DeVry (DV)

Q2 2012 Earnings Call

January 26, 2012 4:30 pm ET


Patrick J. Unzicker - Vice President and Controller

Richard M. Gunst - Former Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Daniel M. Hamburger - Chief Executive Officer, President and Director

Timothy J. Wiggins - Chief Financial Officer, Senior Vice President and Treasurer

Joan Bates -


Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

Paul Condra

Sara Gubins - BofA Merrill Lynch, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Trace A. Urdan - Wunderlich Securities Inc., Research Division

Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division

Suzanne E. Stein - Morgan Stanley, Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

James Samford - Citigroup Inc, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Peter Wahlstrom - Morningstar Inc., Research Division



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Good day, ladies and gentlemen, and welcome to the Second Quarter Fiscal 2012 DeVry Incorporated Earnings Results Call. My name is Melanie, and I'll be your coordinator for today. [Operator Instructions] As a reminder, today's call will be recorded. I would now like to turn the call over to Joan Bates, Senior Director of Investor and Media Relations. Ms. Bates, please proceed.

Joan Bates

Thank you, Melanie. With me today from DeVry management are Daniel Hamburger, President and Chief Executive Officer; Tim Wiggins, our new Chief Financial Officer and Treasurer; and retiring CFO, Rick Gunst; as well as Pat Unzicker, Vice President and Controller. I'll now review the Safe Harbor provisions of this results call.

This call may contain forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements reflect, among other things, management's current expectations, plans and strategies and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements. Please see our public filings with the Securities and Exchange Commission for more information about forward-looking statements and related risk factors.

Telephone and webcast replays of today's call are available until February 3, 2012. To access these replays, please refer to today's release for information.

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

Daniel M. Hamburger

Thank you, Joan. And thank you all very much for joining us today in our fiscal 2012 second quarter results call. I'll begin with an overview, followed by a brief introduction of our new CFO, Tim Wiggins. And then Rick and Pat will talk through the results before I wrap it up with a few operational highlights.

Let me start by saying there's no doubt we're unhappy, as we know you are as well, with the enrollment results we've reported in recent terms. If you look back on 2011, it was a year of challenges. Two of those challenges continue to negatively impact us, mainly the adjustments we've made in response to the recent regulatory changes, and the effects of the weak economy.

First, the regulatory environment. i think there's been some confusion about what impact the new regulations have had on DeVry. Let's take a moment to clarify that. Because there were 2 categories of regulation that came out last July, one in which DeVry needed to make changes and one in which we didn't. The first category was related to gainful employment, and this is where we haven't had to make programmatic changes. In fact, we have yet to find any of our programs that failed to meet the criteria of the new regulations. And so that was an area where we didn't have to make major business model changes.

The second category where we did need to make changes was our performance management system, which we changed to comply with the new rules for employees and student recruiting and financial aid. I think our comments about not changing our programs but yes, changing in the performance management area may have caused some confusion, so I hope this helps to clear it up.

But the greatest negative impact in our results continues to be from the uncertain economy. The prolonged nature of this downturn and, in particular, the continued high level of unemployment rate has had a negative impact on the psyche of prospective students that we talked to. And we aren't alone in experiencing declines.

Just last month, a report from the American Association of Community Colleges showed the first decline in nationwide community college enrollment since unemployment rose 3 years ago. Potential students continue to be risk averse and quite cautious when it comes to spending or making a commitment to attend college. But the countercyclical trend that saw enrollments climb across all educational institutions has clearly reversed itself. Many students are simply putting off going to college or going back to college. Now with that reversal, it could be that we'll see more of a pro-cyclical pickup as the economy improves.

We continue to experience these challenges mostly at DeVry University undergraduate in Carrington.

We clearly understand the challenges we're facing. But even though these are -- there are external challenges here, we believe we control our destiny. And so above all, I want to make it clear that we have a strong sense of urgency to improve these results, stabilize enrollments and ensure that our cost structure is in line with our enrollments.

To do this, we've put a performance improvement plan in place across the organization. The plan focuses on 5 key initiatives. First, closely controlling our costs. Along these lines, we've targeted $80 million in cost savings for fiscal 2012 versus our original plan. We've already realized about half this amount through the first 6 months of the year. And we have a team of internal and external resources in place to get dedicated to finding ways to further improve operational excellence and to optimize our cost structure.

We're deferring spending where appropriate, leaving noncritical positions unfilled. We're gaining efficiencies through IT investments such as our Project DELTA system. Now it's true that our expenses are up year-over-year so far, but that's largely driven by acquisitions, targeted growth investments, such as new campuses, and other spending decisions made last year. Rick will discuss this more in a few minutes. But I want to assure you that we're taking actions to reduce spending where appropriate and that we'll continue to match our costs to our enrollment levels.

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