to be released. And certainly, that would be a helpful trend.

And our next question will come from Jeff Silber of BMO Capital Markets.

I know it's late, I'll try to be quick. Just going back to the cost cutting in the BTM segment. Can you give us a run rate of how that kicks in over the course of this year? And is it safe to assume that without that, the unit would not have been profitable in the current year?

Yes, absolutely. The latter is true. Patrick, any thoughts on the run rate?

The run rate, the restructuring charges that we recorded in the fourth quarter results, a lot of folks who left the organization prior or just at the start of the fiscal year and then as I stated, we have some more people who will be taking a voluntary separation plan. So it will pick up in the balance of the quarters, but it will be fairly even throughout the year.

Okay, great. Just then just a quick follow-up. I know this is going to be in the K, but can you give us some color how your financial responsibility ratio look for fiscal year 2014?

Yes. So with respect to financial responsibility ratio, we're well above the minimum threshold and well above 1.5. As you know, the score maxes out at 3 and we're very close to maxing out. And just back to BTM, one thing we did want to clarify, that, as we said, we expect on a fully allocated basis that the segment to be profitable on a full year basis. Similar to last year, we did have a loss in Q1. We could be very close to breakeven or have a loss in Q1 of this year, but again profitable on a full year basis.

Okay. I think we're going to have to close. So Laura, if you could -- I guess, we're going to wrap it up here. Dan, do you have some closing statements?

Yes. I'm sorry, we've just run out of time. I apologize if we were too long-winded in our answers. But I do want to thank everybody for your questions and remind everyone that our next quarterly results call will be on October 23 and that will be our first quarter results of fiscal '15. Thanks, everybody, for your continued support of DeVry Education Group. Thank you.

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