DeVry Management Discusses Q4 2012 Results - Earnings Call Transcript

DeVry (DV)

Q4 2012 Earnings Call

August 09, 2012 4:30 pm ET


Joan Bates

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

Patrick J. Unzicker - Chief Accounting Officer and Vice President of Finance

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


Sara Gubins - BofA Merrill Lynch, Research Division

James Samford - Citigroup Inc, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Jeffrey M. Silber - BMO Capital Markets U.S.

Paul Ginocchio - Deutsche Bank AG, Research Division

Kevin C. Doherty - Banc of America Securities LLC, Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division

Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

Keith Paxton - Morgan Stanley, Research Division

Suzanne E. Stein - Morgan Stanley, Research Division

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

Peter Wahlstrom - Morningstar Inc., Research Division

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

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



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 DeVry Earnings Conference Call. My name is Charis, and I will be your coordinator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I would now like to hand the call over to your host for today, Joan Bates, Senior Director of Investor and Media Relations. Please proceed.

Joan Bates

Thank you, Charis. With me today from DeVry management are Daniel Hamburger, President and Chief Executive Officer; Tim Wiggins, our Chief Financial Officer; and Pat Unzicker, our Vice President of Finance. I'll now paraphrase our Safe Harbor language. This call will contain forward-looking statements. Actual results could differ materially from those expressed or implied. We undertake no obligation to publicly update or revise any such forward-looking statements. Please consult our most recent 10-K and 10-Q filings for a more complete description of factors that could affect our financial results.

On today's call, we'll highlight certain non-GAAP financial measures. Further information about these measures, including reconciliation to U.S. GAAP can be found in our earnings release, which is available as an exhibit to Form 8-K, dated August 9, 2012.

Telephone and webcast replays of today's call are available until August 29. To access the replays, please refer to today's release for information.

So before Daniel gets his overview, I'd like to quickly walk you through the changes we've made to our enrollment reporting and the new schedule of announcements.

In recent months, we've spoken with many of the analysts and shareholders that follow DeVry, and one of the biggest pieces of feedback we've heard was that people wanted better alignment of enrollment reporting with the quarterly financial results. So as you saw in today's release, in addition to new and total student enrollment, we're now reporting student enrollment for each of the 6 sessions at DeVry University and Chamberlain. We'll be reporting enrollment at the end of each quarter for Carrington versus the 4-month period.

Also in today's release, we've included the new schedule for each reporting period, starting with the fiscal first quarter when we'll report September enrollment results. Since there are 6 sessions, you'll see that we'll report 2 sessions in 2 of the quarters and 1 session in the other 2 quarters. We've also included historical enrollment figures dating back to fiscal year 2009 so that you can familiarize yourself with the format and adjust your models appropriately. We believe this new enrollment reporting structure provides greater alignment with our quarterly financial results and more information that we hope you'll find beneficial in your ongoing coverage of DeVry.

So with that, I'll turn the call over to Dan.

Daniel M. Hamburger

Well, thanks, Joan. Thank you, all, very much for joining us today. I'll begin with an overview of the quarter, followed by Tim and Pat, who will walk through the financial results before I wrap it up.

Now consistent with our announcement a couple of weeks ago, results for both the quarter and the year fell short of our expectations. So on this call, we want to answer all your questions. And especially these three: What happened in the fourth quarter? What does it mean in terms of our plan to improve DeVry's performance? And what's the long-term outlook for private sector colleges and universities or PSCUs? And what's the long-term outlook for DeVry specifically?

So let me breakdown what happened at the high-level, and then Tim will provide some more detail. Well, revenues for the quarter fell short of our expectations. This wasn't due to an enrollment shortfall. Actually our enrollment totals in the credit hours at DeVry University for the period were in line with our expectations. The main impact on revenue for the quarter was our decision to invest more heavily in scholarships and grants to help our students achieve their academic goals. This decision was made in order to assist our students in difficult economic times and in reaction to recent changes to the Pell Grant program that now provides students with funds for 2 semesters per year rather than 3. And since students weren't going to be receiving the funds they previously had in the spring semester, we made the decision to utilize our financial flexibility, to offer scholarships to support those students. We granted about $5 million in additional scholarships this quarter, of which $2.4 million went to our students to supplement that loss at Pell.

And just to give you a sense of the scholarship trend. In fiscal year 2011, scholarships totaled $29 million; in 2012, that number increased to $42.5 million. But while we saw an increase of $13 million in 2012, we don't expect that in 2013. We anticipate scholarships this year being in the mid-$40 million range.

Now the second factor that negatively impacted our results was cost increases. I'm going to ask to Tim to get into much more detail, but 3 categories impacting this -- our cost during this quarter were additions to our cost structure from acquisitions in new campuses, higher-than-expected employee-related costs and then onetime items, such as the now-resolved issue with Perkins loan administration and higher cost in Advanced Academics.

So the results for the quarter and the year are clearly unacceptable. And while we've made significant progress in identifying and implementing cost savings, the fourth quarter didn't reflect that, partly due to some of these onetime factors. We do expect to make substantial progress in the quarters to come, as we work our performance improvement plan. It's a 5-point plan but I want to focus on the top 3, which in order of priority, are: one, aligning our cost structure to our enrollment levels; two, regaining enrollment growth momentum; and three, making targeted investments to drive growth.

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