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Edited Transcript of ATGE earnings conference call or presentation 6-Feb-18 10:00pm GMT

Q2 2018 Adtalem Global Education Inc Earnings Call

OAKBROOK TERRACE Feb 9, 2018 (Thomson StreetEvents) -- Edited Transcript of Adtalem Global Education Inc earnings conference call or presentation Tuesday, February 6, 2018 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Beth Coronelli

Adtalem Global Education Inc. - VP of IR and Finance Operations

* Lisa W. Wardell

Adtalem Global Education Inc. - President, CEO & Director

* Patrick J. Unzicker

Adtalem Global Education Inc. - Senior VP, CFO & Treasurer

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Conference Call Participants

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* Christopher Huang Howe

Barrington Research Associates, Inc., Research Division - Research Analyst

* Corey Adam Greendale

First Analysis Securities Corporation, Research Division - MD

* Jeffrey Marc Silber

BMO Capital Markets Equity Research - MD & Senior Equity Analyst

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Peter Perry Appert

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Adtalem Global Education Fiscal 2018 Second Quarter Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Beth Coronelli. Thank you. You may begin.

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Beth Coronelli, Adtalem Global Education Inc. - VP of IR and Finance Operations [2]

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Thank you, and good afternoon. With me today from Adtalem's leadership team are Lisa Wardell, President and Chief Executive Officer; and Patrick Unzicker, the Chief Financial Officer and Treasurer.

I'd like to remind you that this call contains forward-looking statements with respect to the future performance and financial condition of Adtalem Global Education 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 10-K for fiscal 2017 filed with the SEC and available on our website at www.adtalem.com. Adtalem disclaims any obligation to update forward-looking statements made on this 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 the reconciliation of non-GAAP to GAAP measures, is also available on our website. A replay of today's call will be available on the website.

And with that, I'll now turn the call over to Lisa. Thank you.

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [3]

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Thank you, Beth. Good afternoon, everyone, and thank you for joining us on today's call. Before I begin, I want to say a special and heartfelt thank you to Joan Walter as she leaves Adtalem for her dedication to our mission and her many years of service, leading our Investor Relations efforts. Beth Coronelli recently joined in the new role as Vice President of Investor Relations and Finance Operations. Welcome back.

I took on the CEO role 18 months ago. During that time, our focus has been to transform Adtalem, taking steps to stabilize and grow, streamline the organization, diversify our revenue sources and expand our presence within our core vertical: Medical and Healthcare, Professional Education and Technology and Business. With the top priority being to create a culture focused on our students, superior outcomes and academic excellence at all of our institutions. During the last 1.5 year, across our portfolio of institutions and companies, we have launched student commitments, including the 85/15 federal funding limit, introduced new program aligned to the needs of employers, rebranded and elevated how we differentiate our programs, ensured we have the right leadership team in place, diligently manage our costs, realign organization to build a differentiated portfolio of quality institutions and companies in growth-oriented sectors that increase our long-term revenue potential and signed an agreement to transfer ownership of DeVry University.

We have accomplished these priorities while demonstrating the resiliency of our team and their complete dedication to serving our students in tough circumstances. As we saw this past fall, in response to the hurricanes which hit our Caribbean medical school.

At Adtalem, we transition to a portfolio management approach in which we align strategic and investment objectives, establish targets, focus on improving return on invested capital and balance risk against performance. We've elevated our culture into one that's driven by transparency, accountability and performing to meet our financial and operating goals while never losing sight of serving our students and demanding excellent academic quality.

For me, financial performance and academic excellence are completely aligned. If we put students success first, superior financial performance will follow. Our agreement to transfer ownership of DeVry University and Keller Graduate School of Management announced in December, represents another major step in our transformation. We're pleased to partner with Cogswell Education, which brings significant experience in higher education and a very strong commitment to DeVry students and mission to deliver high-quality programs.

We'll continue to actively manage our portfolio and seek avenues to expand within our core vertical, with an emphasis on diversifying, growing strategically and further enhancing our margins of return.

Before I turn the call over to Pat, I will provide an update on our portfolio. We have good news to share this quarter. And in areas where there are challenges, we continue to position the organization for a return to organic growth and improved operating results.

We now derive 60% of our revenue from our Medical and Healthcare segment while 21% is generated from Technology and Business and 11% comes from Professional Education. In our Medical and Healthcare segment, the performance of our medical schools in the Caribbean has been solid, given the adversity faced as a result of the hurricanes last fall. The American University of the Caribbean School of Medicine and Ross University School of Medicine communities represent a determined, talented and hard-working group of students, faculty and colleagues. By early January, both universities were able to complete the September semesters, serving students in alternative locations. In January, we resumed teaching first, second and third semester students at AUC back in St. Maarten. Fourth and fifth semester AUC students remain in the U.K., on the campus of University of Central Lancashire.

As Ross continues to rebuild from the damage caused by Hurricane Maria, our students now have been temporarily relocated to Knoxville, Tennessee at a campus owned by Lincoln Memorial University. Ross is using its own medical science curriculum and faculty while making use of dedicated classrooms, laboratories and faculty offices at LMU. We're continuing to work to assess the damage to our campus in Dominica and the facilities and services of the island, but it's going to take some time given the extent of the damage.

Ross University School of Veterinary Medicine continues to perform well with growth in total student enrollment year-over-year. The team is executing on its plan to differentiate the veterinary in both medical schools with the core goal of increasing international students.

Chamberlain University continues to perform well as it leverages its strong reputation, program offerings and network of alumni. Chamberlain has numerous partnerships to address the increasing demand for highly qualified health care professionals. The new campus in New Orleans is planned to open in May, pending regulatory approval and we will continue to explore opportunities to open campuses in other states with demonstrated demand.

From a program perspective, Chamberlain's family nurse practitioner track of the Master of Science in Nursing program continues to receive a high volume of inquiries along with strong ongoing retention from existing students. Other tracks within the Master of Science in Nursing program are also in demand and growing.

With regard to new programs, the University's Master of Public Health program was launched in July 2017, and has received approval to begin the programmatic accreditation process. Chamberlain's working to introduce additional degree and certificate programs to meet the growing need for health care professionals.

In Professional Education, the Association of Certified Anti-Money Laundering Specialists, ACAMS, is showing strong performance as we continue to make inroads into the large global market for accounting fraud prevention. We recently announced reaching the significant milestone of 60,000 members worldwide, up from 37,000 members when it became a part of Adtalem in July of 2016. ACAMS has experienced particularly strong growth in the Asia Pacific region as well as solid gains generated for expanding business-to-business partnerships in Europe. As we drive the top line to increase scale across our membership, certification and conference revenue stream and further localize our product offerings in key region, ACAMS is positioned for increased operating leverage and margin expansion, especially given its asset light model.

At Becker, we have a new president in place and are focused on leveraging the institution's strong brand, deep industry context and solid competitive position to develop new revenue streams and further strengthen our core products. Our team is putting particular emphasis on enhancing Becker's digital presence and corresponding learning tools.

In our Technology and Business segment. Adtalem Brazil is executing on its plan to strategically launch new program aimed at addressing supply and demand imbalances across the country. In the distance learning space, Adtalem Brazil began enrolling students in classes in February for an initial 12 bachelor and associate degree program, including business, paralegal services and accounting. These programs are being delivered to nearly 200 of Damásio's 220 learning centers, which have the infrastructure and staff required to support business learning degrees. Universidade is being used as the base of the distance learning program because of its recognition as the University Center in Brazil. This distinction provides the institution with the flexibility to launch nonrestricted undergraduate programs and expedite our rollout of programs to additional location.

During the quarter, our Brazil team also secured University Center approval at our Fanor and FBV institution. These designations will further strengthen our strategic position and ability to leverage our resources and brands. Overall, our outlook in Brazil is strengthening as we see positive indications in new student enrollment and profitability. We're also seeing signs of an improving macroeconomic environment.

In our U.S. Traditional Postsecondary segment, we saw a solid increase in inquiries at Carrington and new student enrollment was up over 7%. This highlight's progress in revising the institution's program offering and marketing effort. The team is also focused on streamlining administrative function, effectively managing the footprint and driving consistency in the curriculum. We've made meaningful strides in building a portfolio focusing growth sectors, pushing for further differentiation, organizing for operational efficiency to drive consistency, diversifying our payer base and transforming to a performance-oriented culture across our portfolio. Looking ahead, our opportunity for value creation comes from continuing to deliver in these areas with clear emphasis on academic excellence and successful student outcomes.

I'll now turn the call over to Patrick for the financial review.

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [4]

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Thank you, Lisa, and good afternoon, everyone. As we report our second quarter results, we continue to make solid progress in the execution of our strategic plan as we diversify our revenue profile within our core verticals and drive efficiencies to further improve our operating fundamentals across our operation.

First, a quick note on the DeVry University transaction. The results are now presented as discontinued operations. The historical reclassification of our results with this change was filed as an 8-K last week, and it's also reflected in my comments today. Our agreement with Cogswell Education is subject to certain terms and conditions to be met during the transition process, including regulatory and accreditor approval. The transaction is expected to close in early fiscal year 2019.

Revenue for the second quarter of $337 million was up 1% in the prior year. Growth at Chamberlain, Adtalem Brazil and our Professional Education segment was partially offset by declines in Carrington. Operating costs, excluding special items for the second quarter, were $279 million, down 0.4% compared to last year. The vast majority of hurricane expenses in the quarter were offset by received and committed insurance reimbursements.

Pretax special items in the second quarter were $2.6 million related to workforce reductions and real estate consolidation. Operating income from continuing operations, excluding special items for the second quarter increased 8% as compared to last year to $57.9 million.

Net income from continuing operations, excluding special items, was $47.3 million during the second quarter compared to $41.1 million in the prior year. With earnings per share from continuing operations excluding special items this quarter of $0.76. There was a onetime item in our tax expense for $101 million related to tax reform signed into law in December 2017, primarily related to taxes payable over 8 years on our undistributed foreign earnings.

Now to review our segment performance, starting with Medical and Healthcare. Revenue is up approximately 1% to $203.3 million. Segment operating income increased 5.6% over the prior year to $55 million. Chamberlain revenue was up 1.9% in the quarter. For the November session, new students increased 5.5% and total students increased 5.1%. In January, new student enrollment grew 6.9% and total students increased 5.2%.

New enrollment growth was driven by our postlicensure programs from continued market demand from our MSN Family Nurse Practitioner specialty track and our BSN prelicensure programs.

Revenue at our medical and veterinary schools was down slightly during the quarter. There was some hurricane-related impact on revenue in the quarter, which was offset by tuition price increases as well as enrollment growth at Ross University School of Veterinary Medicine. In our medical and veterinary schools, new student enrollment for the January 2018 semester was up 11.5% and total students increased 1.3%.

Turning to our Professional Education segment. Revenue increased approximately 11% to $30.4 million in the quarter with strong growth coming from ACAMS, which was up 62% and was partially offset by lower revenue at Becker, driven by a decrease in the number of CPA exam candidates compared to the prior year. The segment's operating income was $2.2 million for the quarter, up significantly from $134,000 in the prior year second quarter.

In our Technology and Business segment, revenue increased 2.4% to $75.1 million, primarily driven by growth in total student enrollments, improved student persistence and favorable foreign currency. The segment operating income was up 3.8% over the prior year to $14 million.

Finally, in U.S. Traditional Postsecondary, revenue of $29 million was down 10.5% in the quarter as a result of declining enrollments at Carrington. We saw improvement in new student enrollment in the quarter with an increase of 7.2% from the prior year. Total students in the quarter were 5,644, which is a year-over-year decrease of 4.5%. Segment operating loss, excluding special items, was $4.7 million in the quarter compared to a loss of $3.9 million in the prior year.

Turning to our outlook. For the third quarter of fiscal 2018, we expect revenue to be up 3% to 4% year-over-year. Revenue growth within Medical and Healthcare, Professional Education and our Technology and Business segments is expected to be partially offset by revenue declines at Carrington.

Third quarter fiscal 2018 operating costs before special items are expected to increase 1% to 2% to support our continued investment in the portfolio. We continue to focus on identifying efficiencies and realigning our cost structure. Third quarter expenses may be impacted by the timing of receipt of insurance proceeds for the reimbursement of hurricane-related expenses.

For the full 2018 fiscal year, revenue is expected to increase 1% to 2% compared to the prior year and earnings growth from continuing operations before special items is expected to be in the 10% to 12% range. Our effective income tax rate from continuing operations, excluding special items, was 16.1% for the quarter, and we expect our full year tax rate to be in the 16% to 17% range.

With regards to the impact of tax reform on Adtalem, the changes will allow us to repatriate offshore cash at more favorable economics relative to the previous corporate tax rate, giving us increased flexibility in support of our capital allocation strategy.

Now turning to our balance sheet and financial position. Cash flow from operations for the second quarter was $50 million compared to $41 million in the prior year. Our cash and cash equivalents were $212 million at December 31, 2017, while outstanding bank borrowings were $165 million. This leads us with a very healthy balance sheet with continued opportunity to diversify our capital structure to drive growth and shareholder returns.

Our net accounts receivable was $149 million, an increase of 16% from the prior year, primarily related to Brazilian FIES long-term receivables, which are becoming current. We closed the quarter with bad debt as a percentage of revenue at 1.5% compared to 1.9% last year.

Capital expenditures in the first 6 months of 2018 were $33 million compared to $19 million in the prior year period. We're targeting capital spending for fiscal year 2018 to be in the $60 million to $65 million range, excluding hurricane spending, primarily driven by investments within our Medical and Healthcare and Technology and Business segments, including a Chamberlain campus opening as well as facility improvements to enhance academic quality.

During the quarter, we repurchased approximately 1.14 million shares. For the first half of the year, we repurchased 2.68 million shares, returning $93.2 million of capital to our owners.

Now I'll ask the operator to open the call for the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Corey Greendale with First Analysis.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [2]

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So -- First of all, I think, this is the first time we had a call since the DeVry University deal was announced. So congratulations on that. So a couple of questions. First of all, on Carrington, a nice improvement in the quarter. Can you give us some sense -- you gave a little bit of these on what drove that, but kind of how sustainable is that and what should we expect going forward?

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [3]

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Yes. I'm sorry I thought you were going to go with all 3. Yes, good questions at one time. So yes, Carrington as you see clearly on the new students, we're focused on the right track. It's exactly what we talked about, operationally before in terms of what are the programs that are in demand and making sure that we're looking at that on a campus-by-campus basis, because they do differ. What we have certainly taken a look at that. At the same time, we're aligning our structure there and while we've taken out some layers as it relates to management, it's actually from our perspective increased our student services and our ability to sort of be close to the students in terms of what they need, et cetera. The other thing that we've done is looked at some Non-Title IV program, the shorter certificate programs there. I know last time we mentioned phlebotomy, it was in the early stages on that call, and we're seeing traction with that and some of the other certificate programs that really upping new students as well as diversifying on the Title IV base. So it is nice progress. Certainly, a ways to go. As you know, the total student always trailed behind as we closed that gap, but the gap is closing. And I would just finally, just remind that Carrington is also part of our portfolio management approach, and we are holding them to performance with that at the median or above the median of their peers as we did with DeVry University and the team is energized to make that happen. So we're seeing that trend the right way as we go into the back half of the fiscal year.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [4]

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Great, sorry to be -- I'll ask a couple, and then I'll get back in queue. The other questions I had were on -- maybe you can just give us a sense at DVU, obviously, discontinued now. But can you translate the -- if you add the students, the undergrad and the (inaudible) graduates, how that's trending relative to your expectation of requirements and the merger agreement below which it can be broken. And then the other question was just, if you can update us on thoughts on kind the best school, which I know had some issues related to gainful employment, but given the approach with gainful employment, just how you're approaching that at this point?

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [5]

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Great, yes, let me take that in gainful, and then I'll hand it over to Patrick and give you some details there on the closing conditions, et cetera for DVU. So gainful employment, we are quite happy that, of course, that rule making has been reopened there. I'm sure that folks have seen that we have both filed an appeal in terms of our cohort default rates there have -- and how those are calculated as have many others as well as participated -- and are continuing to participate in the regulatory process there as the department looks at those rules, and from our perspective, very positive movement there. Those rules are anticipated to be completed by November calendar 2018. So those would go into effect July 2019. But our stance is really remain the same which is, we conceptually agree that we need to make sure that our students -- which is why we have our student commitments, that our students are getting transparent information. We have our "know before you go", et cetera information for our students there, and we're also working to make sure that on the back end, as we work with our corporate partners, Banfield, as an example, that we're getting our students the best possible incomes as they come out. But we feel very comfortable that Washington regulatory perspective ed recognizes that the graduate programs and the way that income works as it relates to vet schools. In fact, Secretary DeVos called out vet schools as one of those areas -- or veterinary medicine is one of those areas that needs to be looked at. So we feel that we're participating in the process in a really robust way, and we're feeling good about the prospects there.

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [6]

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And with respect to DeVry University enrollments, we are tracking where we need to be with respect to our internal forecast and how they align with the contractual commitments, the DVU transition. We were pleased to see a very nice narrowing of the gap with the DVU undergraduate enrollments being down, 3.5% and just getting very good traction with the changes that we made to the marketing model there as well as new program rollouts and continued success with DeVry works, and those will certainly DVU well for its new owner.

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Operator [7]

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Our next question comes from Peter Appert of Piper Jaffray.

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Peter Perry Appert, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [8]

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Lisa, just thinking with the DVU for a second. Can you speak specifically to your confidence, the ability to get the deal closed?

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [9]

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Yes. So we are highly confident. We are, obviously, right now in a mode of transition and making sure that we've got a robust stand-up university there. We are working really well with Cogswell Education as it relates to what they need, of course, we have lots of -- devil is in the details in terms of lack of contracts and shared services, and we had started really quite a bit above prior to this deal signing to really think about that and how would that look, just a matter of best practice across our portfolio. And so we're feeling very good on that side as it relates to IT, HR, all of those things that need to happen. And again, on the closing conditions and the closing terms, as you can imagine, we really stress tested those prior to the signing in December because we want this to be successful. It's the right thing for our overall strategic direction for Adtalem. And frankly, these are colleagues and faculty and students for that matter but that have been with us at DeVry University for a really long time, and the last thing we want to do is start this, and then have to come back with the change in plans. So we're feeling very confident. We see no -- we have seen no warning signs that we need to step back there. As everyone knows, and I will remind everyone, this requires regulatory and accreditor approval. But we are working closely with HLC and Department of Education and feel that we have the right resources there as it relates to making sure that we don't get tripped up with that process.

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Peter Perry Appert, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [10]

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Understood. And then on Chamberlain, the results have looked quite solid, both in terms of starts and total enrollments. Revenue number is a little softer, so I assume it's a mix issue. But maybe, Pat, you can just talk about the seeming disconnect between revenue growth and enrollment growth?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [11]

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Sure, there is a bit of a mix issue. We do see very nice solid enrollment growth in our postlicensure programs. So on a revenue per student, those are lower than the traditional BSN. So you'll be seeing some mix there. And then quite frankly, the RN to BSN marketplace is very competitive, and we've adjusted some of our pricing and our discounts to be competitive in the marketplace around scholarships and some of the large agreements that we have with large health care providers. So that's what you're seeing there. We were quite pleased, though, with both our postlicensure and prelicensure enrollments. And that, we did see prelicensure enrollments, our campuses, as expected, returned to very nice new student enrollment growth in the January semester, and we're quite pleased with how things are shaping up and aligning as we come into the May and take term for that program.

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Peter Perry Appert, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [12]

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Great. And then Pat, the new campus opening, does that have a meaningful impact on costs and just talk about the potential timing of other openings?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [13]

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Sure. So in terms of meaningful impact, there's about $2 million or so of underwriting this year for our start up in developing campuses. That was pretty much in line with where we were last year. So not, at least in this fiscal year, not a lot of pressure there. And then, we would like to open 3 to 4 campuses over the next couple of years, so we'd start to see some of those preopening costs as we move into FY '19 and, of course, '20.

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Peter Perry Appert, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [14]

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Okay. And then Pat, one more for you. The -- Just how do we think about the pace of buyback activity in the second half?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [15]

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Sure. So we were more aggressive in our buybacks in the first half of the year, given where the -- where we saw a gap in the market valuation, our intrinsic value. We did see a significant amount of that gap close by an uptick in our share price for a number of reasons, obviously, our performance and some other events. So we still -- we'll be continuing to be active in the market, but we certainly have closed that gap or at least narrowed the gap, but the gap still does exists.

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [16]

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Yes, the only thing I would add to that, Peter, is we announced the share buyback. I know that we had some several conversations with our fellow owners around, well -- of course, you get to announce them, what does that mean. Are we really wanted to make sure that as we looked at that $300 million number that we made meaningful, basically, over that time period, $100 million or so a kind of dent in that, otherwise, you start to fall out of the category of doing what you say you're going to do. And I believe our numbers kind of have us there. We'll continue to have activity. We want to be smart about it as we look at that average purchase price.

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Peter Perry Appert, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [17]

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Got it. Understood. And one last thing. Lisa, you gave some comments on Brazil. It sounded fairly encouraging in terms of the repositioning, the programmatic offerings, et cetera. Maybe can you talk for a second about your confidence on the potential for reacceleration in enrollment growth or start growth there rather in the second half?

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [18]

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Yes, sure. And just to sort of a recap in context from the last call. There really is some pricing pressure in -- particularly on the undergrad side but in Brazil, I think the team has done a fantastic job in taking a look at that and making sure that they are aligning as it relates to the institution of the market or both. We are quite confident and excited about the distance learning potential. This is a new -- not only new program for us, but new market, right, in terms of the change of regulations. So we really weren't sure up until the end of the last calendar year, and where we will going to fall out, and whether we are going to be able to capture a part of that. Certainly, from these results and also what we know is we're heading into the back half of the year, we are. So very encouraged by that. And also just looking across that portfolio of different institutions, we're feeling that we got that traction back. Of course in Brazil, I guess in everywhere, but in Brazil, the macro environment does, because of the way that, obviously, people are paying for education, the macro environment does have a bigger effect, but we're seeing strong signs in the macros and the Brazil, too, so pretty confident that the back half will be productive for us.

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Operator [19]

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Our next question comes from Alex Paris of Barrington Research.

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Christopher Huang Howe, Barrington Research Associates, Inc., Research Division - Research Analyst [20]

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This is Chris Howe sitting in for Alex Paris. I had a question for Pat in regards to the lower 2017 restated EPS versus the actual number. I guess, I was going under the assumption that DVU was run to breakeven, and I just wanted to gain some additional color on the $0.30 difference?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [21]

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Yes. So first, we reclassified DVU as a discontinued operation there. Obviously, that's a restatement of our numbers. DVU, in '17, they contribute more to overall Adtalem. Obviously, as a result of its declining top line and while we do recover expenses for it, so that you will see a bit of a lower amount of contribution this year relative to the prior year. And part of that is also influenced by the amount of corporate overhead it absorbs in the discontinued operations versus when it was part of the continuing operations.

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Christopher Huang Howe, Barrington Research Associates, Inc., Research Division - Research Analyst [22]

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That's helpful. And I guess, I just have one general question left, just in regard to once the deal was closed, does the company plan to update what was provided on the Investor Day as far as the long-term outlook, the strategic plan that was set forth to 2021?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [23]

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Yes, most certainly. We anticipate having another Investor Day in the late spring, similar to what we had last year, and then May time period and look forward to sharing those with you and, of course, we'll be profiling the organization. It will have a different look and feel to it with the portfolio of institutions going forward.

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Operator [24]

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Our next question comes from Jeff Meuler of Robert W. Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25]

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So a follow-up on the last line of questioning. The -- so is $2.49 is the baseline that you're expecting to grow, 10% to 12% off of, so basically 2018 adjusted EPS guidance of $2.74 to $2.79, is that correct?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [26]

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That's correct.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [27]

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And what were you saying about stranded costs or corporate overhead costs being reclassified as disco ops. I guess, are there still stranded costs that you can reduce over time that are part of continuing ops and to the extent to which they are, can you help size them up or are they all in the home office costs line? Or some of them in the U.S. traditional postsecondary line?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [28]

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You'll see those cost in the reclassified P&L that we shared in our 8-K last week as well as with these results sitting down in our segment reporting in the corporate overhead line, and we will see opportunity just as we have demonstrated our ability to continue to become more efficient and focused on those costs. And as we move forward in the second half of this year, we want to position the organization to minimize, to the extent we can, the loss of scale from DVU. So we've done that in the past, and we're on a good trajectory on where we want to be, as we move through this next 6 months into 2019.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [29]

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Okay. And on Chamberlain, the good new enrollment results, I guess, just any views on the sustainability of it. In the past, I know there were some clinical capacity constraints and then the prelicensure was declining for a period of time. I guess, is this a sustainable level of growth? And specific to prelicensure, is it more about anniversarying the changes in the enrollment requirements or what's driving the improvement there?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [30]

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Got it. So great question. Consistent with where we were in our longer-term outlook for Chamberlain at Investor Day, we see that mid-single-digit new student enrollment growth is very responsible and sustainable for this organization, obviously, driven by opportunities that we see they continue to serve market demand in both our pre and postlicensure programs. We had experienced some volatility in our new student enrollments around our prelicensure programs and, quite frankly, as we were very transparent, a lot of that was our own internal execution. So as we have worked through that and focused on ensuring, we've got the right marketing and admissions advising processes in place and the right people to lead that. We're starting to see what we would expect to be more predictable and sustainable results on the prelicensure side. And yes, we are overlapping a period where we are a bit challenge, and so we get a little bit benefit of that in full transparency. And then on our postlicensure, we still see very solid market demand for our MSN, FNP, clinical or FNP track. And so we feel that mid-single digit is -- over the long term is a very good target and attainable for us.

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [31]

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Yes, and also specific to FNP, we do feel that from a clinical perspective, you will recall, we were also quite transparent about that. We have solved that issue.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [32]

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Good to hear. And then on insurance recoveries, just if I look at Q2, is there a recovery portion from expenses recognized in Q1? And just if you can help us kind of what's the timing of recognizing insurance recoveries. And then, I guess, is the deductible fully paid at this point, and there's kind of a full offset going forward?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [33]

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Yes, great question. So we had met our deductible in the first quarter, and that was obviously, reflected in the year-over-year decline in earnings for the Medical and Healthcare segments. And we've broken out a table in our first quarter. So we're pretty explicit about what that was. In the second quarter, the incremental expenses that we incurred along with fixed asset write-offs, et cetera, were offset almost dollar per dollar on insurance recoveries, both in terms of cash received in the door and in terms of the receivable that we expect to or have collected on as we move into this third quarter. So there wasn't much of a benefit, if you will, in second quarter, it was almost dollar per dollar, with having the kind of the bad news behind that's sort of absorbed in the first quarter.

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Operator [34]

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Our next question comes from Jeff Silber, BMO Capital.

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Jeffrey Marc Silber, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [35]

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Wanted to focus on the Medical and Veterinary segment for a second. Forgive me if I'm lost here, but the new student numbers up 11.5%, pretty remarkable considering what happened to those schools. Is there any -- is there something going on there? I know it's a smaller intake period, but those numbers are pretty sizable.

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [36]

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Yes. So it is a smaller intake period, and we did get some benefit from those students who were going to or had enrolled, but didn't complete and took an academic leave of absence, so they were not counted as new students in the September semester session, but did rejoin us as new students in January. But we are very comfortable with the value prop, the underlying supply-demand imbalance and feel that we're well positioned to return to consistent new student enrollment growth in med, vet.

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Jeffrey Marc Silber, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [37]

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Got it. And -- I'm sorry...

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [38]

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Sorry, I was just going to say, so if you look at AUC and you look at now in January, they have 98% retention from that September class, same with Ross at 97%. So clearly that speaks to the faculty and team who made that happen. But fortunately or unfortunately, because these things happen, we don't have a clear semester, right, from -- back if you think a call or so ago when we said, hey, this is operational execution, we know what we need to do. We're going to do it. So we'll be seeing that for the back half of the calendar year.

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Jeffrey Marc Silber, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [39]

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Got it. And roughly how many students shifted from September into January?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [40]

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We’ll have to get back to you on that one.

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [41]

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Yes. We'll get back to you on that one.

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Jeffrey Marc Silber, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [42]

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Okay, no worries. I'll follow up offline. Okay, no worries. If we -- can I shift gears to Becker? I don't think you disclosed Becker revenues anymore and I'm just curious, I think the Becker revenues were down year-over-year. If we can get a little bit more color on that. Is that still kind of a lag impact of the change in the CPA exam last year? If you can just talk about what's going on in Becker and how we can get back on track.

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [43]

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Yes, sure. So a couple of things. As you all will recall, we brought in a new Group President of Professional Education, Mehul Patel, in the fall. He has since brought in a new leader, actually an internal hire, but a new leader for Becker. Because really, what we see there is while there is clearly some reduced demand as it relates to sitting for the CPA exams, some of that is brought on from, frankly, companies, firms hiring non-CPAs to do some of the work that prior to would have required somebody to sit for that exam. There clearly is also some competitive forces in the market that we need to be able to address a little better, particularly, and we've talked about this before with this group, particularly around pricing on that CPA review course. And so while we know we have the brand and really the gold standard brand there, we've got to be more aligned to the changing needs of the market and the student, unless they are willing to pay there. So we're really on top of that. And then at the same time, what Becker also needs to do and is doing is really looking at that CPE market and looking at the continuing education. Because the opportunity that we have for Becker is to go from sort of 50,001 and done customers, so that are new customers every year, albeit coming through B2B channel to a really a model of lifelong continuing learning for folks once they are within the CPA world. And we have a lot to look to in terms of making that happen, because that's exactly what ACAMS does as it relates to anti-money laundering, fraud, risk assessment, et cetera on the other side. So long way to say, yes, operationally, we got a new leader in there, and we're confident that we'll be turning that around on the top line.

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Jeffrey Marc Silber, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [44]

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Okay, great. And then finally, just going back to the potential sale -- the pending sale of DVU. Can you just remind us what the milestones are, what we should be looking for over the next 3 months?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [45]

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Sure. So milestones would be continuing to partner and in work with our accreditor, HLC, for an upcoming site visit. And then based on the results of that site visit, there will be a change in control meeting in June. And then after that, we would anticipate ed approval. And then all along the way, there a number of checkpoints of working with the various state and higher boards of education and in partnering very closely with Cogswell to do what we need to do there, so that's kind of an external or outward facing. And then internal, as Lisa said on a response earlier to a question, working very closely to stand up this institution and partnering with Cogswell to do that to put us in position for a close, anticipating sometime in early calendar or I'm sorry, early fiscal year 2019.

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Operator [46]

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Our next question is a follow-up from Corey Greendale of First Analysis.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [47]

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I'll ask 2 questions together this time. The first to Pat, I know that your tax rate is going to be highly dependent on mix. But is the 16% to 17% above or we should expect kind of about on a go-forward basis after the effects of tax reform?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [48]

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We're getting some -- a little bit of benefit this year as a result of tax reform. Going forward, in FY '19, we'd expect the tax rate to be in the 18% to 20% range. But as we move forward in our May call and August call, we can give you a little more updated guidance there, but from 18% to 20% is a good, our best reasonable number right now in the out years.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [49]

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I appreciate the forward look. And then the other quick question is the strong performance at ACAMS, I was just hoping you might give us a little bit, directionally, kind of a sense on what margin it's running at now and what target margin you can get to over time?

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Patrick J. Unzicker, Adtalem Global Education Inc. - Senior VP, CFO & Treasurer [50]

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Got it. So ACAMS grew about 62% in the quarter, and I think in the mid-60s on a full year-to-date basis. We'd expect that trajectory to continue to grow very, very nicely and it is tracking ahead of our deal valuation model. But in terms of margin and where we want it to be, we are tracking ahead of that as well, but also being very mindful if there's a lot of good additional growth opportunities and making some reinvestments there. So we said that longer term, margins of ACAMS could be higher than that of the professional segment or the then Becker segment, and we still see that as the case today.

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Operator [51]

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Ladies and gentlemen, we've reached the end of our question-and-answer session. I would like to turn the call back to Lisa Wardell for closing comments.

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Lisa W. Wardell, Adtalem Global Education Inc. - President, CEO & Director [52]

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Thank you, everyone, for joining our call. We look forward to continuing to share our progress in future quarters, and we appreciate your continued support of Adtalem Global Education.

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Operator [53]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.