Adtalem Global Education Inc (ATGE) 2016 Q1 法說會逐字稿

Good day, and welcome to the Q1 2015 DeVry Education Group results conference call and webcast. All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference call over to Ms. Joan Walter, Senior Director of Investor Relations. Ms. Walter, the floor is yours, ma'am.

Thank you, Mike, 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 Chief Accounting Officer and Treasurer. I 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 in our quarterly reports and Form10K for FY15 filed with the SEC and available on our website. 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 our most record 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 12. To access the replays, please refer to today's press release for more information.

With that, I'll turn the call over to Daniel.

Thank you, Joan, and thank you all very much for joining us today.

Before I get into the results for our first quarter, I would like to go moment to thank everyone who attended our recent investor day here in Chicago. We had really strong attendance with 110 people participating either in person or on the webcast. We appreciate your time and interest and I really hope that you came away from the meeting with a greater understanding of our five-year strategy and white we're so confident in the value creation potential we see.

If you were unable to join us, please visit our website as we've posted the slides from the presentation, as well as the transcripts and a video webcast, so you can really get a sense of what we covered. We conducted a survey to collect feedback on the meeting and received a very high response rate. Thank you again to everyone who participated.

We were encouraged to see that 81% of you thought that our strategic direction was clear and well defined. Of course, our strategy is quality plus diversification plus long-term focus. Continued growth in both our medical and healthcare and our professional international segments, combined with stabilization and very modest growth expectations for DeVry University, we think should generate solid future growth and leverage. And so from FY16 to FY20, we believe can achieve organic growth in the 5% to 7% range and EBITDA growth in the 10% to 12% range.

The successful expedition of this plan will provide the capital we need to do even more. Specifically four things; support our academic quality initiatives, invest in our existing growth institutions, continue our strong track record of creating value via diversifying acquisitions, and to fund dividends and share repurchases. We're confident in our strategy as it is aligned to the growth opportunities in education globally. There is a growing global talent shortage, a skills gap. Employers tell us they can't find enough qualified nurses, doctors, engineers, accountants.

DeVry Group institutions are well positioned to serve this array of needs, given our scale and our scope. Whether it is business and technology careers, healthcare or professional education, in the US or globally we are positioned toward the areas of greatest workforce needs. Our institutions have strong brand reputations based on quality academic outcomes and exceptional service to students. And we have the capabilities, strong talents, and a unique culture that enable us to execute on the opportunities.

Our strategy of quality plus diversification plus long-term focus differentiates DeVry Group as an organization. And our culture of care enables us to execute our strategy even more effectively. That is why I think it is critical for shareholders to understand that our culture of care is a palpable differentiator for us, for our students and also for attracting and retaining the professors and other colleagues who share our values.

Fundamentally, DeVry Group's culture of care is about our collective passion and focus on achieving the best outcomes for our students. It is the glue that binds our colleagues together, reinforces our strong reputation and helps us attract strong talent. When an organization has a great culture, you can feel it, and we hope the strength of our culture was evident to you at our investor day.

Let now me review our first-quarter results, which will in line with our expectations. Total revenue came in at $441 million. That was a decline of 4.5% and as a reminder, the revenue decline was primarily the result of our strategy to purposefully reset DeVry University by narrowing its footprint and bolstering the value proposition. And the decline was partially offset by continued strong growth at both our medical and healthcare and our international professional segments. Further, enrollments were in line with the preliminary outlook that we provided in September.

Reviewing our segments, let's start with our largest one, medical and healthcare. We believe we can grow segment revenue at a 7% to 8% CAGR through 2020. At the midpoint of that goal, this segment would deliver roughly $1.3 billion in revenue in 2020. As these institutions mature and scale, we would expect to be able to achieve greater efficiencies and drive EBITDA growth a little bit higher than revenue growth, EBITDA growth of 9% to 11% over the timeframe. One of the drivers is growth at Chamberlain College of Nursing, including both campus-based pre-licensure and online post-licensure programs. Our plan is to achieve compound annual growth of 9% to 11% in revenue and 8% to 9% in EBITDA through 2020.

This quarter saw a continuation of our growing enrollments and increasing market share, even in the face of competition. Chamberlain's brand reputation, based on Chamberlain care, continues to expand, and that's helped us drive record enrollment for our RN to BSN program this past session. We're confident that our supply demand imbalance will continue driving growth. In our investor day survey, almost 90% of you agreed that demand for nursing education will continue to remain strong for the foreseeable future.

As part of executing Chamberlain's five year strategy, we'll continue to open one to two campuses per year. We're on target to open three campuses in FY16. The first of those opened in the Dallas area in September, with enrollments that exceeded plan. The Charlotte campus is recruiting students for the January session.

Moving on to DeVry Medical International, or DMI, our five year strategic plan is targeting to deliver compound annual revenue growth of 3% to 5% and 7% and 9% in EBITDA through 2020. Key drivers include our focus on academic quality. A long-term enrollment growth trend in the low single digits, modest tuition increases, and moderating capital investment.

This semester was clearly well above trend and one of our strongest September classes ever, with new students up almost 18%. In fact, American University of the Caribbean had the largest class for any semester and its history and a record number of applications.

The new brand building efforts we discussed at our investor day are working. But part of the semester's growth was probably making up for lost time from our past operational issues, and again, long-term trend is low single-digit.

Our strategy of academic quality is the key driver here. Our med and vet schools continue to deliver outstanding board scores, residency matches and employment outcomes. Part of our academic quality strategy is building a strong clinical network. A good illustration is this quarter, both AUC and Ross Med signed affiliation agreement with Western Connecticut Healthcare System to secure additional clinical sponsor for our students. We're leveraging the strong reputation of our two medical schools to secure high-quality clinicals for our students.

At Carrington, we think we can drive compound annual revenue growth to 6% to 8% and 33% and 35% in EBITDA by 2020. This will be supported by new online offerings, such as our medical building and coding and medical administrative assistant certificate programs. With smaller class sizes and very high-touch service, Carrington is in a strong competitive position. Carrington adds additional long-term value to DeVry Group as it serves as a platform for a ladder of learning for graduates to go on to DeVry University and Chamberlain.

International and professional education, as we outlined last month, will be our fastest-growing segment. As we look towards 2020, we're projecting 9% to12% organic revenue growth and 13% to 17% EBITDA growth. At the midpoint of this there would be $450 million of revenue. This will be primarily supported by the continued growth of our platform in Brazil and by the successful leverage of our leadership position at Becker and to new markets beyond accounting.

For DeVry Brazil, we project compound annual revenue growth of 11% to 13% and 20% to 24% in EBITDA through 2020. This outlook is supported by expanding middle class and public policies focused on leveraging education as a primary tool to grow the economy and to raise living standards in Brazil. As a growing population, and a growing college participation rate. All these trends give us confidence in the long-term opportunity.

We see lower asset prices potentially as opportunities to continue to deploy growth capital in Brazil. Our strong culture enables us to effectively execute our strategy, and DeVry Brazil is a perfect case in point. We have completed eight acquisitions in Brazil with an average expected return of greater than 20%. We have a proven acquisition integration playbook where we bring in our academic and curriculum system, our IT, and our HR processes. Then we introduce our culture of care, which is key to creating a greater focus on students in academic outcomes. Our culture of care is what has allowed us to successfully integrate these organizations and expand their academic offerings.

Some of you have asked for more clarity around what is happening at the FIES student loan system in Brazil. FIES contracts are being prioritized towards the north and northeast regions, to institutions with high academic quality and to programs in healthcare and engineering. All three of these priorities line up with the focus of DeVry Brazil. So while the number of FIES contracts may decline, we believe we will increase our share of those contracts, perhaps even achieving the same level as before. This quarter we were prepared for a pullback, given the economic environment in the region and weakness reported by some other providers in Brazil.

However, on a same campus basis, new enrollments were down much less than some may have feared, and total enrollment were actually up almost 6%. The team did a very good job of attracting self-pay student at managing the FIES shifts, looking ahead, we will continue to leverage our high-quality reputation to expand programs across our national network of locations and to capitalize on programmatic growth opportunities, particularly in healthcare, engineering, and IT.

Moving to Becker, Becker has a great brand, strong margins, a low CapEx profile, and has been a solid performer for quite some time. In addition to being a strong performer in its own right, Becker is a platform for our non-title 4 expansion. We think we can drive compound annual revenue growth of 7% to 9% and then 8% to 10% in EBITDA at Becker through 2020. The drivers include increasing scale in our growth areas of continuing professional education, global accounting and healthcare, as was continuing medical education and other lifelong learning avenues where we can apply the Becker model.

Becker started the year out well. As our CPA and our continuing professional education, or CPE programs, are off to a strong start. CPA volume trends exceeded expectations, and Becker revenue grew nearly 7% year-over-year.

Now let's move to our business technology management segment, DeVry University and it's Keller Graduate School of Management. Here our plan is to deliver 1% to 2% compound annual revenue growth and EBITDA growth of 10% to 12% through 2020 Achieving a midpoint here would mean $675 million of revenue growth for the segment.

As we move through the transition, revenue is expected to decline here in FY16 and FY17 before stabilizing and growing modestly in the rest of the planning horizon out to 2020. Our plan consists of a set of near-term actions to stabilize enrollments and maintain positive economics. As well as long-term actions to differentiate the University and transform it to better compete in a more competitive landscape.

With the near-term actions, we successfully reduced our campus footprint in cost in line with our revenue decline. I want to focus here on how we're transforming and differentiating the University to compete more effectively. Although college enrollments are down across the United States, especially among the older students that DeVry University tends to serve, we know we can do better. We strongly believe that we can stabilize and return to modest growth, leveraging our brand reputation, our campus and our online system, and our strong team, who is delivering DeVry University care for our students.

We're a team that studies our students' needs, and we know where students want. They want careers, care, and speed and flexibility. Our transformation strategy is the right strategy as it responds to these student needs. There are many elements to this strategy. Let me summarize them here in three areas. Career-oriented programs of high academic quality, affordability and a strategic marketing.

First, we're getting much better aligned with programs with our strong career outcomes, skills gaps and supply demand imbalances. Examples of this are in cyber security where we now have five program offerings, and our new medical billing and coding program, which has enrolled more than 1,200 new students since launching just in May. We're also imbedding certifications into the program such as Cisco into key programs enrich enhance value for students and employers. This programmatic focus is both about what we offer and how we offer it.

That is with the care and support we provide to students. Responding to our students' needs for schedule flexibility, our vision is to transform from a University with multiple locations to managing as if it were one giant campus with an integrated scheduling system across video connected classrooms. Not only will this approach better provide students the course they want when they want it, it will also improve our utilization. This quarter our innovative scheduling system helped this increase our campus class size by approximately 15% while maintaining and enhancing a quality classroom experience.

The second element of DeVry University's transformation is focused on pricing affordability. It's really perceived affordability, because we're finding ways to better communicate the affordability that we have of a DeVry University degree. So it better resonates with prospective students and their families. There are multiple levers that we're pulling; we will be shortening program lengths, increasing scholarships, reducing prices in some cases and offering stackable degrees. We continue to pilot other creative paths to systematically build on our affordability programs. We expect to have more to report here in the next quarter or two.

And the third element of our transformation is strategic marketing. This is a confluence of local marketing and program-specific marketing, all supported by a strong DeVry University brand. While we have reduced our overall marketing budget, we've increased our investment in each of our focused local markets to better prioritize our advertising spend.

For example, our Columbus Ohio campus was our first market for increased investment at the local level. It is using traditional channels and with an emphasis on digital media. Our messaging has been focused on our technology programs, an area that is a competitive advantage to us, especially Columbus with our 80-year history there. The result, Columbus had 8.4% new student growth in September. And November is trending higher there, as well.

In terms of first quarter results overall, DeVry University enrollments were in line with our expectations. We expected September's rat of decline to be worse than July because of the impact of narrowing our campus footprint and the shift in our marketing strategy. For the September session, undergraduate new and total student enrollments declined 24% and 20% respectively compared to last year. Now, on a same campus basis, the decline was narrower. New campus -- new enrollments on a same-campus basis for undergrads declined 16%. For graduate course takers we declined about 17%, but again here on a same on the campus basis, graduate course takers were down 12.9%.

To sum up at DeVry University, we know that our students are looking for careers, care, and speed and flexibility. I am confident in our turnaround and transformation strategy because it responds to those needs. More importantly, I am confident in the team that is executing the strategy. I'll look forward to providing with progress updates over the next few quarters.

With that, I would really like to turn over to Tim Wiggins.

Thanks, Daniel, and good afternoon, everyone.

I will start with overall financial results, then go through the reporting segments. In the first quarter of FY16, total revenues declined 4.5% to $441 million. The decrease as driven by the planned decline in enrollment at DeVry University as we reposition it for growth. The declines are partially offset by growth in our medical and healthcare and international and professional education segments.

We continue to focus on expense control. Total costs excluding special charges for the first quarter were $409 million, down 3.5% from the prior year. Net income excluding special items was $24 million during the first quarter, which resulted in earnings per share excluding special items of $0.38. Our effective income tax rate was 10.9% for the first quarter, excluding special charges our rate was 19%.

With that overview, let's now shift to our operating segment results. Starting with the medical and healthcare segment, revenue of $224 million was up almost 9% during the first quarter. Segment revenue growth was driven by Chamberlain. Operating income excluding special items for the segment was $35 million, representing a decrease of 9.6% from the prior year, due primarily as a result of higher home office cost allocation supporting growth and expenses incurred as a result of tropical storm Erica. Chamberlain revenue grew 22% for the quarter.

In September we continue to grow our market share. New student enrollment grew 28% and total students grew 23%, driven by strong demand for our post licensure programs, including the family nurse practitioner and RN to BSN programs. In addition, new campus openings contributed to Chamberlain's enrollment growth. At DMI, revenue of $82.8 million grew 0.5% versus last year. While tropical storm Erica did not inflict any significant physical damage on our campus, we did incur extra costs to reroute and temporary lodge many of our students to keep them on scheduled to begin their studies. In total we incurred roughly $1 million of expense this period as a result.

At Carrington, revenue decreased approximately 2% during the quarter. In the quarter, new students decreased 1.5% and total students decreased by 1% compared to last year. The decline was as a result of lower enrollments in two programs in several markets. We expect both enrollment and revenue growth to return in the second quarter.

Turning to the international and professional education segment, revenue of $59 million increased 10.3% in the quarter. The decline of the Brazilian real as compared to the US dollar reduced reported revenues by almost $20 million. Without this currency effect, revenue for international and professional education segment would have grown 47%. The segment offering income excluding special items was $2 million during the quarter, down $2.7 million, reflecting increased investments in curriculum development at Becker and currency impact.

At Becker, revenue increased 7% during the quarter. This reflects continued positive momentum in a number of CPA exam takers. Building a momentum from last quarter, solid growth in accounting and continuing professional education, as well as continued growth in US MLE program enrollments.

Revenue at DeVry Brazil increased 13% in the quarter, driven by the acquisitions of FMF, Fossey and Dimarzio. New student enrollment growth increased 176% compared to last year, including the impact of these acquisitions while total student enrollments increased 72%. Excluding the results of FMF, Fossey and Dimarzio, same campus total enrollment at DeVry Brazil increased 6%.

Within the business technology and management segment, revenue was down 22% to $159 million during the quarter as a result of our resizing of DeVry University to reflect the current market. We've continued to make progress on reducing our cost structure and we're on track to achieve our target of at least $125 million in cost savings. The segment recorded an operating loss of $1.6 million for the quarter excluding special items. The loss reflects lower enrollments, but 96% of the quarter's revenue decline versus the prior year was offset through our cost reduction actions. Costs declined by 21% compared to year-ago period. The first quarter is a seasonally weaker one for DeVry University, and we continue to expect to maintain positive segment economics for the year.

Now, looking into the second quarter of FY16 at DeVry Group, we expect revenue to decrease about 6%. The decrease is a result of the continued weakness of the Brazilian real and declining revenue at DeVry University which offsets revenue growth at our other institutions. We expect operating costs to be down about the same percent -- percentage rate as revenue as a result of cost reductions at DeVry University, offset somewhat by growth investments. And last, we expect effective tax rate to be in the 20% range excluding special items.

I will now turn the call over to Pat to talk more about our balance sheet and financial position. Pat?

Thank you, Tim, and good afternoon, everyone.

Our cash flow from operations for the quarter was $117 million. Our cash and cash equivalents were $436 million at September 30, down from $473 million last year, primarily driven by capital deployed for acquisitions. Our net accounts receivable balance was $186 million, up 9% from the prior year, primarily due to the impact of extended VF payments at DeVry Brazil. Our bad debt expense as a percentage of revenue is one of the lowest in the industry at 2.1% versus 2.6% last year.

Capital spending for the quarter was $23 million compared to $21 million last year. We continue to invest capital for the long term and infrastructure to support our quality and diversification strategies. We're targeting to keep our capital spending for FY16 to be about flat, roughly in the range of $90 million.

We continued our cost reduction efforts during the first quarter, resulting in the $24 million pretax restructuring charge related real estate optimization and workforce reductions primarily at DeVry University. We expect to incur additional restructuring charges in FY16 as we continue to execute our transformation strategy for DeVry University.

Also during the quarter, we returned approximately $8 million to shareholders through share repurchases. We repurchased 292,000 shares during the first quarter at an average purchase price of $28.32 per share. This repurchase activity represents a 32% increase over the fourth quarter, which followed a 20% increase over the third quarter. We're confident that our strong financial position and cash flow generation give us the flexibility to support our strategy.

Let me turn the call back over to Daniel.

Thanks, Pat.

To wrap up, continued growth and both our medical and healthcare and professional and international segments, combined with stabilization and very modest growth expectations for DeVry University, should generate solid future growth and leverage. DeVry Education Group's strategy of quality plus diversification, plus long-term focus, coupled with our strong culture, continues to differentiate us in a tough environment. We're confident that by executing upon we outlined at our investor day, that we will deliver positive student outcomes of attractive growth and significant value creation. With that, we are eager to take your questions.

That's great. I'd like to ask Mike if you could please give our participants the instructions to ask a question.

(Operator Instructions)

Corey Greendale, First Analysis.

Good afternoon. First question, it sounds like the results of the local marketing Columbus were encouraging. Can you talk about how rapidly you expect to rollout a similar strategy across your entire footprint? And if you give any color on directionally what we should expect in the November term on the undergraduate new students, that would be helpful.

Sure, thanks. Great question. And it's rolling out now. So, we have our set of local markets who are -- each one is different. It is different mix of how you reach the market, Columbus is a driving town. There is outdoor, billboard, radio, for example whereas in New York City we wouldn't be doing that. You'd be doing subway or something else, just as an example at the local. They are all rolling out as we go. We're expecting to see results from those over the next few quarters.

I would say --you asked about November, and I would say that you are likely to see similar results here to September. There are some encouraging signs. But I always need to caveat this. It does it time for some of these strategies to work. Thanks very much.

And second question. I think you made a comment about doing some things on pricing and scholarships. Can you give us a sense of what should we should expect on a revenue per student in the DeVry University segment?

Sure, Corey. Our revenue per student for the first quarter for DeVry University undergraduate was down about 6% compared the last year. This was expected, in the line with our previously disclosed commentary. Of course, you recall that our first-quarter we included our gainful employment tuition grants. That was about $3.3 million. So if we excluded that, revenue per student would've been down about 3.5% and going forward for the balance of the fiscal year, we expect revenue per student to be down in a similar 3.5% to 4% range.

Great. Thank you.

Peter Appert, Piper Jaffray.

Tim, I heard what you said about the specific cost issues here that might be impacting the healthcare unit, but nevertheless, I was a little bit surprised that the margins contracted as they did in the context of what looks to be pretty strong revenue momentum. Can you help us better understand that?

Two things, Peter. One is that as the medical and healthcare segment becomes our largest and a larger portion of our revenue, there's more of the home costs that are allocated to support the growth. That was a primary driver. We do expect to see the medical and healthcare segment margin expand slightly for the whole fiscal year. It's a kind of a confluence of factors. The Erica spend was part of the issue, but we do expect to see some improvement in that margin for the full year.

Okay. For enough. And then the second thing, in terms of the 6% revenue decline for the second quarter, I think it's maybe a little bit sharper than the investor expectations that have been out there. Is that a function of further deterioration in trends you're seeing in the starts in any of the businesses, or were we just mismodeling it previously?

I think one of the things that has been a challenge for us is the currency issues in Brazil that have put some additional pressure. That has deteriorated significantly from our original planning horizon. We hope to see that moderate a bit. That would be one. But the rest of the numbers are pretty consistent. I think if you look -- at least we last looked at the first call estimate, it is in that ZIP Code.

Peter, I just want to clarify that the 6% number, that was a decrease in revenue per student at DeVry University in the first quarter and our guidance. Our DeVry Group revenue, as Tim has stated in the comments, were down 4.5%, and that was in line with our guidance that we provided on the last quarter call.

Right, exactly. No, I was referencing the 2Q revenue guidance. But thank you, I understand.

Got it, thank you, sorry about that.

Sara Gubins, Bank of America, Merrill Lynch.

Hi, thanks, good afternoon. Any changes to your views around full-year FY16? Last quarter you talked about 5% revenue declines and adjusted EPS flat to up slightly.

No.

Okay, that was easy (laughter). And could you talk about how we should think about growth in Brazil this year? Maybe just on the constant currency basis might be the best way to put it.

Sure. On a constant currency basis, we would expect DeVry Brasil -- local currency, rather, to grow in the mid-to high 20% range. Largely driven by the benefit of the acquisition that occurred in the second half of the year.

Okay. Great.

If I may jump in on that, yes, in addition to everything a Pat said, which was absolutely accurate, I would also like to add the continued organic growth. I think what is interesting is we showed it both ways in the chart in the press release. There's almost three ways to look at it, really, and it is with and without.

Without the additions of the recent acquisition, the new enrollments were down about 5%, total enrollments were up about 6%. As reported with the acquisitions, the new was up 176% and the total 72%. I'd say that there's a third way to look at it because we didn't just acquire these schools and just add it. We rapidly integrated them. I think the team did excellent job in doing that, and we grew them. There was organic growth on top of the acquisition.

So as a result, I would say the third way to look at it would be somewhere in between. I would give a team a very good grade on the class.

Okay. Great. Then switching gears a little bit back to DeVry University. Of the campuses that you're closing and moving students to online, how many were closed in the first quarter? And when should we expect the final campuses to be closed?

I will take the second part first. We would expect that all the locations would be vacated roughly by the end of the calendar year, with the exception of maybe one or two that would go further into calendar 2016. It is typically a six to nine month process to conduct the teach out process. Some could take a little bit longer. One thing I want to hasten to add is that no matter how long it takes, we will be handling the transition with DeVry care for all of our students.

We started the fiscal year, Sara, what DeVry University, about 80 locations. We're currently operating our teaching out of 66 locations now. Once we're complete with our consolidation, it will be around 60 locations.

Got it. Okay, great. Thank you very much.

Jeff Silber, BMO Capital Markets.

Thank you so much. Just a follow-up Sara's question. I know you thought that some of the students that were involved in the campuses that you closed might be going online. I know it is still very early, and I'm wondering if you give us some color in terms of if we've seen any of that.

Yes, actually, it's exceeded our expectations. Students have been open to the online delivery, and that's been good. I think we're learning more and more as we go. One of the things we're excited about, as you know, and we demonstrated this live for everyone at the investor day, was our new connected classroom concept where students can attend with the professor in another location. And they can go ahead and come to campus and have a very immersive experience and connect life with that professor. We've also tested that technology for online students from anywhere, punching into the experience, if you will, and we see that rolling out in the future as well.

I think we're going to see this become a real advantage for us. And as we imagine our transformed University of the future will be this one giant campus. And scheduling it that way and managing it that way, helping to support our faculty in that way and building the schedule that way. You increase this blending, such that I think five years from now the vision would be, we would look back and say how trite it was that we talked about an online student or an on-site course or an on-site -- it's just going to be one blended concept, which I think is a very exciting future. Those kind of things, as they roll out, will help her students to navigate that as well.

That's great. In terms of gainful employments that officially around for almost 4 months now. Anymore color on how the new regs might impact you going forward? Thanks.

As you know, we reduced the initial -- we were early, trying to give as much color as we could and be as transparent as we possibly could, with some initial color on what we thought some of the revenue and then earnings impact might be. And then updated that recently so that it is in the 3% to 5% range for FY16. That gives you a dimensionality on that.

We are working through all of the adjustments that we've had to make. It has gone very smoothly. And frankly, not a lot to report to you on that, unless there's something more specific that you had in mind.

No, just wanted a quick update, if there wasn't anything, thank you so much.

Thanks.

(Operator Instructions)

Denny Galindo, Morgan Stanley.

Good afternoon. One question I wanted to ask especially relevant today, given the turmoil that one of your competitors is facing, they're changing their start dates, moving to less frequent start dates and also moving away from third-party affiliates as lead generation. Have you seen any impact on your conversion rates from their actions, are you seeing better conversion rates because maybe some of the moves your competitors are making?

That is an interesting question, but we really haven't -- there's nothing that I can report to you that I can attribute. I can give a little color on inquiries and applications and conversions that we're seeing, if it that helpful to you. To that I would say that our team is just doing a terrific job in the process of advising prospective students who inquire with DeVry University.

This applies, actually, to our other US institutions as well, but I know you're asking about DeVry University. The conversion rates, that is the percentage of inquiries that go on to apply at the University, it is up. The conversion rate is up.

What that means is the prospective student who talks to us or visits our campus. And by the way, we interview every prospective student, unlike other universities might not do that. Those prospective students, they like what they see and the application rate is up.

Our issue is little bit more at the earlier stage of the process. Inquiries are not where we would like them to be, and we are working on addressing that with the new marketing strategy. The net of all of that, is as we work through that, I think is going to be good news, because that would be a more efficient model. It would mean fewer, more qualified inquiries, fewer, more qualified applications. It would more efficient for our staff to handle than in days past. That's a little bit of color on what is going on. Does it make sense?

Yes, that make sense. That is very helpful. On that same vein, that Columbus example in the pilot program, is there anything specific about Columbus that makes you think it might be a little bit better or little bit worse than some of the other schools or cities that you roll this local advertising program out to? I'm specifically thinking of mix, would their mix of degree programs maybe be growing faster than average or slower than average. Is there anymore color that you can give us about how that campus relates as it compares to the rest of your locations?

Sure. Very thoughtful question, and I appreciate that. I would say that maybe some small differences and then a lot of generalities. One difference is that we have a co-location with Chamberlain College of Nursing. We know that is productive, and we have 13 or 14 of those around the country and that is growing. I think that is something that's a little different, but increasingly becoming more generalizable.

Another difference is the time we've been -- we have been in Columbus, used to be the Ohio Institute of Technology and then it was bought by DeVry. Bell and Howell, there's a long, long history there. In markets like that in Chicago, Columbus, Atlanta and other places I could name, that great reputation that we have and legacy students who are -- the legacy of a parent or an uncle or a cousin who went there definitely does help. I would say another is -- so those are a couple of differences. And I would say that something that is a same though is -- but building off of that is the reputation for technology. We're known for -- used to be DeVry Institute of Technology, after all, and that is still known.

I would say, as we self reflect here, in the last few years, perhaps we got away from that a little bit and that reputation. It was good things. We grew our business enrollments, we grew management, we grew accounting, we grew other areas very effectively. Perhaps we focused on the University as a whole, as more of a national and a University-centric communication. So part of what is different now is it's more local and more programmatic focus.

So that tech focus that we laid on in Columbus, and it's really -- it's organic, it's really granular, even things like events. Got a Hack Your Future event, and hundreds of attendees showed up and learned about hacking and cyber security and things like that. That is what you've got to do to get local. I think that is a trend. That is what you are going to see more of. So that, I think, is very general. We can do that in all of the local markets that we're focused on. There's nothing specific about Columbus in that regard.

Okay. And then lastly, just circling back to Peter's question on the margins in medical. I was wondering if you had any other color you could give there, how much might be related to new campuses, how much might be related to the mix of students at the degree program mixes changing in any way? Or if there's anything else you can give us on that margin decline?

The margin decline, Denny, as Tim said, is more relevant and specific to the quarter itself. Sequentially we would expect to see a nice increase in the margin. We did open our North Brunswick campus in May of last year, so we're continuing to -- we haven't reached start up there and had some advertising around that.

We opened our Chamberlain campus in Irving, Texas in September. We're getting ready for the opening of Charlotte. We have some additional advertising startup costs that are incremental. That would be impacting that without any, of course, revenue coming in from those campuses, or at least for the full quarter that would be impacting it. Wouldn't consider this quarter to be any representative of full-year, as Tim said. It is very likely to expect some modest margin improvement on a year-over-year basis for medical and healthcare.

I will just add, or emphasize what was mentioned before, which is the one-time cost of dealing with tropical storm Erica. That really was a major event. I'm so proud of the team for displaying DeVry Group care and making sure that our students were able to get there, that our team was able to get there, going to extraordinary lengths. There was expenditure there, and we quantified that for you, and I don't expect to that again in the coming quarters.

Thanks for taking my questions.

With no further questions, we will go ahead and conclude our question-and-answer session. I would now like to turn the conference callback over to Ms. Joan Walter, Investor Relations for any closing remarks, ma'am.

I think Daniel wants to say something.

I want to mark a milestone, which is somebody on this call is celebrating their anniversary. Their 60th results call with DeVry Education Group. If you do the math, that is 15 years.

Some of you have been around the story for a long time, and we really appreciate that. And we appreciate you, Joan, and all that you do for our students and for our colleagues. So with that commercial interruption, I will turn it back to you.

I love DeVry, thank you. I'll close it up by saying we'd like to thank everyone for your questions, and remind you, everyone, that our next results call is scheduled for February 4 when we will announce our FY16 second quarter results. Thank you, everyone, for your continued support of DeVry Education Group. We'll conclude, operator. Thank you.

And Ms. Walter, we thank you ma'am, and for the rest of the Management team for your time also today. The conference call is now concluded, at this time you may disconnect your lines, everyone. Thank you and take care.