Adtalem Global Education Inc (ATGE) 2016 Q4 法說會逐字稿

Good afternoon, and welcome to the DeVry Education Group fourth-quarter and year-end 2016 earnings conference call.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Joan Walter. Please go ahead.

Thank you, and good afternoon everyone.

With me today from DeVry Education Group's leadership team are Lisa Wardell, President and Chief Executive Officer, and Patrick Unzicker, our Chief Financial Officer and Treasurer. I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of DeVry Education Group that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied. These factors are discussed under Risk Factors and elsewhere in our quarterly reports and Form 10K for FY25 filed with the SEC and available on our website at www.DeVryEducationGroup.com. DeVry Group disclaims any obligation to update any forward-looking statements made during the call.

During today's call, we may refer to non-GAAP financial measures which are intended to supplement, though not substitute for, our most directly comparable GAAP measures. Our press release, which contains the financial and other quantitative information to be discussed today as well as a reconciliation of non-GAAP to GAAP measures, is also available on our website. Telephone and webcast replays of today's call are available until September 1. To access the replay, please refer to today's release for more information.

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

Thank you, Joan. Good afternoon everyone, and thank you for joining us on today's call.

I am honored to address all of you today for the first time since becoming DeVry Group's CEO this past May. Having served on DeVry's Board for close to eight years, I can tell you I have witnessed tremendous change across our industry and within our organization. I've had the pleasure to meet some of you on our road show in June, but for those who haven't met me, let me tell you why I'm here. I am passionate about higher education, As the first in my family to graduate from college, I've witnessed firsthand the sacrifice that many students make to gain access to the higher education system.

There were times during college that I had to choose between paying for tuition and helping my family to pay household bills. This is the reality of students who come from challenged socioeconomic backgrounds, as well as many students who simply require a different path to maximizing their potential. That's why I want to ensure that DeVry Group's institutions offer academically rigorous programs that provide skills and career value to students on their higher education journey.

There is no question that we understand the challenges our students are facing and the imperative to provide better access to the programs and resources that will help them attain their life goals. Our focus is centered on doing just that while improving the underlying economics of how we operate.

I have a strong sense of urgency. And I'm taking decisive actions to improve our operating performance and further evolve our programs to meet the needs of today's students, with the aim of filling the global workforce skills gaps that are prevalent in our society. We're focused on expanding our program offerings and reaching across a number of in-demand professions worldwide, particularly in technology, healthcare, and professional education.

DeVry Group needs to regain its footing by more effectively addressing the workforce imbalances that exist, while achieving better persistence, completion and graduate employment. This will benefit all of our stakeholders, and it's how we will measure success. We believe we can achieve this mission while driving further expense reductions across our footprint and insuring that we operate in the most efficient manner in every aspect of our operations.

Supporting our efforts, the one constant that has guided DeVry group over our 85-year history and through a range of environments is our steadfast commitment to delivering high quality, career-focused programs to our students supported by our management team's commitment and expertise and our talented and dedicated team of educators. I am honored to continue Dennis Keller and Ron Taylor's vision of democratizing higher education. Today we have a unique opportunity to better pair our programs with the students who can benefit most from them in a fashion that improves their ability to learn.

Now to summarize our FY16 performance, our overall operating results, which were largely in line with our plan, reflect continued solid growth at several institutions including Chamberlain, DeVry Medical International, Becker and DeVry Brasil, offset in part by the transition underway at DeVry University and the challenges at Carrington. DeVry University's results are not satisfactory to us nor are they reflective of the many great things our dedicated colleagues are achieving as we execute our broader plans to position our organization for long-term growth and value creation. I can assure you that we're working diligently to drive student success that will allow us to demonstrate better results.

As we refine our value proposition and program offerings to be more aligned with employer needs, we continue to reduce our costs and increase our focus on high demand program offerings, all without affecting academic quality. At the same time, we need to insure that all of our institutions have the most effective resources and strategies to excel at their missions and deliver the best possible outcomes for our students.

Taking a deeper look, in the past year we've made difficult decisions aimed at right-sizing our organization to reflect current market dynamics and improve our operating leverage. We made notable progress in reducing costs at DeVry University and Carrington, as well as the home office. We also took a range of actions to further diversify our revenue profile and expand our exposure to a number of attractive, fast growing sectors where there is strong and consistent demand for well-trained professionals.

For perspective, 30% of our revenues are now derived internationally compared to only 12% just five years ago. 51% of our revenues now come from the medical and health care sector compared to 26% five years ago. In addition, 83% of our operating income before special items in FY16 came from medical and healthcare compared to only 22% five years ago.

As I noted, Chamberlain and DeVry Brasil are generating healthy top-line growth. And we're seeing continued solid performance from Becker as we strengthen our test preparation programs and build on the institution's strong reputation. We believe that professional education will be a very strong driver of growth over the long term, which is why we've allocated more resources to this important strategic vertical.

DeVry Group is clearly evolving and the underlying profitability of our operations is showing improvement as we enter FY17. We believe we're making the right decisions and laying the groundwork to return to growth, with the benefit of significant operating leverage, which will bolster our cash flows and our ability to return value to our owners.

Looking to the future, I am focused on working closely with our senior leadership to review, improve, and where economically advantageous, accelerate on the execution of our strategic plans. Operationalizing our strategic plan will require the following. First and foremost, we'll continue to foster a heightened culture of student-centric focus and academic excellence to fully deliver on the promise and value proposition across all of DeVry Group's institutions. Persistence, completion, and graduate employment are the key factors to our success.

Second, we'll continue our efforts aimed at transforming the organization to stabilize revenue and grow operating income and EPS, and grow the intrinsic value of DeVry Group. Third, we're going to accelerate our efforts to leverage our organizational synergies and broaden cost reduction across our footprint. Finally, we're going to continue to work to find a resolution to the regulatory issues we are facing with speed and financial certainty. Underscoring these priorities is my keen desire to be part of the solution to issues facing higher education. And I intend to work collaboratively with the Administration and Congress on a mutually productive path forward.

Now before turning the call over to Patrick for the financial review, let me briefly touch on some of our priority initiatives, beginning with our business technology and management sector. As all of you know, DeVry University is facing a challenging environment that has impacted virtually all institutions in our market. Even so, I believe we have upside opportunities in the areas more directly within our control.

Historically we haven't adapted quickly enough to address evolving market realities. That's changing. We are now moving quickly to introduce shorter, stackable programs with off-ramps to careers that allow students the flexibility to pursue their education outside of the traditional four-year degree construct.

In the past we haven't moved quickly enough to develop a program portfolio that's focused on addressing supply and demand imbalances, nor have we fully used the advantage of technology as a cornerstone to the DeVry University value proposition. That too is changing. By focusing on these imperatives, the path to sizing DeVry University for success and gaining profitability is quite clear.

As we focus on turning around DeVry University, we have maintained positive economics at the University through cost reductions, primarily in headcount and location. We are committed to maintaining a disciplined balance between the changes we know we need to make to return to growth and the positive economics for DeVry University that we are maintaining. In total, we reduced operating costs at DeVry University by $181 million in FY16.

Beyond taking a relentless approach to our fixed costs, we are now taking more aggressive actions to manage our advertising expenditures, which need to come down as a percentage of revenue. That should not be a cause of concern, because as you know, the way that our potential students get and act on information has completely changed. It should come as no surprise that the old methods of advertising need to be modified for our students and our model.

Our near-term goal is stabilizing revenues. And our ultimate goal, of course, is to grow enrollments so that we can complete a successful turnaround. And we have to achieve this objective while fostering a more efficient marketing program. So we still have work to do, but we continue to believe the steps we are taking will ultimately lead to new enrollment and revenue growth.

Time is of the essence. And I am committed to achieving this imperative. New program offerings, shifting our marketing strategy to focus on specific programs, our efforts to address affordability through new pricing and scholarships, our focus on corporate payers who define value as paying for measurable job skills, and our strong expense discipline are all part of a formula that I believe will result in both growth and significant operating leverage at DeVry University over the long term.

Let me now touch on our Medical and Healthcare Segment, which is our largest contributor to revenues and earnings. We continue to excel in launching and supporting quality degree and certificate programs that are very much in demand and aligned with global healthcare trends, especially in nursing which is expected to grow at a double-digit rate in terms of total employment through the next decade.

Overall our reputation continues to strengthen, as thousands of our talented alumni populate the broader healthcare market. Looking specifically at Chamberlain with another quarter of double-digit growth in both revenues and enrollment, there's no doubt the institution continues to perform very well as we strengthen our program offerings and further deepen our employer relationships across the industry. We believe Chamberlain remains a growth story that is well positioned to support demand for quality nursing graduates well into the future.

During FY17 we'll be constructing three new campuses and, pending regulatory approvals, we expect to begin teaching at these schools in FY18. We opened three new campuses during FY16, including our Sacramento campus, which we opened in May. This followed four new campus openings in FY15. This brings our current footprint to 20 campuses in 14 states.

Overall, the last seven new campuses we opened are on track to meet or exceed our internal expectations. And we are already exploring the potential expansion of our North Brunswick, New Jersey facilities, which with opened in May of 2015.

With regard to new programs, our online Master's of Public Health offering was approved by Illinois Board of Higher Education in June. We have submitted the application for HLC approval, and plan to begin rolling out the program to an initial 12 markets beginning in January 2017, pending approval.

Chamberlain's Phoenix campus launched a BSN concentration in serving Hispanic communities in May. Hispanics currently represent the largest minority group in the US, and that growth is expected to continue. The concentration has an increased focus on developing students' cultural competency through course work, clinical emergence, and language acquisition resources to prepare graduates to meet the needs of Hispanic individuals, families and communities. Needless to say, we're excited about this new program. We're also excited about the many opportunities that Chamberlain is pursuing.

Finally, I would like to note that Chamberlain continues to excel in driving efficiencies, even during a period of growth and expansion. For example, Chamberlain's advertising expenditures accounted for just under 10% of revenue in FY16 as compared to nearly 12% in FY15.

DeVry Medical International's academic progress continues to be solid, with continued positive increases in student retention and another solid residency placement season for both medical schools. DMI's institutions are very well regarded and continue to graduate well trained and sought after professionals entering the medical profession, year in and year out. The environment is increasingly competitive. And we've experienced some choppiness in recent new student enrollment. To help put this in perspective, DMI's average new enrollment in FY16 was up 1.2% and average total enrollment was up 1.3% for the year, at the lower end of the range of our low single-digit guidance. We have not been achieving new student enrollment growth at Ross University School of Medicine in recent semesters. And we need reverse this trend.

This is a serious issue for us. We are reviewing alternatives for differentiating our medical schools from the competition and improving the effectiveness of our marketing strategies, including shifting from traditional media and event-driven marketing to greater use of digital and social media channels to drive awareness throughout the year.

Now let me turn briefly to Carrington, where we have continued to focus on reigniting enrollment growth following decreases in the past year, as well as reducing our cost structure given subsequent revenue decline. In the fourth quarter of FY16 we reduced our expenses by nearly 6% compared to FY15. We took actions to further reduce expenses in FY17, including headcount reductions and real estate consolidation, as well as driving marketing efficiency.

The team at Carrington is working hard to stabilize enrollments. And to that end, in May, Carrington's governing board appointed Dr. Donna Loraine as the institution's new President. Dr. Loraine was previously Chief Academic Officer and Provost of DeVry University. She has a 25-year history with a proven track record of designing and developing quality academic programs that meet student needs. And we're working closely with her to address the challenges at Carrington.

And on the revenue side we are continuing to focus on rolling out our new programs in pharmacy, technology, veterinary assisting and medical billing and coding. These programs have shown good signs of strength and demonstrate our ability to bring valuable and relevant course work and programs to serve areas of the workforce where supply and demand imbalances exist.

In our International and Professional Education business, Becker's results were very good across the board, with the CPA program delivering a 4% increase in revenue in the quarter, while revenue at Becker Healthcare was up double digits. At the same time Becker's total expenses decreased just over 10% compared to last year's fiscal fourth quarter, which also supported a very healthy double-digit increase in operating income. We are continuing to benefit from improved operating efficiencies at Becker's CPA program, given the ongoing shift in the operating model towards more favorable online economics. Becker is a great example of educational technology being both a win for our students and a win for us.

Supporting Becker's reputation for excellence, over 90% of the Watts Sells Award winners, 68 of 75, in 2015 studied with Becker. We have consistently maintained the 90% level since the American Institute of Certified Public Accountants, or AICPA, began naming award recipients 11 years ago. The consistent performance by Becker in helping so many students receive this prestigious award is a clear reflection of the quality of Becker's program, the quality of the instructors, and the dedication of the entire organization.

Becker recently completed its acquisition of the Association of Certified Anti-Money Laundering Specialists, or ACAMS. This was a highly strategic acquisition that we believe will deliver superior growth opportunities and marketing synergies with Becker's current program offerings.

Given our resources and reputation, DeVry Education Group is uniquely position to increase the value of the ACAMS franchise. ACAMS is the largest international membership organization dedicated to enhancing the knowledge and skills of anti-money laundering, AML, and financial crimes prevention professionals, and is a leader, serving a potential total addressable market of more than $2 billion. Its revenue is expected to be in the low $40 million range in FY17.

ACAMS provides an entire value chain for the anti-money laundering sector. ACAMS provides the CAM certification, trains and prepares students for that certification, and maintains the membership association and continuing education requirements for the ACAMS community. In addition, ACAMS has clear opportunities to serve the current Becker customer base and vice versa, due to the alignment of the accounting, broad risk assessment and anti-money laundering professions, as the regulations and requirements on the financial services and accounting industries become more and more stringent.

Becker brings education technology and marketing capabilities that ACAMS did not have as a resource prior to this acquisition. In addition, the acquisition further diversifies our revenue profile into the attractive and growing professional education arena, both domestically and globally, where there is ample room to scale and utilize our growing footprint to introduce ACAMS' programs to new markets.

Patrick will provide an overview on the financing for ACAMS in a moment, but first let me turn to Brazil. As I noted, top-line growth at DeVry Brasil was strong in the fourth quarter and full year on an organic constant currency basis. And we continue to believe enrollment growth and increased cost management will result in improved operating leverage over time. We have now created an organization with significant scale. And we expect DeVry Brasil will become a more meaningful generator of capital to DeVry Group. Brazil remains a key growth market where we have terrific opportunity to take advantage of the expanding middle class, increasing college penetration, and favorable regulatory systems.

Now before providing my closing remarks, I would like to turn the call over to Patrick for the financial review.

Thanks, Lisa. Good afternoon, everyone.

Looking back at FY16, DeVry Group began our return to operating income growth excluding special items as evidenced by our results over the past two quarters. We believe we are now at an inflection point, and entering FY17 we expect to show continued momentum in terms of operating income growth at DeVry Group.

Now turning to our financial results, in the fourth quarter of FY16 total DeVry Group revenue declined slightly, 0.3% to $472 million. For the full year revenue decreased 3.5% to $1,844 million. The decrease was driven by the continued decline in enrollment at DeVry University and weakness in the Brazilian real as compared to the US dollar. This was partially offset by growth in our Medical and Healthcare and International and Professional Education segments. Note that without the currency impact, total revenue in the fourth quarter would have increased 1.2% and the full-year decline would have been reduced to 1.2%.

Total costs excluding special items for the fourth quarter were $417 million, down 1.9% from last year. For the full year costs, excluding special items totaled $1,641 million, down 4% compared to the prior year. Special items in the fourth quarter include a $48 million pretax intangible asset impairment charge at Carrington and a $3 million pretax gain on the sale of DeVry University's Kansas City campus. In addition we continue our cost reduction efforts during the fourth quarter, resulting in a $34.4 million pretax restructuring charge relating to workforce reductions and real estate optimization, primarily at DeVry University and Carrington. Now we expect to incur additional restructuring charges in FY17 as we continue to right-size operations at both DeVry University and Carrington to better align with current enrollment levels.

We reported a net loss of $10 million for the fourth quarter and $3.2 million for the full year. This resulted in diluted losses per share of $0.16 for the quarter and $0.05 for the full year. Net income excluding special items was $41.2 million during the fourth quarter, which resulted in earnings per share excluding special items of $0.65, up from $0.57 in the year-ago quarter. Now for the full year net income excluding special items was $155.3 million, resulting in diluted earnings per share of $2.41.

Our effective tax rate on the reported net loss was 61.3% for the quarter and 84.1% for the full year. Our tax rate excluding special items was 23.8% for the fourth quarter and 21.2% for the full year, higher than what we'd expected due to the mix of domestic and international earnings.

With that overview, let's now shift to our operating segment results. Starting with the Medical and Healthcare segment, revenue of $231.2 million was up 8% during the fourth quarter. Segment revenue was up nearly 9% for the full year to $936.3 million, led by growth at Chamberlain. Operating income excluding special items for this segment in the quarter was $37.9 million, representing an increase of 21.5% from the prior year.

This increase reflects operating leverage, particularly at Chamberlain. For the full year segment operating income grew 9.2% to $167.6 million. Now Chamberlain revenue grew almost 18% for the quarter and 20.5% for the full year.

In May, new student enrollment grew 13.4% and total students grew almost 19%. For July, new students declined by 1.7%, as we limited enrollments in our family nurse practitioner program. Total students grew nearly 16%. Looking to FY17, we expect high single to low double-digit growth in total enrollment and revenue at Chamberlain. We may experience some choppiness in new student enrollment growth as Chamberlain moderates family nurse practitioner enrollments to insure sufficient clinical experiences.

DeVry Medical International revenue grew almost 4% during the quarter and 2.5% for the full year. In May, new student enrollment decreased 13.3% and total students decreased 2.1%. For the full year, new student enrollment grew 1.2% and total students were up 1.3%, in line with our longer-term guidance of low to mid single-digit growth. We expect September 2016 enrollments to be down in the low single-digit range. We are managing on the cost side to deliver on our plan. And currently expect full-year revenue growth in the low single-digit range.

Carrington revenue declined 6.4% during the quarter and 3.8% for the full year. In the quarter, new students declined 39% as a result of one less start at the end of the fourth quarter. Total students declined by almost 14%. We are disappointed that we were not able to achieve enrollment growth or positive economics at the institution this year. And while we expect to rebound from this year's performance, we have reduced the outlook for growth in the near term and are focusing on cost management and reestablishing our leadership in the market. As a result we recorded a $48 million pretax intangible asset impairment charge at the institution in the fourth quarter.

Turning to the International and Professional Education segment revenue of $106.2 million increased 27.5% in the quarter. For the full year, segment revenue increased 15.5% to $299 million. The decline in the Brazilian real as compared to the US dollar reduced our reported revenues. Without this currency effect, revenue for our International and Professional Education segment would have grown 36% in the fourth quarter and 32.5% for the full year.

This segment's operating income excluding special items was $28.3 million during the quarter, increasing 50.7% from the prior year. For the full year, operating income excluding special items increased by 10.9% to $42.8 million. Without the impact of currency, segment operating income would have grown 62% in the quarter and 22% for the full year.

Our professional education revenue increased 1.6% during the quarter and 3.3% for the full year, driven by growth in Becker CPA and healthcare. Revenue at DeVry Brasil grew 43% in the quarter and 23% for the full year. These increases were driven by successful execution of the recent acquisitions of Damasio and Ibmec, as well as organic enrollment growth partially offset by the negative currency effect of the Brazilian real.

Within the Business and Technology Management segment revenue was down 23.4% to $135 million during the quarter, driven by continued enrollment declines in the May session at DeVry University. For the full year revenue declined 23% to $611 million. In July on a same-campus basis new student enrollments declined nearly 24% and total students declined 20%.

Now while we have not yet produced a broad-based stabilization in enrollments, we have made substantial progress in reducing our cost structure. In FY16 we closed or consolidated 21 DeVry University locations and reduced our total headcount by more than 750 positions, bringing the total reduction to more than 1,400 positions over the past two years. In FY16 we recovered 99% in expenses for every $1 of lost revenue for a total reduction in cost of $181 million. This compares to an 87% cost recovery rate in FY15 and a 50% recovery rate in FY14. So in other words, we are getting better at identifying where we can become more nimble and efficient without sacrificing student quality.

In order to increase our recovery rate, we pushed a greater cost reduction in the fourth quarter, including reducing our staff by an additional 350 colleagues, which will drive an annualized salary reduction of $32 million, closing the year, with a total footprint of 60 campuses under operation compared to a total of 81 at the end of FY15, and restructuring our organizational model, going from 32 market management teams at DeVry University to 9 at year-end, which will actually make us more efficient and responsive to our students.

The segment narrowed its operating loss in the quarter to $683,000 excluding special items. For the full year, operating income declined $1.9 million to $13.1 million excluding special items, while generating $45.5 million of EBITDA.

Now for the first quarter of FY17 we expect total DeVry Group revenues to increase about 1% to 2%. This increase will be a result of continued growth in the International and Professional Education and Medical and Healthcare segments, partially offset by declining revenue at DeVry University. First-quarter operating costs before special items are expected to increase less than a percent versus the prior year as a result of cost reductions at DeVry University, offset somewhat by growth investments at Chamberlain and the impact of recent acquisitions in Brazil and professional education. Now for the full year, revenue is expected to be flat compared to the prior year and earnings per share before special items to grow in the mid single digits as compared to the prior year. In FY17 we expect our effective income tax rate from operations will be about 23% before special items.

Now turning to our balance sheet and financial position, cash flow from operations for the year was $231 million. Our cash and cash equivalents were $308 million at June 30, down about 13% mainly due to a higher level of acquisition activity this past fiscal year. Our net accounts receivable balance was $162 million, up 17% from the prior year primarily due to the impact of extended payments from Theas. Our bad debt as a percentage of revenue is lower than most, and for the year, we brought it down further to 1.9% compared to 2.5% last year.

Capital spending for the full year was $69 million, a reduction of $19 million from the prior year. We're targeting to keep our capital spending for FY17 in the range of $80 million, driven primarily by Chamberlain expansion and investments at DeVry Medical International to enhance academic quality.

During the fiscal year we returned approximately $56 million to our owners through a combination of share repurchases and dividends. We repurchased 468,000 shares during the fourth quarter at an average purchase price of $17.62. This repurchase activity represents an approximate 17% increase sequentially.

Going forward, we are committed to driving further cost reduction across our organization and increasing capital generation at several of our institutions, including DeVry Brasil, Chamberlain and DeVry Medical International. With regard to capital allocation, our priorities include, first, maintaining academic quality by investing in our core operations and investing in new programs and campuses where there is the greatest demand. Second, increasing economic returns for our owners via dividends and share repurchases. And third, growing in our targeted verticals.

Now with regard to our acquisition of ACAMS, which we closed on July 1, we financed the purchase with $175 million in borrowings under our revolving credit facility and $157 million from domestic cash balances. Overall our capital generation remains stable. In FY16 we generated $287 million of EBITDA, representing a 15.6% margin before special charges. We also generated $162 million of free cash flow, resulting in a yield of 14%, on par with many companies in the S&P 500.

With that, let me turn the call back over to Lisa.

Thanks, Patrick.

In summary, in FY16 we made notable progress in diversifying our program offerings and reducing the volatility of our revenue sources, while improving operating efficiency and building on the quality, breadth and accessibility of programs we deliver to our students. Entering FY17 we are continuing to face some challenges, but we are operating with a strong sense of urgency and executing against our transformation plan. And I believe we are well positioned to increasingly benefit from the steps we are taking to expand our exposure across many of the most sought after and fastest growing professions worldwide.

Time is of the essence at DeVry University in terms of stabilizing the University and returning it to growth. This is a priority for our management team, and we hold ourselves accountable to delivering further progress as the year unfolds. We will also look to extend our expense discipline efforts across our entire organization, which has set the stage for considerable operating leverage as overall enrollments turn positive.

And finally, I would like to welcome Michael Malafronte of International Value Advisors to our Board. Michael was appointed as a member of our Compensation, Nominating and Governance and External Relations Committees in June. His expertise and insights are already proving to be invaluable as we chart our strategy and seek to improve our ability to deliver returns for our owners.

And with that, let me turn the call over to the operator for the Q&A session.

(Operator Instructions)

The first question is from Jeff Silber at BMO Capital.

Thank you so much. And Lisa, welcome to your first earnings call.

Thank you. Thank you very much.

I just was wondering, Pat, sorry to shift over to you so quickly. But you talked about the expectations from ACAMS, the current year about $40 million in revenue. On a standalone basis, is this a positive contributor to both EBITDA and EPS this year?

It will be a positive contributor to EBITDA. And consistent with our release when we announced the signing, we expect it to be slightly dilutive to breakeven to EPS in FY17.

Okay, great. And then again, just to help us out a little bit on the modeling side. You gave a little bit of color on some of the Medical segments, what your expectations are rolling up into your total guidance. Can we get similar color for both the BTM segments and the International Professional Education? Thanks.

Sure. So with respect to BTM, Lisa and I and the DeVry University team are very committed to maintaining positive segment economics at DeVry University. So we would expect, again, margins probably in the very low single digits in FY17 as we continue to affirm our commitment and turn around DeVry University and return to enrollment growth. And then with respect to both Medical and Healthcare as well as Professional and International, would expect to see some operating leverage improvement and some slight margin improvement in both of those segments year over year.

Okay, great. I'll jump back into the queue. Thanks so much.

The next question is from Peter Appert at Piper Jaffrey.

Thanks. Lisa, I'm wondering if you have any additional details you can share in terms of the discussions with the FTC and how you're thinking about timing of possible settlement?

Sure. Hi, Peter. As I had mentioned in our conversations as we came and met with people in New York, we look at this as something that we are driving a great sense of urgency to. We have had some very constructive conversations with both Ed and the FTC. While I can't give you exact timing, obviously you all will be among the first to know. I would say that we have made significant progress since I've been here in the last end of FY16 and the last two months of FY17. And we, as I mentioned with the speed of resolution being a real top priority for us, we are working towards resolution. I don't have the answer of exact timing, but I can tell you that this is something that we expect to have news on within FY17 definitely.

Okay, (multiple speakers). On DVU, I guess two questions. One is, I heard everything you've said, obviously, on the changes you're making in terms of programmatic offerings, et cetera, but it's hard to see evidence of progress, I guess, from a revenue or enrollment perspective at this point. So maybe anything you can call out in terms of what gives you confidence that you can get back to stable or positive enrollment? So that's question one. And part two, then, is you've been very successful in managing the costs and holding the positive unit economics. I'm just wondering how much left there is to do, right? You've already -- seems like you would have taken a lot of the fat out of the operation, and now is there danger you might be going too far from a cost perspective?

Absolutely. I'll take the first one. There is -- first of all, as we think about enrollments, and we were expecting enrollment decline as we refocus our programs. But I understand the broader question there. There's two things, really, that I believe are different and have changed as we look at how we're looking at DVU now from a strategy perspective. One is the ability to innovate and sort of giving the team the ability to look at different -- not only different programs but also a bit of stopping some of the things that we were doing before in order to focus on those things that are making a lot of sense. And frankly, where we are seeing a lot of progress from the enrollment perspective, so fiber security, medical coding and billing would be one of those -- or two of those. And we see a large proportion of our new students coming from those specific programs, and some of that online which, as you know, give us a lot of efficiencies, greater efficiencies. So that's a little bit of what we're seeing in enrollments.

But I think the other one is kind of a bias to action to actually get things done in a way that we are able to drive some effectiveness. So this gets into the second part of your question, which is actually there are things left there to do from a cost perspective that really are making us more academically and student-focused. And we've been very clear that the students come first. And the changes we're making benefit the students, because ultimately that's what's going to benefit our owners. Obviously, it's a cycle back to enrollment. So we have to be measured in innovation and the actions that we take. But in the past I believe we've been caught a little bit in some analysis paralysis. So that's what gives us the confidence as we are finding things that work. Frankly, some of the things that we've tried have not worked and some have worked very well. And it's being able to give the team the ability to push with a greater sense of urgency on those things that have worked. Do you want to talk, Patrick, a little bit about the actual cost piece and what's left?

Sure. So from a cost piece, Peter, we continue to evaluate our real estate footprint. We've closed 20 locations, basically over the past fiscal year. We started, I believe, the year with 80. We've ended the year with 60. We'll continue to look to do some additional in-market consolidation, still serve the market but from fewer locations, as well as we see some opportunities to continue to rationalize the footprint. And then we've had an increased focus on our cost reductions at the home office, which we'll start to see as we move into FY17, given at the home office we provide a number of shared services. And as we've become more efficient and reduced our footprint there, that will ultimately benefit each of our segments, but DeVry University in particular with a lower cost to serve.

I think the one thing I would add there is around the marketing and advertising piece. We continue to look at the marketing mix and our efficiency there. And there's no doubt that we need to reduce our marketing cost as it relates to percentage of revenue and our marketing spend. And the team is doing a really good job of advising perspective students, and really matching up students who inquire with programs and the programmatic focus to the marketing, which is not a new story. We've been telling this story, but it's gaining traction. So our conversion rate is actually up year over year. And for me that means we're doing a better job of targeting the perspective students who have the interest already and we can drive those marketing efficiencies, not just in the mix to digital media but also with the actual focus around programs. So I would say that's one place where we really do have some room to right-size the costs and to address the economics.

Great, thanks. That's very helpful, Lisa. Just one last thing. On Chamberlain, in terms of the weaker starts you saw in the July period you called out, obviously, the family nurse practitioner program. Is that all of it? Was there any other areas that were softer? And then how big could the NPH program be, do you think?

I'll start with the enrollment. Also to note, there are no on-site enrollments in July, it's online only. So that also had a part in the decline there in addition to FNP. And for the family nurse practitioner, we have capped that enrollment because, as with all of these programs, we're talking about what happens at the other end. And we had some shortage in the clinical piece and we did not want to continue to enroll students. So in other words, it was a planned decline there because we didn't want to continue to enroll those students until we had the solutions on the back end to make sure that they all had a positive clinical experience and could use that degree. So we have two solutions that have been put in place. It's early stages, but we're seeing really good positive results to that. So we feel very comfortable that we'll be able to move back into the FNP numbers. And I'm sorry, I forgot the second part of the question.

Just how big do you think the NPH program could potentially be?

Oh, God.

It's a very attractive market in terms of the need for that professional, Peter. In terms of the impact for FY17, it will be pretty small given that we're rolling this out really either in January and then progressively larger intakes in the March and May session. So don't expect it to be a significant contributor to revenue in FY17. But as we move into FY18, we're pretty excited about the prospects.

Great, thank you.

The next question is from Sara Gubins, Bank of America Merrill Lynch.

Hi, good afternoon. On Medical, I know that there are a host of issues, competition. There's been some discussion about the new MCAT exam potentially having a negative impact. You mentioned you're looking at marketing. Is pricing an issue also? Is that something that may need to change?

What I would say is, we really view it not as a pricing issue but as an operational efficiency and effectiveness issue. And Sara, the way I would answer that is that we really weren't structured the right way within DMI specifically as we look to student enrollment and student inquiries and student enrollment. So while I do think the MCAT change likely had an effect, it really is around competition and thinking about who our real competitors are and how we drive our value proposition, which is slightly different but very powerful for both of those institutions. So my short answer is, no on the pricing. But I think that the good news -- the good news on what we see as the challenge and the enrollment challenges, I get it. I map it right back to operational execution. And I feel like we've got our finger on what we need to do there.

Okay. And then Lisa, as you've reviewed the portfolio of institutions, is the portfolio generally what you want to have? Would you consider more dramatic changes, particularly of course around DeVry University? And do you think the portfolio will look different over the next couple of years?

Yes. So the short answer is yes, I think the portfolio will look different. We have not made the decision of how that portfolio will change. But what we have done is thought through, and I don't think it will come as any surprise, that our diversification strategy is to really reduce our title for exposure. But we think about that from an enterprise strategy portfolio perspective in two ways. One is within those institutions. So to take DeVry University, as your example, the payer mix and really understanding what corporations need from a workforce skills gap perspective. So that we in fact are changing out our payers to corporations, who then will have that graduate employment piece for us. And as you know, persistence, completions, graduate placement, those are the things that make for success for us. So that's one way we think about Title IV exposure, obviously within the portfolio and our institutions within the portfolio.

And then the second is, do we have institutions or companies, I say companies because I think of Becker and ACAMS at that point, that takeaway because they are growing at a clip and they're diversified completely outside of Title IV. And then it begs the question, are there Title IV entities within the organization that we would divest? That is certainly something that we are looking at, but those decisions have not been made. And I think it would not be prudent for our Board or our management to not think about that from a portfolio perspective constantly or continuously. Did that answer your question?

Yes, it did thank you. Thank you. Could you talk about expectations for revenue per student in undergraduate next year in DeVry University?

Sure, Sara. So for the fourth quarter, undergraduate revenue per student at DVU was down 1.7%. Looking forward to next year, probably down in a similar range between the 1% to 2%, driven in part by as we continue the scholarships to both improve our start rate as well as address affordability and improve student retention, and then partially offset by some nice increases that we're seeing in average course load.

Great. And then two other quick questions. What kind of share repurchase is Incorporated into your EPS forecast?

Currently, it's at our current run rate where we purchase fixed dollar amount of shares per day. So if you look back at FY16 we repurchased $32 million. We were currently again -- I was continuously evaluating our capital allocation and looking for opportunities to perhaps change that. But at least what was assumed in the guidance would be at a current rate of repurchase.

Okay, great. And then just last, why would the first-quarter revenue growth be positive but full year flat? I'm wondering what's happening for the rest of the year that changes that trajectory?

Sure. Very good question. There's a little bit of seasonality. And some of it, it really comes down to our perspectives on the foreign exchange rate with the US dollar to the real, and will it continue to stay at the relatively strong rate that it is or would it possibly weaken or soften a bit as the year moves on, depending on what ultimately the Fed does with US interest rates as well as, obviously the Brazilian economy and their geopolitical situation.

Thanks very much.

The next question is from Trace Urdan at Credit Suisse.

Thanks. For starters I just want to ask some clarification questions around the Chamberlain program. So the family nurse practitioner weakness in the quarter, is that an online program?

Yes.

Okay. So that contributed to the weakness. What about BSN? Are we seeing that train starting to slow down a little bit?

No, and Trace, there were no BSN starts in July.

Okay.

We have start periods September, January, and May.

Okay, great. That helps quite a bit. And then, I guess, sticking with Healthcare, I wanted to ask about Carrington. Can you comment on whether or not Carrington is operating in positive EBITDA territory right now? And if you would expect it to be there for 2017?

Carrington right now is operating at a breakeven perspective. And we have implemented a number of cost reduction activities in the fourth quarter that position to return Carrington to operating income growth. That will occur as the year progresses as we continue to really focus on cost management and stabilizing enrollments.

Okay. And then sticking with that, Pat, can you quantify the amount of cuts that you guys made in the fourth quarter specifically? And whether you're expecting to make additional cuts that you haven't already made at this point during the course of the year?

At Carrington?

Sure.

No, not just for Carrington. I'm talking about system-wide now.

System-wide. The way we look at it we're committed to keeping DeVry University positive economics. So we have put a cost reduction program in place and effectuated the significant majority of that in the fourth quarter to position us to keep DeVry University breakeven. And then for Carrington similarly, the cost reductions we've put in place to position it to keep it for breakeven for the full year. So we would expect to achieve at least $100 million of cost reduction, with a stress on, at least, in those institutions as we move through it into next year.

And the only thing I would add there on Carrington, I guess both of those questions is, we did have a recent leadership change at Carrington, I think similar to my answer with DVU. This is really a marketing and operational efficiency issue here, which for me is good news because those are things that within our control. And in contrast, I think, to some of the DMI challenges there, it's more the bottom of the funnel. So Carrington has experienced pretty good inquiries but less conversion. And we see that as directly related to the operational effectiveness of the team and the organization. So in fact the cost reduction that had to do with really just taking out some inefficiencies and some layers across how we interact with potential students, and in fact students, and get them where they need to be and with the right academic quality and mix has actually improved with some of those reductions. Because I know part of the question is, well, what does that do in terms of your students and your focus on academic quality? And my answer to that is, it actually makes it better.

Okay, thank you for all that. I also was asking because I know, Lisa, when you came in one of the pitches was that you were going to take a hard look at the cost structure of the organization apart from DeVry and Carrington and look at what might be done elsewhere, including in corporate. So I'm trying to kind of get -- to tease that out. Have you made any of those cuts? Are you contemplating any of those cuts? And how much is implied in the guidance, away from DeVry and Carrington?

Got it. So I will answer and then let Patrick fill in with some actual numbers. But the answer is yes and yes. We look at this, again, as from a portfolio perspective. And my thought on this, particularly after digging in, is that, not unlike many in the sector as we went through a period of real growth, particularly in DVU, and we all know when that was a few years ago, there were a lot of costs that became embedded, shared, allocated -- you name the word that you'd like to use -- across the organization that we now need to address in functional areas, not just within the P&Ls. And I do credit the P&L greatly for being able to reduce costs and the cost recovery that DVU, 99% cost recovery as their revenues have declined is commendable, in my opinion. But it is not the only way that we need to look at cost and efficiency across the organization. I've made that clear. The team has responded to that. And we're doing exactly what I said we were going to do. (Inaudible) number.

Maybe add to that, Trace. Significant majority of our home office costs are allocated out directly to our institutions and operating segments, given the services that we provide are essential to run the institution. That we've centralized a significant amount of the back-office functions. We've put plans in place and have acted on those late in the fourth quarter to reduce our home office expense base by at least 10%.

Okay. Thank you. And then last question. I know I'm asking a bunch of little ones here. But with respect to Brazil, I think I heard you say that on a currency neutral organic basis, you had, I think you've described it as, good growth. I'm wondering if you can -- if we can get a little closer to what that means? Basically what was the impact of Imbec in the results?

Sure. So for the fourth quarter, if you just look at it on a constant currency basis, Brazil revenue grew nearly 57%. About 13 percentage points of that was organic. And then the balance, 44%, was driven by the acquisitions of Ibmec and Damasio, given that we had acquired Damasio in February 2012 last year. And then in the full year, DeVry Brasil on a constant currency basis grew almost 51% in a similar split between the organic and acquisitions.

Okay, great. And then last one, I really promise. Lisa, before when you guys were kind of doing your big tour after the management change, you suggested that the goal of a resolution to the regulatory situation was what, I think was described as a global settlement, meaning that you wanted to kind of put it all to bed at once. And I'm wondering if that's still the goal, if you still feel like that's a realistic goal?

Well, I would start by saying that it's definitely the goal. Unfortunately, it's not unlike the operational effectiveness piece. It's not in our control. But what I would say is that it is something that we're doing in parallel all at once, and in a way that when we get to resolution, we -- the goal is to be able to have a financial impact that doesn't have overhang of, what if something -- there's always something could happen, right? But for Ed and for FTC, what if some other impact happens? We believe that we can get there with both of those matters, whether they are tied up in one package or not remains to be seen because we don't control that. But we're sort of attacking both at one time, understanding that one is good but it doesn't really move the needle all the way because there's still uncertainty out there. So that has not changed.

Okay, thank you.

Yes.

Our next question is from Jeff Meuler at Baird.

Actually a follow-up on Trace's. The 13% organic constant currency growth in Brazil, roughly what's the split between revenue per student and enrollment? And then is your expense base inflation in local currency terms in Brazil roughly high single digits like the more general inflation rate?

So I'll answer the second question with a yes. And then the first question, the split about -- well, you could back into it, given that we've broken out our enrollment from our third quarter release back in May on how much is organic enrollment growth versus through acquisitions. And then with the split between the constant currency in terms of revenue, you can see that RPS is probably pretty close to flat, given a lot of the pricing pressures and being much more competitive in the market. And that's what we'd anticipate on a go-forward basis, at least in the near term.

Okay. And then can you remind us the Chamberlain total enrollment, roughly what's the mix between campus-based and online?

Sure. From a revenue perspective, campus-based is 45% and post-licensure, or online, is 55%. And that's held pretty constant over the past two years. While we've gotten obviously very nice robust BSN growth, we've certainly seen very nice post-licensure growth in our master's programs.

Okay. And then just finally from me. Roughly how much of the $80 million in 2017 CapEx is targeted at Chamberlain? And what's the return on invested capital that you target for the Chamberlain campuses? Thank you.

Great. So in terms of CapEx, about overall two-thirds of our CapEx, of that $80 million, is going to be targeted within International Professional as well as Medical and Healthcare. At this point in time we don't break it out at an institutional level. But to give you the overall feel, continuing really to invest where we see the most growth opportunities, and much more at a maintenance level for DVU and the home office. In terms of -- we're opening three campuses -- aren't under construction. So it is a significant consumer of capital. Chamberlain, as you can see by their overall margins, our Healthcare margin is -- here is how I think about it. For the full year I believe it was almost 18%. And Chamberlain contributes a little bit higher than that average of the corporate. So they are returning more than their return on our overall weighted average cost of capital.

Okay. Thank you.

This concludes the question-and-answer session. I'd like to turn the conference back to Joan Walter for closing remarks.

Thanks, Amy. We would like to thank everyone for your questions today, and remind you our next results call is scheduled for November 1 when we announce our FY17 first-quarter earnings results. Thank you for your continued support of DeVry Education Group.

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