Covista Inc. (CVSA) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the DeVry Education Group Fiscal 2015 First Quarter Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joan Walter, Senior Director of Investor and Media Relations.

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 also 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 in our Form 10-K for fiscal year 2014 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 November 14. To access the replays, please refer to today's release. And with that, I'll turn the call over to Daniel.

Well, thanks, Joan, and thank you, all, very much for joining us today. DeVry Education Group's strategy of quality, plus diversification, plus long-term focus differentiates us and positions us well for growth opportunities. For DeVry Group as a whole, we have growth in both new and total students. DeVry Group revenues increased for the second consecutive quarter, and except for DeVry University, we grew revenue in all of our institutions. Our strategy has 2 overarching objectives: to turnaround and transform DeVry University, and to continue our growth via diversification. So let me provide an update on our progress toward these objectives. Despite the declines in new student enrollment in the September session, we made progress in our longer-term goal of turning around and transforming DeVry University. The turnaround plan starts with our enhanced programmatic focus. We've been asked to describe our programmatic focus strategy, and how it's different from what we've done in the past. We believe students are attracted to institutions with differentiated programs supported by a strong university brand. In prior years, we addressed unmet demand as we managed at the university level, growing by adding new programs, and campuses and increasing online enrollments. That was right for the time, and we built a strong and well-recognized brand for DeVry University. Now, we need to manage much more at the program level, ensuring each program is designed to best meet the needs of its students and employers, and that we better communicate the value proposition of each program. We're building the teams to support this programmatic focus. We've narrowed our programmatic verticals to 3, namely Business and Management, Engineering and Information Sciences and Emerging Programs. Each vertical will have a focused team that's responsible for enrollment, market research, program features and quality and successful student outcome. A good example of this approach is accounting and an offering we've put together called DKB. That's DeVry University, Keller, Becker. Students can get an undergraduate degree in accounting at DeVry University and then they move on to Keller for a Masters Degree because they need 150 hours now to sit for a CPA. And then they also get the Becker CPA review with dual credit in many of the courses. And this saves them about $10,000 in tuition, and they can complete the program 2 years faster than traditional accounting programs. The programmatic focus strategy will take time to implement fully, and although we've made progress, there's much more work to be done. In the meantime, we'll work to improve our results by enhancing our marketing and recruiting efforts, optimizing pricing and reducing our cost structure. The key element of pricing optimization is the strategic use of scholarships to enhance the value proposition that we provide to our students. Our scholarships have 2 objectives: attracting new students and improving student persistence. We were disappointed in the performance of the Career Catalyst Scholarship in the September session, so we're adjusting our scholarship strategy. One example is a new Degree Completer Scholarship we'll be offering in January to students who have prior college credits. There are more than 31 million students who have enrolled in college and left without receiving a degree or certificate. We believe DeVry University's focused degree completer programs, along with a pricing strategy that meets their needs, will encourage them to pursue their goal of finishing their education. Taken together, we believe our efforts to improve our enrollments are starting to have an impact. While it's still down, November looks better than September. And though it's early, January looks better than that. And as you know, we're reducing our cost structure, while striving to maintain and even enhance our service to students. We'll continue to work hard to control costs throughout the year, and Tim will provide more color on this in a few minutes. I'm seeing Rob Paul and his leadership team at DeVry University operate with a strong sense of urgency. One thing that gives me confidence in our plan is that they were the key architects of Carrington's turnaround plan, and Carrington has made tremendous strides. While there are some differences between the 2 plans, there are a lot of similarities as well. The team understands what DeVry University needs right now. The DeVry Group's second overarching objective is to continue our growth by diversification in our healthcare, international and professional institutions. At Chamberlain College of Nursing, we delivered strong enrollment growth this quarter, particularly in our Masters and Doctoral programs, where there continues to be strong demand. One important driver of growth for Chamberlain is our employer partnerships. Now last quarter, we reported that DeVry University has 400 employer partners. Not to be outdone, Chamberlain provides opportunities for further education to the employees of some of the largest, most prominent organizations in healthcare, including Kaiser Permanente, the Cleveland Clinic, Walgreens and United Healthcare. Chamberlain works with more than 350 partners, which is helping to drive growth that we're seeing right now. We're also continuing to expand the number of Chamberlain campuses. Chamberlain's second location in Houston opened in September, and we just began taking applications for Las Vegas, and Troy, Michigan for classes that begin in January. With the addition of these 3 campuses, Chamberlain has 16 locations across the country and there could be one more yet in fiscal 2015. We continue to work a pipeline of potential markets across the country that we're evaluating for the coming years. Chamberlain also continues to exemplify our commitment to academic quality. Chamberlain's President, Susan Groenwald, was recently inducted as a fellow of the American Academy of Nursing. For those of you who know the world of nursing, induction into the Academy is evidence that the individual has made outstanding contributions to nursing and healthcare, and that they have the potential to make a continuing positive impact. I attended the induction ceremony in Washington, D.C. last Saturday night, and I can report to you that it was an inspirational experience. First of all, it's like the Oscars of nursing. And as they crossed the stage and extolled the accomplishments of each fellow, each one seemed more incredible than the last. I have to say we're very lucky to have someone with the stature of Dr. Groenwald to lead Chamberlain. Let me move on to DeVry Medical International where we continue to enhance academic quality at our medical schools. We recently entered into multiple large affiliation agreements that allow our students to complete the clinical portion of their program at quality teaching locations across the United States. The expansion of our clinical network gives students more options and improves the learning environment. At Carrington, we grew revenues in the quarter, and we were profitable at the institution level. The consolidation under one Carrington College institution is progressing well as we've begun to merge and standardize programs across our network of 17 campuses. During the quarter, Carrington began working with the recently closed Anthem College to accept transfer students in several healthcare programs. Carrington has established an agreement with Anthem Education in multiple markets, assisting student transfers in Arizona, California, Nevada and Oregon. We anticipate that approximately 120 students will transfer, and I really want to commend our team because they really stepped up to support these students and work closely with public officials and regulatory bodies in those states. We're pleased to help these students complete their college education. We believe our scale gives us an advantage in the career college segment. Our diversification strategy is also paying off at our International and Professional Education segment. Becker Professional Education was recently awarded 3-year accreditation from the Accrediting Council for Continuing Education and Training or ACCET. This enables Becker to expand its CPA, CPE, USMLE and project management prep courses with additional organizations that value ACCET status, including government agencies and Armed Forces, as well as international students. Becker's membership in this organization reaffirms the quality of our programs. Moving onto DeVry Brasil. Recently, a fellow shareholder suggested we spend time each quarter to feature a particular institution in order to promote greater understanding of our diversified organization. We think that's a great idea. So today, I'm going to spend some time discussing our institutions in Brazil, and why we like the market. And later, Tim will provide some color on our financial performance there. DeVry Brasil serves more than 36,000 students. About 1/3 of our enrollments are in technology and engineering, another 25% of enrollments are in healthcare, then the balance is in business, law and a few other programs. Chart 2 in today's press release contains a map of our locations in Brazil. And you can see there that we've had great success in diversifying across the North and Northeast regions of the country. During the quarter, we expanded geographically with the acquisition of Faculdade Martha Falcão or FMF in Manaus. At our Fanor Institution, which is #5 on the map in Fortaleza, we received approval from the Ministry of Education to offer several new distance learning degree programs. These include industrial engineering, business administration and IT management. Also during the quarter, we received final approval for our new campus in San Luis. As a reminder, this one is an organic campus expansion. We anticipate our first class in February. We're also on track to start classes in February at our recent acquisition in João Pessoa. We're very excited about the opportunities that exist for us in Brazil to grow both organically and through our solid acquisition pipeline. We have a strong management team, an excellent acquisition and integration playbook, and a reputation as the acquirer of choice, especially in Northeast Brazil. And so what makes Brazil an attractive market? The first is Brazil's large and growing population and it's growing college participation rate. Enrollment, at post secondary institutions, in Brazil totaled 7 million students as of 2012. That's approximately 15% of the addressable population of 18- to 24-year-old. To give you some context, the comparable rate in the United States is 41% versus 15% in Brazil. So you can see the difference there. Brazil has outlined a goal of increasing the participation rate of post secondary enrollment to 12 million students by 2020. So all of this means strong demand, especially from the growing middle class. Second, the return on educational investment for a college degree in Brazil is one of the highest in the world. Those with a college degree earn substantially more than those without one, 171% more. Again, this is a factor which drives demand for higher education. Then the third factor is a regulatory environment that supports private sector education along with public sector and independent colleges and universities. In Brazil, they have one set of rule for all colleges, something we advocate for the United States to implement. As part of this system, the government in Brazil has enhanced its student financial aid system, which provides more access to higher education for students from lower and middle-income families. So for all these reasons, we believe Brazil is a very attractive market for growth. DeVry Group has built a high-quality, differentiated platform in Brazil, which is contributing nicely to our growth and our economics. So to summarize this second strategic objective, our diversification in higher growth career fields, degree levels and geographies continues to position us for long-term growth. The strategy drove year-over-year revenue growth at all of our healthcare, professional and international institutions this quarter. So let me now turn the call over to Tim and Patrick to review the financials and enrollment results.

Thanks, Daniel. Good afternoon, everyone. I'll start with the financial results and then go to our reporting segments. In the first quarter of fiscal 2015, revenues from continuing operations were $462 million, up 2.5% year-over-year. This is the second consecutive quarter of revenue growth for DeVry Group. DeVry University revenues were down as expected with all other institutions growing their revenues in the first quarter. We continued our cost reduction efforts during the quarter, resulting in the recording of a $13.3 million restructuring charge related to a voluntary separation program and real estate optimization, primarily at DeVry University. Excluding special items, total costs from continuing operations for the quarter were $424.1 million, down 1.6%, reflecting these ongoing initiatives. We reported net income of $20.4 million for the quarter, resulting in earnings per share of $0.31. Earnings per share from continuing operations and exuding special items were $0.47 for the quarter. Our effective income tax rate was 17.1% for the quarter, and we expect that our effective income tax rate from operations for the year 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 $206 million were up 17% during the first quarter, highlighted by revenue growth at DMI, Chamberlain and Carrington. Segment costs grew at 11% versus the prior year. And as a result, operating income for the Medical and Healthcare segment in the quarter was $38 million, excluding special items, an increase of 52% from the prior year. This increase was driven by the revenue growth and controlling cost growth. At DeVry Medical International, new students in the September semester declined 3.6% and total students declined 0.8%. Since last year, we made progress in enrollment management, including increasing the number of inquiries we receive in this increasingly competitive market. We expect better enrollment results in the January semester, and we're still targeting long-term enrollment growth in the low-single digit range. Chamberlain new student enrollment grew 14% in September over the prior year period. Total students grew 33%. These increases reflect strong demand for our pre-licensure BSN, our post-licensure RN to BSN, Family Nurse Practitioner and Doctor of Nursing Practice agrees. As expected, Carrington was profitable in the quarter at the institutional level. New students in the period decreased 4% from the prior year and total students decreased 0.9%. The decline is related to the timing of our start dates resulting in one less session start in the quarter. Turning to the International and Professional Education segment. Revenues in the segment increased 22% during the quarter, driven by strong growth at DeVry, Brazil and Becker Professional Education. Total student enrollment in DeVry Brasil grew 15%, while new student enrollment increased 38% over the prior year. In addition to these student enrollments, DeVry Brasil enrolled nearly 2,400 students in Pronatec, a federal government-sponsored certificate program that aims to increase the number of technical and vocational students in Brazil. We saw an organic growth at Unifavip and our other institution drove results the quarter. Because acquisitions have played a key part of the successful Brazil story, we'd like to give a little color on our acquisition track record in Brazil, and why we're confident in our ability to continue to drive growth via acquisition. Since the initial acquisition in 2009, we've acquired 5 additional institutions, and today, we operate 15 campuses. We've dealt -- developed a very solid acquisition, integration playbook, and each one has been executed better than the last. The result is all of our acquisitions are performing either at or better than our acquisition plans. The compound annual revenue growth rate, from 2010 to 2014, was in the mid-30% range, and the IRR is well in excess of our cost of capital. Last year, DeVry Brasil produced revenues of approximately $125 million, and we expect revenues to be more than $150 million this year. At Becker, revenue grew 18%. The increase was driven by the September launch of Becker One. Becker One is our new curriculum delivery system that allows Becker students to receive content updates on a continuous basis versus once a year. That annual update normally occurred in November. Because of the earlier launch, revenue increased about $4.5 million in the first quarter, and likewise, we expect revenues to decline about $4.5 million in the second quarter versus prior year. For the quarter, the segment's operating income was nearly $5 million versus $372,000 earned in the prior year. And finally, within the Business, Technology and Management segment, revenues were down 12% during the quarter as a result of lower enrollments. New undergraduate students for September were down 20% versus the prior year. Total undergraduate student enrollments were down 15% versus the prior year, and total graduate course takers declined about 13%. We continue to operate in a highly challenging environment, with some students choosing to defer their college decision despite the data that indicates college leads to a better career path. As we turn around and transform DeVry University, which is a process that's going to take some time, we will continue to control the things we can. Namely, optimizing our pricing structure, enhancing our marketing to convey our value proposition and controlling cost. Exuding special items, the segment generated operating income of $135,000 for the quarter, which compares favorably to the $5 million loss we experienced in the prior year. A key operational goal continues to be maintaining positive segment economics, which means positive segment margin and cash flow. Our emphasis on cost control across the organization, but mainly at DeVry University, helped us achieve our cost reduction goals for the quarter. During the quarter, we continued to focus on optimizing the real estate footprint, identifying 9 future end-market campus consolidations pending regulatory approvals. We've increased our savings goal for the year, from $70 million to at least $90 million, as a result of the disappointing enrollment results at DeVry University. Looking ahead to the second quarter, we expect revenue will be down modestly versus prior year as anticipated declines at DeVry University and the impact of Becker One will slightly outpace revenue growth at our other institutions. We are planning modestly lower operating costs in the second quarter to offset the impact of the revenue decline. I'll now turn the call over to Pat to talk more about our balance sheet and financial position. Pat?

Well, thank you, Tim, and good afternoon, everyone. Our liquidity and financial position remain solid. It differentiates us from others in private sector education in the U.S. Our cash flow from operations for the quarter was $141 million. Our cash and cash equivalents were $473 million at September 30. Now, that was up $164 million from $309 million last year. DeVry group continues to be an efficient user of our shareholders' capital. Capital expenditures for the quarter were $21 million, which were primarily deployed to our medical and healthcare, and international institutions to drive future growth. For the year, we expect capital spending to be in the range of $100 million to $110 million, with approximately 80% being deployed to our healthcare and our international institutions as we invest in new programs, locations and infrastructure. Our net accounts receivable balance was $170 million, down 7% from the prior year as a result of lower revenues at DeVry University. For the quarter, bad debt, as a percentage of revenue, was 2.6%. During the quarter, we incurred $13.3 million in pretax restructuring charges as a result of workforce reductions and real estate optimization programs. We will continue our discipline of managing our expenses in line with enrollment expectations. Lastly, we resumed and extended our share repurchase program to December 31, 2015, with the goal of offsetting dilution. As a reminder, this is our eighth program which has $77.2 million remaining as of September 30. Now let me turn the call back over to Daniel.

Thank you, Pat. We're committed to our long-term vision of becoming the leading global provider of career-oriented educational services. DeVry Education Group's strategy of quality plus diversification plus long-term focus will enable us to achieve this vision. While I'm not happy with where we are at DeVry University. I do see progress on our turnaround and transformation plan, with the team working incredibly hard on better delivering quality academic outcomes and student service more efficiently. We're also focused on investing in the expansion of our healthcare, professional and international institutions given our strong cash flow and financial position. Before we take your questions, I'd like to take a moment to congratulate the DeVry University Advantage Academy on their 10th anniversary. Some of you may know that the Advantage Academy is a dual enrollment, dual degree partnership with Chicago Public Schools that we developed with the former head of CPS, Arne Duncan. High school juniors and seniors have the opportunity to earn a college associate degree, while also completing their high school at no cost to them or their families. Since its inception, almost 1,000 students have graduated in the program. And according to the Illinois Board of Higher Ed, Advantage Academy's 2012-2013 high school graduation rate was 99%, and the cumulative associate degree completion rate is 86%. That's quite an accomplishment, and we're proud to be able to help these students achieve their educational goals. So with that, we're very eager to hear your thoughts and your questions. Joan?

Thanks. I'd like to ask Laura if you could please give our participants the instructions for asking a question.

[Operator Instructions] And our first question will come from Trace Urdan of Wells Fargo.

I wanted to ask a couple of questions. The first about the program leaders within DVU and this initiative. I'm wondering kind of how far that goes at this point? Are the program leaders inside DVU operating with their own P&Ls? And if they are, are they making kind of different decisions about pricing and marketing, and are they putting in kind of budget requests for more capital to do different things than what had been going on before? Can you talk about that a little bit?

Absolutely, Trace. It's great question. It's really a shift from managing at the institutional level to managing much more at the program level. Yes, they do have P&Ls. We're doing a better job with our systems of tracking the economics at the programmatic level, and that's something that's new and different. We didn't have that before. Yes, they are making recommendations for deployment of capital or other resources. I don't think it's going to be a very capital intensive endeavor. It's much more about human capital and just getting closer to our students and our employers at the program by program level. Maybe just a quick example would be in EIS, Electronics and Information Systems, one of the things that's come out of the early programmatic research is just the importance of certificates. So you think about Cisco and the Cisco certification that you might get out of a networking program. We have to do a much better job of encouraging our students to take those certifications. We've got the goods, we're actually -- I just met with John Chambers, actually. He was in town and we had a breakfast meeting, and before I could even sit down, he said, "You guys have 300 alumni working for us and we want to talk about how we can get some more." And one of the other things we talked about is the network academies, it turns out that we have the largest network academy of any college and university, the Cisco Academy. And in fact, after the military, we are the largest academy. So that's something that is kind of like the best kept secret, and we have to do a better job of making that known. And that's -- again, that's part of programmatic marketing is marketing -- strategic marketing, what the needs are, honing the program itself and then communicating the value of that to the students in the marketplace.

Got it. And I also wondered if you might elaborate a little bit, I know that you see healthcare as a real market of opportunity for you. And I'm wondering if there are other healthcare offerings that you don't have in the marketplace now that you would like to have? And then I wondered maybe related to that, Daniel, if you could comment on specifically what you -- how you see the market for medical assisting kind of evolving over time relative to the market for nursing because, obviously, we're seeing tremendous growth from nursing and the medical assisting market still seems to be a little bit sluggish, and I'm wondering if you have a view on that.

Yes, my view on that part, to take that part first, is that there's a need for both -- not broadened. When you said medical assisting, I think you're really -- you may be referring more broadly to Allied health ancillary care programs, whether medical assisting, surgical tech, pharmacy tech, all those tech programs. It seems to be that there's a huge need there as well. I think the supply/demand imbalance at the registered nursing level is even greater. So that's a little bit of it. I think the student connection and prospective student perception of the return on that investment of time and money is even stronger. And so that may be a little bit what's underlying some of that market demand phenomena you're pointing to, but very strong long-term outlook for both. And then in terms of the first part of your question, other areas that we'd like to be in that we're not, there are actually many, and that's an area of active strategic planning that we're doing right now, and our team is doing a really good job. They've identified several areas of public health, like the Masters in Public Health, think about that, physical therapy, occupational therapy, pharmacy. So there's a number of areas of healthcare that we're not in, that we'd like to be in and I think ultimately will be, that create future opportunities for growth for us.

Our next question comes from Jason Anderson of Stifel. Jason P. Anderson - Stifel, Nicolaus & Company, Incorporated, Research Division: Regarding your BTM, obviously, you kind of forecasted it would be down pretty good. But it seems to be heavier than normal. I know you did provide some color, but is there anything different going on there? Has the market deteriorated further? Are there any other internal issues that you can note?

No, Jason. I would say that DeVry University just continues to operate in a prolonged cyclical period of weakness that's having an impact across higher education as we see prospective students, many of them lacking confidence in the job market, and sort of being hesitant to commit to going to college. You don't see that among the upper half, it's more among the lower half. And while there's still that hesitancy to go back to school, we are seeing signs that consumer confidence is slowly coming back, and so that could help us. I think there is maybe not -- that wasn't really your question, but we've heard from some others, somewhat of a misperception that these factors are just impacting private sector institutions. It's not the case. We do see and continue to see many independent and public sector institutions, not the Harvard's and Stanford's, but sort of the good mid-tier publics and independents being impacted. Just saw the other day in the Chronicle of Higher Education a new survey of small private colleges, mid-sized state institutions showed that 38% of them didn't meet their freshman enrollment or their revenue goals. University of Southern Maine, we saw 50 faculty positions eliminated to close their budget deficit. Even law schools see a 4-year enrollment slide. University of Toledo, I just saw an article, took a big hit, a 26% decline in their first year law students. And so again, not going to see that at Harvard's and Stanford's. We are seeing that across that mid-tier, that kind of regular school that is much more in the realm of a DeVry University. But here's why we're optimistic about the future. Again, there's more than 30 million people who have some college but no degree and that is a great opportunity for us. We're going to do a better job attacking that with our programmatic focus strategy. We're seeing opportunities to provide a more focused degree completion, offering to those students and that gives us optimism. And then of course, our diversification strategy outside this area into healthcare, and Professional Education in Brazil and around the world, also is something that gives us strength and optimism for the future. Jason P. Anderson - Stifel, Nicolaus & Company, Incorporated, Research Division: Then just one more. I'm kind of playing off of that and Trace asked a little about it, too. The program leader structure and management now of that -- under that structure, do you -- when -- how long, I mean it seems it would be kind of long-term, but is there any chance for opportunity or benefits here in '15 or are we looking more at '16 and beyond to see any, I guess, noticeable traction there?

Well, you're right, putting those strategies into place, doing the research, program by program, does take some time. And that's why in the meantime, we're really focused on improving our effectiveness in the marketing and recruiting process. We see opportunity there right now optimizing our pricing and then of course, watching and managing our costs effectively and I think we're doing a very good job there. So that's why Rob Paul has reminded me whenever I say turnaround plan, it's turnaround and transformation plan. There's 2 parts. There's a longer-term transformation. We have to respond to the long-term trends that we see in U.S. higher education and right now, we've got to turnaround our results. So it's both and I think we are going to see and at least we expect to see, improvements in this fiscal year. So thank you for that.

The next question comes from Jeff Meuler of Baird. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: First, just Tim, did you say you expect DeVry Group revenue and OpEx to both be down slightly on a year-over-year basis next quarter. Was that the message?

I did. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Okay, I guess on BTM. The good news is you guys are doing a great job of controlling or managing costs and I know that's a lot of hard work and operating income was up year-over-year despite a pretty significant revenue decline. But obviously the bad news is the new enrollment trend. How much more of an enrollment or revenue decline could you sustain and still maintain your goal of keeping the business unit with favorable or positive business unit economics?

Yes, I'll try that. It's something I worry about a lot. Certainly stronger enrollments make -- are maintaining the segment economics much easier. But you'll notice when you run the math that we've been pretty aggressive on costs, the percent of cost recovery of lost revenue was almost $1 [ph] and that's up significantly if you go back and look at the last couple of years. So I think it's really the transformation side of the discussion that Daniel's talking about. We're spending a lot of time thinking about what changes do we need to make in how we deliver the education. We do feel good about the quality of what we do and the value proposition and how we positively impact our students' lives. So certainly, I'm very hopeful that we find a bottom and stability here. I guess we've been smaller than we are today. Last year, we did $930 million of revenue in that segment. You don't have to look very far to see when it was a $500 million institution. I'm certainly not suggesting that's where we're going, but I think we've got to wake up every day and deal with the cards that we have. And as Daniel said, we're working aggressively to improve things. He mentioned in his comments that while we're very disappointed in September. November, we thought would be better and early indications of January better. So I'm kind of got my fingers crossed that the work that we're doing in the marketing is going to pay off sooner rather than later. But just it's hard. As you mentioned, but we're working it and I think we'll let you know when we feel like we're running into trouble. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then Daniel, I was a bit surprised by one of your answers to a question at a recent investor conference where you got asked about would you consider spinning off your Brazilian assets. And I think you said everything is on the table. So is that or another more drastic action to the corporate structure something that the board is actively looking at or is it just you don't want to rule anything out or I guess what would maybe cause the board to go down and evaluate looking at more drastic action in terms of the current corporate structure?

Yes, I'm just indicating, Jeff, that we're open and we're listening. We're listening to our fellow owners, we listen to you guys and your thoughts and contributions. We do research out in the marketplace. We listen to our advisors, bank advisors, strategic consultants. And we're just indicating to you that in contrast to not being open or having your head in the sand or being fixed in your position, we're open and we just constantly evaluate. We know it's a dynamic world and we're always open to looking at new strategies. That's all I'm indicating. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: So open but no active exploration on it?

Yes, always open. Always open to alternatives and new strategies, yes.

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

Could you talk about what revenue per student was for undergrad in the first quarter and what the trend was? And are you still expecting revenue per student to be down about 1% to 2% during fiscal '15?

It's Pat. So revenue per student undergrad DVU in the first quarter was up about 3% year-over-year, a little higher than what we expected, largely benefiting from underutilization of some planned scholarships and then benefiting also from higher than, versus the prior year, average credit hour in the September session. But for the full year, we're expecting that our revenue per student DVU would be down in the 1% to 2% range.

Great. And then separately, could we get some more details on where the cost cuts came from, the kinds of roles? And also conceptually, you said that you were disappointed by the undergrad starts and that led to an increase in the amount of cuts in costs that are planned. And I'm wondering, how quickly can you increase or flex your cost cut plans when you're seeing variations in enrollment trends at DeVry University?

The first part, I'll unpack that, with respect to the first quarter restructuring. The charge in total is $13.3 million. About $12 million of that related to workforce reductions in a voluntary separation plan at DeVry University impacting faculty from a voluntary separation plan, as well as campus-based administrative personnel. And then the remainder of the charge related to some additional real estate consolidations for both DeVry University, as well as Carrington. In terms of the acceleration, as we look, we're very focused on optimizing our average students per class and balancing that. So we're working on that very acutely, and that's driving savings on the cost of education level as well as Tim had announced in his remarks on the call that we're pending the additional consolidation of 9 end market locations for the balance of the year here and potentially a few more.

Sara, just add to that, it's Tim. We have a bit more visibility to these enrollment data than you guys have. We see them a little bit ahead, so we're thinking about this and thinking about our objectives and so when we see weakness, then we're back to the team and we have a lot of work going on, not just on, as we mentioned, the turnaround, but we're thinking about transformation and those things are designed to allow us to deliver a good experience or a great experience at less cost. So there's a lot of things that we see and I guess we will continue to be as nimble as we can. It's not easy but you can see we're accelerating the rate of recovery of lost revenue. So it's a sense of how much time and energy we're spending.

The next question is from Paul Ginocchio of Deutsche Bank.

I've got a couple of questions. Just you'd mentioned on DVU may be some better trends in November and January. I don't know if you wanted to put an order of magnitude on that. It doesn't sound like you've changed your revenue per student expectations for DVU or for BTM despite maybe the change around pricing. Is that the right on revenue per student -- what's the order of magnitude on the improvements in November, January? Then I've got a couple of follow ups.

Well, let me try on the student. So we are -- as we've mentioned very disappointed and down 20% on undergraduate news. We believe that November is better than that. Probably maybe half the decline kind of in the high single, low double. So improvement, not where we want to be and while it's very early in January, we're seeing some things -- we're seeing some signs that some of the work that we're doing around change in scholarship and some of our digital search techniques are paying off. So more on that later but I guess what we didn't want investors or shareholders to think is that what we saw in September would continue in November. So it's a little hard to tell. It's been a bit of a challenge, but that's a sense of what we're seeing. Was there something else that we didn't answer?

Just on the revenue per student. Did the changes you're making in pricing and I guess the completion of scholarships, that doesn't impact your sort of minus 1% to 2% on revenue per student?

One of the challenges in the September quarter is we just didn't giveaway as many scholarships, which was part of the reason why we didn't have as many students. So we still believe that the minus 1% to 2% is kind of the right number to be thinking about, just given the nature of the market and as we adjust our pricing and scholarship strategies, we think we will use those and help drive better enrollment results.

And being that it's late October, your visibility in November must be decent, correct? Whereas January is probably not so?

Yes, exactly.

Okay, great. And then if I could just move on, is there a number on organic, a new enrollment number that we should think about for Brazil. And then Carrington, ex the sort of one less start, what's the underlying trend at Carrington? And then I've got a final one, please.

Sure. So for DeVry Brasil, all of the starts in this session were all organic, meaning that the last acquisition we would've had in our results would've been [indiscernible], our medical school which we completed on July 1 of last year. [indiscernible], their enrollments and revenue were in line with overall DeVry Brasil.

Carrington, on an underlying basis maybe on a same-store basis?

Same-store basis would have been, well, you have to adjust for the...

1 fewer.

1 fewer start, but would have been up more in line with revenue in the mid-single digits and then with that start shifting into the second quarter, we would expect new student enrollments to be up higher than what we saw here in the first.

Okay, great and Dan, if I could ask you one, just a final one on DeVry Medical International. You talked about some enrollment counselor issues a year ago and it seems like it's kind of popped up again. I just thought there was a lot more ex qualified potential doctors, a lot of excess demand. You're always turning away good people. Is that not the case?

Yes, we do expect stronger results in the January class and much of this, in my view, is operational and we need to improve the admissions process. So the good news is that we have fixed the beginning of that process. We have a stronger level of inquiries coming in. Now, we need to continue that good work that the team is doing right through to the application and to the starting of actual enrollment stage of it. That's where we've got a lot of our focus and I would just add to that I think we can do a little bit better job in marketing and branding of our institutions and then there's some other things as well. So, we think we can control a lot of operational factors and get back and that's why, I think Tim indicated, we're still confident in the long-term trend of the low single-digit, long-term enrollment growth and then you put a little bit of tuition on top of that and then leverage and everything else and that's how you get to the underlying economic growth opportunity that we have at DMI.

So just it sounds like it's a lead issue, not a conversion or show rate?

No, it's kind of the opposite. A little bit more further down the funnel, if you will.

So more of a conversion rate?

Yes.

The next question comes from Peter Appert of Piper Jaffray.

You've got John Crowther on for Peter. Not trying to go back to the scholarship point too much but just wondering if you could give us a little bit of insight into maybe why you saw a little bit disappointing performance in your words on the Career Catalyst Scholarship given that it seemed to be having some positive traction over the last couple of quarters leading up to here. And then maybe just talk a bit about the Degree Completer Scholarship. The differences there and why that might lead to better enrollment or results in the back half of the year?

Yes, absolutely. Thank you, and I can understand that's a very important question why you'd be asking that and we were disappointed that the scholarship strategy wasn't as effective as we'd like. We're still analyzing the reasons. It's a little bit early but 1 hypothesis we have is we think there were more competitive offers in the market than there were in the prior, the year ago period when we had that offer in the marketplace. In the meantime, we're responding to this by rolling out a new scholarship as you just indicated, targeted at degree completers. And so what that's about is going and approaching 31 million or so Americans with some college but no degree. And those with some college but no degrees, that's really a sweet spot for us at DeVry University. We do a great job of serving those students and that's a core competency for us but we haven't really had this level of the focused scholarship targeted to that audience. So again, this is something that came out of the programmatic focus research that we did and we found that there's a real opportunity there. So we think that with this sharper focus that we can attract and retain those degree completers a little bit better and therefore, increase our enrollments.

Okay, and then just on the -- in the comments, you called out the success or growth that you're seeing from corporate partnerships on the healthcare side. Also talked about the number you have on the DeVry U side as well. Just wondering maybe you could give an update on how those corporate partnerships are going and your sort of view on those as being a potential driver of better enrollments over the next couple of quarters?

That's something that we think is very important and yes, so 400 corporate partnerships at DeVry University, 350 at Chamberlain. The 400 DeVry University yields about, I think about 4,000 students, and there's a quick skew to that. So a large percentage of those 4,000 are coming from a pretty small percentage of the relationships. So we see a very strong opportunity to grow our enrollments through those employer partnerships by adopting the best practices of the bigger ones. And some of them have hundreds of students in Walgreens or -- sorry, Walmart or big employers like that. And it then it also applies not only to big corporations but to the federal government. Many federal governments agencies, some state governments, some municipalities, associations, places like that. So a real area of focus you put your finger on there and something that we'll keep you posted on.

And the next question comes from Jeffrey Volshteyn of JPMorgan. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: I wanted to ask about a potential change in the PLUS loan eligibility and how it may impact enrollment for DeVry University. I recall a few years ago when PLUS loans were sort of tightened and there was a negative effect on enrollments. Just wondering if you've done any analysis?

Sure, and we have -- I appreciate that question. Just to note that the negative impact that you mentioned from a few years ago was pretty minor. And by the same token, the relaxed credit requirements resulting from the new changes will probably have a minor positive impact on our students being able to access PLUS loans as well. So not a lot of news to report here. One reason that I say it's minor is we don't have a high-volume of parent PLUS mainly due the large number of independent students who we serve. In the higher aggregate limits for subsidized and unsubsidized loans that those students have and thus they don't have to utilize parent PLUS as maybe some other colleges and universities who serve a lot of dependent students might have. It might be a little bit more impactful for our grad students for the grad PLUS loans, so we'll be watching that. And in addition, I'd like to hasten to add that we support the additional loan counseling that will now be required. I'm a big believer in those kinds of practices to make sure that students and their parents have the best possible information and financial awareness. Big, big focus for us. So thanks for that. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: That's very helpful. And just give a couple more follow up questions. On the $90 million cost reduction program, is it possible to understand timing throughout 2015 of how those costs are going to be achieved. Is it more based on transactions and real estate?

Timing will be fairly even given that we've increased our goal. Obviously, we'll have some more. The run rate will slightly uptick as we exit the year. And those, Jeff, as you know, you're around, but maybe others that's delivered costs savings in the year and you'll see that in the BTM if you look at their costs and expenses last year and compare it to this year, we're committing that it would be $90 million or more less than it was a year ago. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: Great. And then last one from me. Did you mention flat margins for medical and international segment? Did I hear you right?

No.

And the next question is from Corey Greendale of First Analysis.

So I missed a portion of your prepared remarks. So if I ask something you have answered already, don't -- I don't want to waste everyone's time, just say you answered and I'll check the transcript. But the first question I had is that last quarter you sounded somewhat optimistic on the trend for graduate enrollment. It looks like it didn't at least -- it looks like it didn't pan out the way you were hoping. Is that accurate and can you just talk about kind of what you're seeing in the landscape for the graduate side?

Sure, and we didn't cover that before so you're safe, Corey, and it's a good question. I appreciate that because you have a very good memory, if you're not punctual. On the other side, you have a very good memory. And you're right we did say that, and that didn't pan out. It wasn't -- it was a little stronger than the undergraduate side, but would have liked to see a little bit more there. At the same time, we do remain optimistic and we think we have a very good opportunity. Keller's got a really strong brand and when we do a better job of getting out into the marketplace, we do see more productivity there. So this, again, great example of programmatic focus. The team is much more focused and dedicated in looking at the opportunities for Keller, so you might see that manifest itself in some communications out there in the marketplace that are focused on Keller a little bit more. And we do see the graduate market is a good one for us. I can broaden that a little bit to the graduate market for nursing, to our MSN and DNP and then opportunities for joint degree programs. We've rolled out, getting ready to roll out -- actually have rolled out the MSN, MBA. It's an opportunity at Keller and Chamberlain. M.D. MBA is something that we're looking at for the medical school students. DVM, MBA that's where you get the idea. It's also a very nice opportunity for us in Brazil and graduate enrollments have picked up for us with a focus on graduate in Brazil as well. So the grad market is a great place to be. It's a place that we're adding resources and have a lot of optimism for the future.

Okay, great. And then on the healthcare segment, did you talk about the drivers of the growth in medical international revenue being a lot better than the growth in enrollment?

Yes. Well, we partly did but essentially you're looking at increased clinical weeks during the quarter, so we did a better job of helping our students move on to the clinical third and fourth year of medical school and then tuition increase.

So you expect that level of increase through the rest of the year relative to the enrollment growth?

I think that might be the pattern. Again, the one other thing that we did say is we expect January to be an improvement in new student recruiting at DMI relative to what we just saw in September.

Okay, but revenue per student growth, you think that can persist for the rest of the year?

Yes.

Okay. And then the other question I have is on the scholarship. So maybe this is trying to slice this too finely, but when you talk about doing a better job of attracting people who have some college credit. If you look at the demographics of DeVry University, I will think that a lot of the people already are in that category. Is that wrong or is it just that do you want to do something to those people even though you do attract a bunch of them?

We do attract many of them. It is a sweet spot for us. At the same time, one of the revelations of the programmatic focus research was some of our students are actually going into a program that's really not focused on degree completion. It's focused sort of on first-timers as well as degree completers and it's a bit of a -- not the best fit. So what we realize is we've got to do a better job of honing our -- some of our programs to be a better fit for the needs of a degree completer, more easier for transfer credit, articulation, that kind of thing. So that's an example of how with a better focus on the program design, together with this kind of transfer scholarship, we think we can do a better job of attracting and, I wanted to add, retaining, both of which should result in better enrollment.

And next, we have a question from Jeff Silber from BMO Capital Markets.

It's Henry Chen calling in for Jeff. Just a quick one for me on Chamberlain. Can you remind us what is the additional capacity from the new campuses and as it relates to that, just any updates on how you're thinking about the long-term growth rate for Chamberlain?

We see continued growth for Chamberlain, both with the pre-licensure campus-based programs and from the post licensure, mostly online programs, including RN to BSN and then the Master's and doctoral programs. So we see a lot of long term growth opportunity. I think with those new campuses, 3 and possibly 4 this year, the base coming into the year of 13 that kind of gives you a sense of the relative mix. And do you have a little extra color?

The way I can think about is some other data points along those lines is that out of the 13 campuses, we've got 11 that are what we consider mature, 3 or more years of operation, 2 are developing and then we expect 1 new one. But in addition to that, we're also funding 4 additional campuses that aren't yet operational. So we mentioned a couple that we're getting ready for a start to grow. So I think those of you that file story know, it takes a couple of years to turn these campuses from a cash burn to a positive. The way I also like to think about it is we think about the end of '15 about -- a little more than half of the Chamberlain revenue will come from our post-licensure programs, the RN to BSN, the MSN and the Dr. of Nursing Practice. And that means a little less than half is coming from our campus based programs that are growing nicely. So those are some other data points that might help you as you think about the Chamberlain -- the great Chamberlain story.

This concludes our question-and-answer session. I would like to turn the conference back over to Daniel Hamburger for any closing remarks.

Okay, let me thank everyone for your questions. We really appreciate it and suggestions. Our next quarterly results call is scheduled for February 5, and we'll be announcing our fiscal 2015 second quarter results. Thank you all for your continued support of DeVry Education Group.

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