Adtalem Global Education Inc (ATGE) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Adtalem Fourth Quarter and Year-End 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. Joan Walter. Thank you. You may go ahead.

Thank you, and good afternoon, everyone. With me today from Adtalem'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 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, in Form 10-K for fiscal 2016 filed with the SEC and available on our website at www.adtalem.com. Adtalem 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 17. To access the replays, 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. Our fourth quarter results capped off a successful year for our organization as we delivered tangible gains in the 4 priorities we laid out at the beginning of the fiscal year. I'm pleased with our team's ability to date in delivering on an ambitious agenda.

Our transformation is well underway, as reflected in our heightened focus on our student-centric culture, our new corporate name and our improving financial performance. We generated improved results for the year, including solid gains in earnings and return on invested capital. The operating leverage in our model has continued to improve and we remain solidly profitable, allowing us to strategically reinvest to drive organic growth. Our fiscal 2017 performance reflects our continued progress in diversifying our revenue profile to attractive in-demand programs globally, strengthening our program offerings and services to students and improving operating efficiencies.

We appreciate all of you who attended our Investor Day in May as well as those who were able to join via webcast. We've received positive and constructive feedback. Our leaders were able to convey the renewed energy and strong sense of accountability across our organization as well as the specific strategies we're pursuing to serve our students, democratize education and enhance our growth potential. We're bringing much-needed innovation to the education process, and we're taking the right steps to leverage our scale to strengthen our programs and drive synergies in program delivery, marketing and operating excellence.

Overall, we've entered fiscal year 2018 with notable momentum as we focus on achieving our primary goal, which is to empower our students and fill our society's workforce skills gap. In fact, our new corporate name, which literally means to empower In Latin, marks a new era for our organization. Adtalem is rapidly transitioning into a leaner, more focused enterprise.

We also continue to strategically manage our capital allocation with the objective of balancing our investment initiatives with our commitment to delivering direct returns to our shareholders. In the year ahead, we remain intent on returning our organization to enrollment growth and driving profitable returns by being laser-focused on our 4 core priorities.

First, and most important, we're continuing to foster a heightened culture of student-centric focus and academic excellence across each of our institutions. We measure success by student persistence, completion and placement. We firmly believe that superior student outcomes will drive long-term success.

Our investments are aimed at making our graduates stronger job candidates, more qualified residency candidates and expert professionals in their chosen field. A key part of this effort involves greater emphasis on partnering with corporations, hospitals, government agencies and professional organizations to design education programs aimed at teaching new skills to employees. These organizations understand the need to adapt to changes in technology, business processes and customer preferences. We're focused on helping them to do that, while creating employment opportunities for our students. As we deepen and expand these private pay relationships, we will have the flexibility to further reduce our exposure to Title IV funding.

In fiscal 2017, we achieved our goals of limiting the revenue that our institutions derive from federal funding to 85% or lower, a promise that only Adtalem has made.

Second, we're continuing to focus on returning to organic revenue growth, increasing operating income and EPS to unlock our value to our owners. Our transition to active portfolio management will continue in the year ahead as we focus on further elevating accountability across all operating units and improving our return on invested capital. We are setting clear financial performance criteria for each of our institutions and measuring performance against those goals.

Third, we're continuing to move forward in leveraging our organizational synergies and broadening efficiency initiatives across our enterprise. These initiatives are intended to be ongoing and are centered on driving best practices across our organization.

In fiscal 2017, we established a centralized innovation function aimed at driving product development across our schools and companies. Our team is working to develop tailored solutions that enable our institutions and companies to better serve the specific needs of their students.

And fourth, we remain committed to working directly with a range of stakeholders, including the administration and Congress, to implement regulatory initiatives to strengthen our industry. We believe Adtalem can serve as an authentic voice for our students in addressing the issues of access, affordability, quality and innovation.

Now let me review each of our segments beginning with medical and health care, which is our largest contributor to revenue and earnings. Chamberlain delivered solid financial and operating results during the fourth quarter and full year and remains our best-performing institution. Demand for Chamberlain's expanding program offerings remains strong, and the institution continues to benefit from a growing alumni base, which now exceeds 40,000 health care professionals, as well as a strong partnership network, which includes more than 1,500 clinical partners. Chamberlain remains well positioned to benefit from growing demand for nurses and the expanding roles they play in the health care industry.

The Bureau of Labor Statistics projects demand for 3.2 million nurses by 2024, a 16% increase from the 2014 census, as more than 1 million nurses reach retirement age in the next 10 to 15 years. The BLS continues to rank nursing as the second largest growth occupation through 2024, following the first ranked personal care aide. As we laid out during our Investor Day, we plan to fully pursue the supply/demand imbalance in nursing and the broader health care industry by investing in new programs in markets where we see the most demand.

Chamberlain currently operates 20 campuses in 14 states and plans to open a new campus in New Orleans in fiscal year 2019. Longer term, we are also exploring potential campus geographies that include the Northeastern U.S., an additional campus in Texas and a second location in California.

Chamberlain is also continuing to explore international expansion opportunities via a business-to-business model in partnership with leading health care institutions. The institution's strong reputation is attracting interest from quality global partners seeking to fund health care education in markets where there are substantial supply/demand imbalances. Chamberlain will be launching 2 post-licensure degree offerings in the country of Seychelles in fiscal 2018 via an agreement brokered by the World Health Organization. While this venture is small, it provides a cost-efficient way to expand Chamberlain's brand globally.

Following the establishment of Chamberlain University in May and the launch of our new College of Health Professions, Chamberlain has moved forwarded in admitting students to the Master of Public Health, or MPH, degree program. As a reminder, the launch of Chamberlain University marked the beginning of Chamberlain having 2 colleges, nursing and health professions, under 1 Chamberlain brand. This structure allows us to expand Chamberlain's academic offerings and to build on the success of our pre- and post-licensure nursing degree programs. The MPH program is just the beginning and it's a major step in broadening the institution's role in providing health and wellness education and improving health care policy.

Chamberlain continues to research and develop other program offerings under the College of Health Professions. Chamberlain serves a diverse student population and its pre-licensure BSN Program enrolls twice as many minority students as the average U.S. nursing school. Many of these students come from challenged socioeconomic backgrounds, so it's particularly gratifying to see so many graduates of Chamberlain working in health care and making a difference.

While our medical and veterinary schools posted new student enrollment declines for the May semester, new student inquiries for September are increasing as a result of our refocused marketing and enrollment efforts. We anticipate that new and total enrollments in the September semester will return to growth in the high single-digit range.

Ross Med, Ross Vet and AUC consistently graduate talented physicians and veterinarians. These institutions are well positioned to take advantage of the significant supply/demand imbalance across the industry as demand for U.S. medical schools continues to far outstrip supply. Over the past decade, U.S. seats have grown just over 18% while applicants for those seats have risen approximately 26%.

As a result, during our Investor Day, our medical schools are directly addressing the supply/demand imbalance, and they are achieving test pass rates and residency and payments that are largely in line with their U.S.-based counterparts. Moreover, many of our graduates go on to practice primary care and serve in low-income areas. And Ross Med, as an example, serves a significantly higher percentage of underrepresented students than its U.S.-based counterpart.

In our Professional Education segment, we recently announced a new Group President, Mehul Patel, who brings a wealth of operational and M&A experience in the global professional education market. Mehul was formerly the President of Apollo Global, the international education conglomerate within Apollo Education Group, where he oversaw a network of businesses across 6 continents. He will report directly to me and will be responsible for the growth and strategy of Becker and ACAMS globally.

Becker remains an attractive business with an established brand serving high-demand professions spanning the accounting, medical and financial services fields. The Becker team remains focused on growing revenues domestically and internationally through its core test prep franchise as well as through the expansion of its continuing professional education program. In Becker's core accounting market, 2/3 of CPA firm partners are now over the age of 56, with significant numbers retiring by 2022. Becker is well positioned to take advantage of this opportunity with all of the top accounting firms turning to Becker and 90% of the top CPA exam scorers using Becker to prepare for the CPA exam.

In fiscal 2017, membership in ACAMS grew significantly as the association deepened its relationships among large multinational banks and drove increased participation in its certification programs, webinars and conferences. In the year ahead, ACAMS will continue to focus on expanding its presence in Europe and Asia, including partnering with financial institutions and governments that are focused on improving their anti-money laundering capabilities. ACAMS' market opportunity exceeds $2 billion globally, with 70% of the addressable market outside the U.S., where ACAMS only has a 1% share. In addition, ACAMS currently derives approximately 60% of its revenue from the U.S. but only has a 5% market penetration domestically.

Our Technology and Business segment, which is comprised of our Adtalem Brazil institutions, remains well positioned to grow organically over time, as well as through strategic acquisitions, despite near-term political and economic challenges facing the country. Adtalem Brazil currently serves over 110,000 students through 380 programs and 23 campus locations. Operating in the middle and premium segments of the market, our institutions have excellent reputations and produce well-educated graduates serving globally in fields such as business, law and diplomacy.

Adtalem Brazil continues to achieve healthy persistence levels, but new enrollment growth remains challenged due to continued macroeconomic pressure and related uncertainty with regard to the next phase of the FIES program. However, Adtalem Brazil has been allocated an increase in the number of FIES contracts, and we're capturing our fair share because of our academic outcomes.

We're continuing to adjust to current market conditions through tighter cost controls as we seek to better align our expense structure with enrollment and revenue trends. We're also evaluating avenues to better integrate a range of functions spanning admissions, HR, IT and legal. These efforts helped to offset some of the revenue weakness of fiscal 2017 and support its strong and positive cash flow from our Brazil operations.

In addition to cost management, we're continuing to refine and expand our program offering within growing sectors where there is notable demand for degrees and skills training. We're also pursuing the online market, where the government recently streamlined the approval process for educational providers who have learning centers in place. All told, we have 220 learning centers and expect to expand our footprint in fiscal 2018. These centers are used for both test preparation and access to our online programs.

Overall, the long-term outlook for our Brazil schools remains positive given our solid reputation and the projected growth of the Brazilian population versus the current low-growth enrollment ratio nationwide. We remain well positioned to take advantage of this opportunity through our presence in the country's urban centers.

In our traditional U.S. postsecondary segment, during the fourth quarter, DeVry University continued to roll out the rollout of its Tech Path curriculum and related marketing program. In conjunction with the Tech Path approach, the school has continued to focus on introducing stackable programs that are aligned with key growth areas, where there are notable supply/demand imbalances, including engineering and information sciences, health sciences and business and technology.

The school is seeing a promising response to its DeVryWORKS initiative, which has led to an expanded number of opportunities to partner with corporations to create tailored continuing education programs focused on strengthening employee skills and supporting improved productivity.

Enrollment in the July session was down, but we expect some improvement in fiscal 2018, given increased interest resulting from our Tech Path, DeVryWORKS and program strategies. In the meantime, we continue to carefully monitor costs with the goal of recovering nearly all lost revenue going forward.

Carrington's enrollment performance was below our expectations during the quarter. Our return to enrollment growth at Carrington remains a high priority, and we are working closely with them to address the issue. We're moving with urgency to differentiate the schools, improve the effectiveness of the marketing spend and introduce shorter, stackable programs in high-demand areas.

Though underperforming on enrollment, Carrington continues to deliver quality instruction and strong student outcome. Carrington has good standing with its institutional and programmatic accreditors, solid test scores and strong graduate employment overall. Celebrating its 50th anniversary this year, Carrington currently has 21 campuses located in 8 states. We're continuing to seek approval to expand our registered nursing programs at select locations while pursuing opportunities in the allied health market, where we can help students whose schools have closed. We also remain focused on reducing cost and driving up operating efficiencies at Carrington. These efforts should support operating leverage as enrollments return to growth.

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

Thanks, Lisa, and good afternoon, everyone. We're pleased to report fourth quarter and full year results in line with our expectations. As Lisa noted, fiscal 2017 was a year of considerable progress for us, not the least of which was our success in driving further operating efficiencies across our enterprise, which is reflected in our solid operating profitability and cash flows.

The underlying economics of our organization have improved and will continue to improve as we execute our plan. In turn, we have strategically deployed our capital towards select investments in our program offerings, infrastructure and marketing resources, while further strengthening our balance sheet and returning value to our owners through our share repurchase program.

Our transition to a portfolio management approach will support improved financial performance and operating leverage over time as we continue to follow a more disciplined, measurable and transparent operating strategy at each of our schools.

As we noted at our Investor Day in May, we have a heightened focus on increasing our operating margin and ROIC, return on invested capital. At the same time, we remain centered on restarting organic revenue growth.

We believe the improved processes we've put in place, combined with the leadership changes we've made in fiscal 2017, will support these goals. We are optimistic that we can begin to show enrollment growth later this year as we build our momentum and take full advantage of our exposure to multiple in-demand sectors spanning health care, professional education and technology.

Now turning to the fourth quarter. Total Adtalem revenue was down 4.3% year-over-year at $451 million. Growth at Chamberlain, Adtalem Brazil and our Professional Education segment was offset by declines at DeVry University and Carrington, and prior weakness in enrollment at our medical schools.

Total costs, excluding special items in the fourth quarter, were $386 million, decreasing 7.4% from last year. During the quarter, we again reduced costs at our home office, with overhead spending decreasing almost 10% year-over-year, excluding special items. Through our continued focus on improving our operating effectiveness, we also reduced costs at DeVry University, Carrington, Chamberlain and at our medical and veterinary schools. Total pretax special items in the fourth quarter amounted to almost $12 million, primarily from restructuring at DeVry University and our home office.

Operating income for the fourth quarter increased nearly 20% to $65 million, excluding special items, as compared to last year. Net income, excluding special items, was $51 million during the fourth quarter, which resulted in earnings per share, excluding special items, of $0.78, up 20% from $0.65 in the year-ago quarter. Our effective tax rate, excluding special items, was 19.7% for the fourth quarter compared to 23.8% in the year-ago quarter.

Now let's review our segment performance. Starting with Medical and Healthcare, revenue of $193 million was flat in the fourth quarter. Segment operating income, excluding special items, increased by 12% over the prior year to $43 million. Chamberlain revenue grew 2.4% for the quarter. In July, new student enrollment grew 16.5% and total students grew 6%. Looking to fiscal year 2018, we expect mid-single new student enrollment growth at Chamberlain.

Revenue at our medical and veterinary schools decreased 3% during the fourth quarter, primarily due to declining enrollment at our Ross medical school. In May, new student enrollment decreased 14% and total students decreased 6%, in line with our expectations. We expect medical and veterinary enrollments for the September 2017 semester to grow in the high single-digit range.

Turning to our Professional Education segment. Revenue increased nearly 27% to $40 million in the quarter, driven by the acquisition of ACAMS, which performed in line with our expectations. The segment's operating income, excluding special items, decreased 17% over the prior year to $11 million during the quarter as a result of revenue declines from the Becker CPA review.

In our Technology and Business segment, revenue of $83 million increased 11% in the quarter, primarily driven by the benefit from currency. Without this currency effect, revenue would have grown nearly 2% in the fourth quarter. The segment's operating income increased 29% to $19 million during the quarter.

And finally, in our U.S. traditional postsecondary segment, revenue of $136 million was down 21% in the quarter as a result of declining enrollments at DeVry University and Carrington. Segment operating loss, excluding special items, narrowed to $900,000 in the quarter compared to a loss of $1.2 million last year.

Revenue at DeVry University declined 23% to $104 million during the quarter, driven by continued enrollment declines. In July, undergraduate new student enrollments decreased 11%, while total students declined 22%. We continue to reposition DeVry University to become a leaner, more profitable institution. In the fourth quarter, excluding special items, we recovered 99.5% of expenses for every dollar of lost revenue for a total reduction in costs of $31 million. For the full fiscal year, we recovered 95.6% of expenses at the school.

Carrington revenue declined 15% during the quarter. New students declined 18% and total students declined by 17%.

For the first quarter of fiscal 2018, we expect total Adtalem revenue to be down 4% to 5% year-over-year. Continued revenue growth, particularly at Chamberlain, Adtalem Brazil and Professional Education, will be offset by declining revenue at DeVry University and Carrington.

First quarter fiscal 2018 operating costs before special items are expected to decline 4% to 5% versus the prior year as a result of cost reductions at DeVry University, Carrington and home office, offset somewhat by increases at Chamberlain and Adtalem Brazil. We expect to incur additional restructuring charges as we continue to rightsize operations to better align with enrollment levels.

For the full 2018 fiscal year, revenue is expected to be flat to down 1% compared to the prior year, and earnings before special items are expected to grow in the low single-digit range as compared to the prior year.

Given the evolution of our portfolio and the sizable seasonal contributions from Becker and Adtalem Brazil in our third and fourth quarters, our earnings performance will be weighted to the second half of the year. The effective income tax rate for fiscal year 2018 is expected to be in the range of 21% to 22% before special items.

Now turning to our balance sheet and financial position. Cash flow from operations for the full fiscal year 2017 was $228 million, in line with the prior year. Our cash and cash equivalents were $242 million at June 30, 2017, while outstanding bank borrowings were $125 million, leaving us with great optionality with respect to our balance sheet. Our net accounts receivable was $173 million, an increase of 7% from the prior year, primarily because of the timing of receipts at Adtalem Brazil.

We closed the year with bad debt as a percentage of revenue at 2.2% compared to 1.9% in fiscal 2016. Capital spending for fiscal 2017 was $49 million compared to $69 million in the prior year. We're targeting capital spending for fiscal year 2018 to be in the $65 million to $70 million range, primarily driven by investments in our Medical and Healthcare and Technology and Business segments, for new campuses at Chamberlain and to enhance academic quality.

During the fourth quarter of fiscal 2017, we returned $18 million to our owners through repurchasing approximately 483,000 shares at an average purchase price of $37.17. This represented a 27% increase in the amount of capital returned to our owners as compared to the third quarter of fiscal 2017. The pace of repurchases is supported by our belief that the intrinsic value of Adtalem shares is meaningfully higher than our current market valuation.

Now let me turn the call back over to Lisa.

Thanks, Patrick. In summary, fiscal 2017 was a transformational year for Adtalem Global Education. We laid out an ambitious agenda at the outset of the year, and our team delivered on that agenda. We've entered a new era as a leaner and more focused organization united in pursuing our goal of empowering our students and taking the necessary steps to return our organization toward enrollment growth. Our value proposition remains strong and our programs are aligned with high-growth sectors where we see considerable supply/demand imbalances.

In fiscal 2018, we remain well positioned to deliver ongoing progress in executing our strategy while further improving our cash generation and our ability to reward our fellow owners through our share repurchase program.

Thanks, Lisa. I'd now like to ask the operator to open the call for the question-and-answer session.

(Operator Instructions) Our first question comes from Peter Appert of Piper Jaffray.

I think either Pat or Lisa said that your expectation was a return to enrollment growth later this year, which is a bit more optimistic, I guess, than I had in my model. So number one, I'm wondering about your confidence in that statement. And number two, if you could just give us some more color in terms of granularity on how you get there. Is it all because of the nursing or -- and medical? Just more color on the drivers of a return to positive enrollment growth, please.

Good. Yes. And so for all of Adtalem, really it is primarily, as we look at the Medical and Healthcare segment, you see there from a -- the results this time with Chamberlain. And then also in Medical and Veterinary, while we had talked about the operational changes we put in place that are certainly being quite effective, we had guided to and in fact discussed on our last call that we would not see all of those results in May. But as we go into the September session, we are very confident in those enrollment increases, and that's what's driving our confidence overall.

No expectation, I assume, that DVU is back to flat enrollment, or flat starts by the end of the year?

Oh, no. Yes, we do have an expectation that DVU enrollment is going to stabilize and flatten out by the end of fiscal '18, absolutely.

And is there any -- do you see enough in terms of current trends and demand for new programmatic offerings to give us any additional color on how you get there?

Yes, sure. Sorry. I thought you were focused on Medical and Healthcare. Yes, a couple of things. I think the first is around our programs as they relate to Tech Path in general. We have quite a few programs now that are in that Tech Path and related to the DeVryWORKS increases that we've seen in terms of the partnerships and private pay employers that are coming in, and we're seeing demand in those particular programs and segments. So as we have been talking, I guess, for a couple of calls now around the program stack, we have 2 in place that are showing positive results and 4 more in the works around the stacks.

And then for Tech Path, as we discussed last time, we're seeing the new student enrollments and the percentages in those programs uptick in a way that gives us confidence for the back half of the year, which is consistent. We knew that it would take some time for those changes to go in. As you recall, that was really January where we launched in full effect both of those things, both Tech Path, DeVry Tech value proposition as well as the newly engaged DeVryWORKS. And so that's what gives us the confidence for the remainder of the year.

And then on Brazil, the profit is up substantially on flattish revenues; pretty impressive. Thinking about 2018, then, obviously you suggested that enrollments are going to continue to be a headwind. Is there enough on the cost side to get you to continued positive earnings performance even in the context of flattish or down revenues?

Yes, there is, Peter. The team in Brazil has done an excellent job in managing through some pretty difficult geopolitical and economic -- challenging economic times in Brazil and really repositioned the cost structure for a couple of reasons. One, to certainly improve profitably; but two, to allow us to be more competitive on the pricing end. And while we do expect some headwinds to continue, albeit diminishing in Brazil as the economy starts to improve, we are projecting and expecting improved year-over-year profitability in Brazil in this current fiscal year FY '18 over to '17.

Okay. Last thing, just your thoughts on the pace of buyback activity in fiscal '18?

Yes, we are very confident in our ability to deliver our plan and continue to grow earnings as we did in '17. And we do feel that there -- our market has undervalued us and our true price is not yet reflected in the market. And we do see that as an opportunity as we return capital to shareholders.

Does that suggest, Pat, that you buy more in '18 than you did in '17?

Yes, I'll jump in. What I would add is, we have real confidence, as you can tell, I think, from the enrollment answers there and our FY '18 plan. The good news, as you know, is that we have an authorization now for the larger -- the $300 million buyback. While we do have that over the 3-year period, we have the ability to be more aggressive and increase that in FY '18.

Our next question comes from Jeff Silber of BMO Capital Markets.

I know this is probably going to be in the K, I'm not sure when that's being filed, but is it possible to break out the acquisition impact in the quarter or at least give us kind of some semblance of whatever the organic revenue change was and also similar on the operating profit side?

Yes. Certainly, Jeff. For the quarter, for the fourth quarter, the impact of acquisitions contributed about $16 million of incremental revenue. So about 3.3 percentage points of growth on a year-over-year basis. And from an operating income perspective, contributed about $4 million of incremental OI in the quarter, or about 6.8 percentage points of growth.

Sounds like you were prepared for that question. I appreciate it. And is that all in the Professional Education sector? Is that all ACAMS?

Yes.

Okay. All right. Fantastic. I know there's been, I guess, some noise out of Brazil with some more potential changes in FIES. Can you kind of give us an overview of what's going on there and what the potential impact on your business is going to be?

Sure. So as the Brazilian government has reallocated their contracts, they continue to focus on areas that are underserved within Brazil. So we align well with our heavy presence in the Northeast. So as a result, our share of the overall FIES contracts for this upcoming or current enrollment period increased from 2.7% a year ago to 3.3% in this current period. So a pretty meaningful increase for us, which we think will help stem some of the overall economic challenges and headwinds that we have in new student enrollment growth in Brazil.

Yes. And the only thing I would add to that is we are mindful that we also need to focus on the diversification there. As you recall, Damásio, the test prep centers, the 220 centers that we have throughout the -- geographically throughout Brazil allow us to expand the reach of IBMEC with online programs, et cetera, and really make sure that we're diversifying at the same time as, obviously, keeping and gaining FIES share.

Okay. And again, just to clarify, your percentage share did go up, but did the overall revenues or contribution that you get from FIES, did that go down?

That went down as a result of the diversification --

Right.

-- as we grow IBMEC and Damásio. But that went down just because the other portion of the business is growing faster.

Okay, great. And forgive me, I know you said this in your beginning remarks. Can you just remind us, in terms of new schools for Chamberlain, what's on the horizon for the next year or so?

Sure. So we're currently operating 20 campuses today. Our next campus opening pending approval is expected to be in New Orleans in early fiscal 2019. And then from there, we're looking another 4 to 5 over the next 2 years, likely Texas, California and perhaps out East.

Okay. Fantastic. And do you have state approval to operate in those states?

Pending approvals, but...

Pending approvals. Got it. Okay, fantastic.

I was just going to add this will be the fourth location in Texas and the second in California, so the state approvals, yes.

Our next question comes from Steve Farley of Farley Capital.

Yes. Could you please give us an update on the Family Nurse Practitioner program?

Sure, Steve. So we had -- very pleased with our enrollment performance for July with new student enrollments being up 16.5%. And a large driver of that growth was the continued marketplace interest for our FNP program.

Okay. I know it's -- a year ago, you attributed the fact that new enrollment at Chamberlain had gone negative to the fact that you had capped the Family Nurse Practitioner program because you didn't have the -- yet have the clinical experiences for the people lined up. When did you -- tell us about kind of the -- is it fully uncapped now? Or when did that happen and -- tell us about that.

Sure. So we had moderated enrollment growth or a self-imposed cap to ensure that we had an adequate and quality clinical experience for our students as they entered into that portion of the program. So we worked very hard during the kind of fall and early winter of 2016, and that allowed us to start to increase that cap as we moved into calendar 2017. So -- and we started to see that in our enrollment results in January and March, and obviously continuing here through July.

So if we look at the fourth quarter of 2016, was -- when you say you capped it, that means -- does that mean you took students in the FNP program by only so many or you took 0?

We limited the number. So we were still accepting new students, but we had lowered the amount relative to what we had been to ensure that we had the right amount of clinicals for them.

Okay. And where does that stand today? So in the quarter you just released, to what extent was the FNP program, new enrollment, to what extent was that capped in the June 2017 quarter?

There was no cap.

Okay. And was there a cap in the March quarter?

No. We lifted the cap in January 2017.

Our next question comes from Alex Paris of Barrington Research.

This is Chris Howe sitting in for Alex. I had a question. This past July, the closure of Dev Bootcamp, just curious what your thoughts are on the overall competitive environment within this niche and whether you see this as an -- or whether you're seeing this as an opportunity to take market share and how you see enrollments growing within coding over 2018?

Yes. We understand that it is a very competitive environment. We did, like others, look and evaluate potential partnerships, acquisition targets. We feel that our right to win in tech is with our associate and bachelor degree and certificate programs, and that's where our focus will be with DeVry University on a go-forward basis.

Okay. And then you had mentioned the B2B model with health care institutions within Chamberlain. How does this play into the growth outlook for it? I guess how much is it contributing to your outlook and how big of a portion could it be maybe over the next 5 years?

Sure. So our B2B, the health care development group within Chamberlain continues to be a great outreach to large health care providers to help them solve their workforce skills gaps and to help individuals who have their RN get their BSN degree as well as help further educate their workforce through master's and doctoral programs.

One of the statistics that we had shared at Investor Day was for our most recent, or back at least in May, that health care development group accounted for about 70% of the new student enrollments in our RN to BSN class. So it's a very meaningful way for us to help serve the workforce skills gaps with large health care providers.

Yes, the only thing I would add is, if you then look at our master's degree students, 33% of those students are alumni of the RN to BSN program. So the business to business can really help through the funnel of not only to RN to BSN but further degree. So...

That's very helpful. And I have one last quick question if you're able to provide it. Within your 2018 guidance, would you be able to share generally your cost saving initiatives that are planned, perhaps in comparison to this past year?

We -- in terms of our outlook, we focus on, obviously, the revenue and then the resulting expected earnings growth. So there's some implied cost reductions in guidance, just doing the math in between those numbers. That's all that we'll provide right now.

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

Thanks for the acquisition contribution number. Just given the FX impact as well, Pat, can you just give us the year-over-year organic constant currency revenue change percentage?

Sure. So on a -- well, said another way, FX on a year-over-year basis for the quarter contributed about $7 million of incremental revenue or 1.5%.

Okay. Got it. And then any comment on Chamberlain RPS, just the impact of mix versus discounting?

Yes, it's primarily driven by mix. We've had an increasing mix of our post-licensure programs with growing FNP. And again, those students generally take, obviously, a lower course load compared to the pre-licensure. Similarly, a nice growth in our RN to BSN program. Those students have a lower course load as well as generally come in through our health care development specialist channel, so those would be at a somewhat lower price than our broader student population.

Okay. And then the Medical and Healthcare margins were really nice in the quarter. And I think there was a comment about taking costs out, both at Medical International and at Chamberlain. Just would appreciate any additional color of what you're doing to improve the efficiency of those organizations.

Sure. We've seen an opportunity, as we look across our portfolio, just in general to be more efficient, both from the effectiveness of our marketing as well as specifically within our medical schools. We did have a management team and group that served the medical schools, and we've since realigned the functions of that team and put those within our respective medical and veterinary schools. And that's driven some significant cost savings that were -- we started -- saw in the fourth quarter and obviously will continue to get the benefit of that as we move through FY '18.

Yes, the only thing I would add there is we -- at that same time, or in the fall, we also added a Chief Marketing Officer, actually from our Brazil group, so not new to Adtalem but new to that role, and that has created some efficiencies as it relates to digital marketing, agency spend, et cetera. So it's actually sort of a good mix of operational efficiencies through cost management, but it has made us more effective as it relates to recruiting. And some of that, you mentioned Chamberlain, has also assisted Chamberlain, particularly as it relates to the digital marketing piece. We just have experts that are doing that at the CMO level that has been -- that we've been able to leverage in those schools.

Okay. And then just finally, when you give guidance for earnings to grow low single digit, can we just be clear, are you talking adjusted EPS? And I'm asking because I think the tax rate is going up next year. And also, is there a share repurchase assumption in the guidance if that's an adjusted EPS figure?

Sure. So when we're referring to adjusted EPS, so that would be EPS excluding any special charges in terms of restructuring that would occur next year. And then with respect to share repurchase, probably the best way to model that -- and again, we've got some opportunities to be more aggressive. That is not reflected in our current outlook. But if you were to look at the run rate over the past couple quarters, it would be more representative of what's implied in that guidance, with some opportunity on the upside there.

Yes.

Our next question comes from Corey Greendale of First Analysis.

The 3 questions are, with the Tech Path getting traction, can you give us an idea of what you're assuming for revenue per student at DeVry University in the guidance?

Second question is, with the ACAMS acquisition anniversary-ing, what rate is that growing at now and what's implied in the guidance for the special education growth in fiscal '18?

And then the third question is, Lisa, I think in your script you said that the organization is becoming more focused and leaner. And just thinking about that in the context of M&A, if that has implications for how you're thinking about M&A, or if you'd just give us your latest thinking on that front?

Got it. Okay. I'll take the last question first, as it relates to M&A. What I would say is, from our perspective, we recognize that we have some really healthy verticals as it relates to Medical and Healthcare and Professional Education that have really healthy margins there. And we expect our M&A opportunities going forward to be very disciplined as it relates to making sure that we are either maintaining or improving those verticals as we think about acquisitions there, seamless technology and business, right now obviously primarily comprised of Brazil. But in terms of the operating team, the management and how that team has been able to be nimble and really look at cost efficiencies as we move through kind of the initial stages of the acquisitions and kind of that acquisitive mode that they've been in Brazil, we would expect to be able to replicate that elsewhere as it relates to technology and business assets that will add to -- be accretive to our margins and our operating income margin.

With respect to ACAMS, as we move into FY '18, based on our visibility, where we stand today, and again, feel very confident in the management team at ACAMS and their ability to demonstrate and continue to really serve an underserved market, both in the United States as well as increasingly abroad, not unreasonable for ACAMS' top line to grow in the mid- to high 30% range year-over-year.

And then as it relates to the first part of your question, which we'll answer last, was the impact on DeVry University undergraduate revenue per student as a result of the change in our Tech Path pricing. We're anticipating that undergraduate revenue per student at DeVry University to be roughly flattish year-over-year, FY '18 to '17. And the reason being is that our Tech Path pricing puts us in a much more competitive price relative to our competitors, but in terms of how we were utilizing our scholarships and grants, we're reallocating that. So we're not expecting to see a big negative on revenue per student as a result of Tech Path.

Right. But I think, at the same time, it gives us efficiencies as it relates to the larger class sizes and lower kind of facilities and faculty costs as we're able to drive that model.

Our next question comes from Scott Scher of LMJ Capital.

You mentioned something about a B2B program for Chamberlain, and you said you're exploring that internationally, and then you mentioned the Seychelles. Your Analyst Day was just a month or 2 ago, and I don't recall you mentioning that. Is that something new, and can you just expand on that, please?

Yes, and the -- let me just say the B2B, what we call [HDS], but that program within Chamberlain is not new. And I may have used similar semantics in the script. The Seychelles thing is relatively new. And again, that was really inbound partnership calls from the World Health Organization. And it's allowing us to really be able to -- we have now a couple of programs there where we are able to deliver programs online and with some -- with scale for those particular areas that will really help us determine how we'll be able to scale some of our -- particularly graduate, post grad programs in a way that we can learn from them. So it's a smaller opportunity, but it allows us the learnings to be able to scale and take that more broadly. And in fact, we've already looked at some other opportunities where we think that will be something that we'll do at Chamberlain going forward.

Our next question comes from Steve Farley of Farley Capital.

I'm curious to tie together, Lisa, your comments on possible mergers and acquisitions with Pat's discussion of share repurchase. I think when most people look at the history of the company's acquisitions, the one that stands out as really a wonderful thing is Chamberlain, where you bought a small thing, it was 1 campus, and thanks to Susan Groenwald, she's built that thing to this thing that's got 20 campuses with this huge online business that's a $0.5 billion business, making lots of money. I think we'd all love to see you do that again and again and again and again.

Unfortunately, there've been other acquisitions where you bought a big thing that hasn't done so well, whether we're talking about Carrington, I think close to $300 million was spent on that and it's a loser thus far. ACAMS has got a long ways to go. You spent $330 million on it and it yet is not making a whole lot of money. And then in contrast to that you've got your stock that sells at probably roughly 11 times after-tax earnings.

And so just tell us about, when you think about acquisitions, what kind of multiples you'd be willing to pay and do -- where does share repurchase compare to that? I mean if you see something...

Yes, I think I got the question, Steve. So here's what I would say, and to reiterate what I said just a few minutes ago, which is we recognize and in fact have the ability, because of the program that our board has authorized or approved, that we can be more aggressive as it relates to share repurchase. And that is something that we as a management team and the board consider as we move into FY '18, primarily because, as you're saying and as we all recognize, where the stock is trading is not where we think the intrinsic value lies, nor does it demonstrate what we think that we are -- what we know we're going to be able to do in FY '18. So -- but as you also know, we can do that in parallel with acquisitions that make sense.

And what I would say about the acquisition piece is, as you know, timing is everything. I am not in a place where I would say that ACAMS -- we have not had the time to see that, and I am fully confident that we were right and that our owners are going to get to that point with us as we move through FY '18 and we see just, frankly, the exponential growth that can come from ACAMS and that model, which is, as you know, really a software services model, very, very low CapEx and very -- in a market that can grow in a way that I think deserves to be in this portfolio. So we'll see, and time will tell.

As we move forward with acquisitions, rather than talk about a multiple, what I would say is -- I would have said before, which is we don't want degradation of the margins that we have in the verticals such as Medical and Healthcare, where obviously Chamberlain is quite the contributor; you're exactly right. We want to be accretive as it relates to those margins and those results. And we recognize that, that takes a disciplined approach to M&A going forward.

And fortunately, or unfortunately, I can only talk about going forward. But I can assure you that that's how we view whether we're going to be acquisitive or not. And I think the fact that we were not in FY '17 post-ACAMS as we got our house in order, so to speak, and transformed this organization and how it operates should demonstrate that that's the case.

Okay. Just a follow-up. Pat, at the Investor Day, you mentioned the possibility of the company putting some permanent debt on the balance sheet, which of course could augment the share repurchase significantly. Where are you on that?

It still remains a very viable option, and we're continuing to explore those opportunities and it continues to be a very good market in terms of -- from a -- the overall credit market.

I mean like the Investor Day was 3 months ago. I assume it doesn't take that long to figure out how to -- you guys have a pristine balance sheet. You've got net cash. What's the hurdle?

There is -- as we move forward we're making progress. And I'll just leave it at that. I can't, obviously, go beyond that. So thank you.

Okay. We'd like to thank everyone for your questions and remind you that our next results call is scheduled for November 2, when we announce our fiscal 2018 first quarter results. Thank you for your continued support of Adtalem.

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