Adtalem Global Education Inc (ATGE) 2019 Q1 法說會逐字稿

Greetings, and welcome to the Adtalem First Quarter 2019 Earnings Call. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Beth Coronelli, Vice President Investor Relations.

Thank you, you may begin.

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, Chief Financial Officer and Treasurer.

I'd like to remind you that this conference call will contain 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 2018 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 will 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 for 30 days. To access the replays, please refer to today's release.

And with that, I now turn the call over to Lisa.

Thank you, Beth. Good afternoon, everyone, and thank you for joining us on our first quarter call. Fiscal 2019 is off to a good start, as we focus on both our short-term priorities and long-term strategies. We continue to transform Adtalem Global Education as we further solidify our position in each of our 3 core verticals. Our ability to execute on our strategic priorities and increase new and total enrollment growth, a driver of future results, while maintaining our operational focus through our portfolio management approach and effective cost management will allow us to deliver sustainable revenue and EPS growth over the long term.

During the first quarter, expanding margins from continuing operations allow for a 19% increase in operating income and a 10% increase in EPS to $0.45. Anniversarying the significant impact of the hurricanes allowed us to post improved financial results despite a revenue shortfall versus first quarter of the prior year.

Looking at recent highlights, which reflect our near-term priorities, we reported solid new enrollment growth across Adtalem, driven by increases at Chamberlain and our BSN and MSN programs, at our Medical and Veterinary Institutions, and at Adtalem Brazil. We posted the highest BSN intake in Chamberlain's history, with notable results for Atlanta, New Orleans and Sacramento campuses, supporting the trend in the nursing market of students shifting from RN to BSN and enrolling directly into BSN programs.

The Association of Certified Anti-Money Laundering Specialists, ACAMS, hosted its largest conference to date in the spring in Hollywood, Florida. In Brazil, we delivered notable progress in our enrollments, with new students up 24% and, excluding new student enrollment in our recently launched distance learning programs, it was up approximately 9.5%.

Total enrollment was up 3.5%, up about 1% excluding distance learning programs. At Ross University School of Medicine, we've made significant progress in the campus relocation to Barbados. We're on track for a January class start for all basic-science students and are focused on cost discipline related to the move-related expenses.

We're focusing our efforts on ensuring our cost base supports our portfolio as we work to complete the DeVry and Carrington divestitures. Our improved performance and confidence in our outlook is reflected in the increase in our share purchase reprogram -- repurchase program and our belief that the current stock price reflects a compelling discount to our intrinsic value and that the repurchase is an advantageous use of a portion of our capital.

For the transfer of ownership of DeVry University to Cogswell Education, we have received approval from our institutional creditor, the Higher Learning Commission; our home state regulator, the Illinois Board of Higher Education; and most other state regulators. We continue to collaborate to finalize the couple of state approvals along with our pre-acquisition response from the Department of Education.

Regarding the transfer of ownership of Carrington College to San Joaquin Valley College, Inc., we have received approval from our institutional creditor, ACCJC WASC, and most required programmatic accreditors and state agencies. We continue to collaborate to finalize a handful of remaining state and programmatic accreditor approvals along with our pre-acquisition response from the Department of Education.

We anticipate the ownership of DeVry and Carrington to be transferred by the end of calendar year 2018. Our long-term strategy is to build on our solid position in each of our verticals, where we have the ability to drive sustainable organic revenue growth based on strong demand for our programs offered at market-leading institutions, intra-vertical and cross-vertical synergies and continued economies of scale from shared service operations such as our digital marketing, innovation and student operations centers of excellence.

From a continuing operations perspective for the first quarter, about 3 quarters of our revenue came from the Medical and Healthcare verticals and the remainder was split between Professional Education and Technology and Business.

In Medical and Healthcare, we continued to gain momentum as we further strengthen and expand our programs, fill capacity within our institutions and begin to explore opportunities for cross-institution collaboration. Initiatives include leveraging academic content for professional education courses, new certifications and business courses and certificates for our medical and healthcare students and a more robust B2B and corporate development platforms across business units, all of which are expected to drive organic revenue in the longer term. Chamberlain remains an outstanding performer as we build on our success, driving healthy enrollment growth and strategically expanding our offerings to support nursing market trends in growth areas across BSN and MSN, including our Family Nurse Practitioner degree. 2/3 of our enrollments now come from these areas, offsetting the shift in the broader market related to RN to BSN and supporting demand for direct-to-BSN programs.

Under the leadership of Dr. Karen Cox, who started as Chamberlain's new President in late August, we're evaluating continued campus expansions in attractive markets, while expanding on our B2B partnerships. Our alliance with Ochsner Health and the resulting at-capacity enrollments on the New Orleans campus is an example of the type of relationships we are focused on building to support future scale.

We are also seeing positive results from our ongoing efforts to build and refine predictive models that assist in identifying students that may require additional assistance or interventions to succeed within the programs. This improves retention as well as completion rates. We're seeing NCLEX pass rates improving, with the combined total pass rate of nearly 90% in the second quarter of calendar year 2018 and for our 19 campuses that had NCLEX test takers and 4 of those campuses reported a pass rate of 100%.

At the American University of the Caribbean School of Medicine, we're pleased to have all students back in St. Maarten and the campus fully operational for the September session. We're now able to focus our efforts on filling capacity as our enrollment prospects are returning to pre-hurricane levels.

We're exploring broader growth opportunities to build upon the international experience we've had with AUC in the U.K. in the past year. We're also pleased to be working with the Harvard Medical faculty physicians at Beth Israel Deaconess Medical Center to establish a center of excellence in disaster medicine in the Caribbean, which will drive greater brand awareness and longer-term new student growth.

At RUSM, we're seeing strong growth, which will be supported by our new permanent home in Barbados in January, offering a positive and productive environment for RUSM students, faculty and staff. Locating on an island nation with greater airlift from the United States, Europe and Canada will allow us to drive new student growth from both the U.S. as well as from international students, which will further diversify RUSM with regards to Title IV funding.

From a partnership perspective, we were pleased to announce an agreement with Charles R. Drew University of Medicine and Science to establish a joint education program, which is expected to increase the number of physicians practicing in under-resourced areas. The partnership will allow for a strong pipeline of prospective students that in large part is incremental to our current prospective student pool. Focused on student outcomes, RUSM has reported solid USMLE step scores, which supports strong residency match rates.

At Ross University School of Veterinary Medicine, September enrollment marked an all-time record for an incoming class. We also had strong vet-prep enrollment, which supports our efforts to maximize capacity for our May and January intakes. We received accreditation of the campus counseling center from the International Association of Counseling Services. With research as a top priority, we were pleased to receive a grant from the U.S. Fish and Wildlife Service for promoting sustainability through conservation behavior change.

And with a strong focus on NAVLE scores, we're providing students with increased preparation opportunities to further build on the strong student outcomes at RUSVM.

In Professional Education, our success is driven by improved effectiveness of our sales and marketing efforts, geographic expansion and strengthening enterprise customer relationships where we continue to offer products to support our customers' needs. We're also focused on expanding our operating margins in the segment over the planning horizon by building scaled operations in Europe, Asia and more recently Latin America, while ensuring operating leverage with a diversified mix of offerings, including conferences, online products and exploring joint professional education opportunities across our verticals.

At ACAMS, we continue to see strong performance in our conference offerings, with our Canada and Middle East conferences hitting new highs in attendance. In addition, our Hollywood, Florida conference had on-site attendance up 13% over last year. Our growth strategy at ACAMS includes expanding our relationships across all channels, including new geographies, chapter organizations and corporate clients where we renewed multiyear contracts with several large multinational banking clients this quarter. And we are developing products and offerings that address the retail -- realtime needs for their workforces. As an example, we launched a sanctions compliance certificate program based on feedback we received from one of our largest European customers that is quickly gaining traction among members and clients.

We continue to expand our geographic footprint, with growth in Asia and an increased presence in the U.K. and the greater European market. For new geographies, we're focused on Latin American expansion and recently completed a first-of-its-kind, anti-money laundering training session with Panamanian government officials. The sessions, part of a joint initiative by the government of Panama and the U.S. Department of State, delivered customized training to 40 professionals to strengthen Panama's growing AML efforts.

At Becker, we're continuing to fortify our position as a market leader and remain focused on building our strong brand reputation and deepening partnerships with our customers to serve their credentialing and lifelong learning needs. We're strengthening our core CPA value proposition, improving sales and marketing efforts, and expanding our continuing education portfolio to include continuing education offerings such as expanded on-demand and webinar courses, our second National Tax Conference and other new innovative learning solutions that are critical to accounting professionals remaining relevant in their profession. As we consider the impact of these initiatives, we aim to return to consistent growth across our product lines and channels.

In the Technology and Business segment, we reported strong new enrollment growth, with significant growth at Wyden Online, with an integrated online and campus-based approach to distance learning. Our strong new student starts and overall enrollment growth in Brazil reflects the early success of these programs as we focus on further building on our strong brand awareness and student satisfaction as well as our national footprint.

We're taking a number of steps to improve our performance and set the stage for long-term growth, including investing in our distance learning resources, adjusting program pricing where it's warranted, continuing to adjust our cost base and growing our new campuses in key urban areas, including Ibmec São Paulo, which serves the largest market in Brazil. From a macro standpoint, with Brazil's national elections completed, there has been a change in leadership in the country, and market indicators have generally moved in a positive direction as some uncertainty has been alleviated.

To summarize, in the short term, we're focused on new student enrollment growth through enhanced program offerings and streamlined operations, such as marketing and admissions. Over the long term, we are bullish on demand trends from both students and employers in our core verticals, with focus in Medical and Healthcare and Professional Education and within the distance learning in Ibmec markets in our Technology and Business vertical.

We're continuing to position Adtalem to achieve solid, multiyear organic growth, and we're demonstrating our confidence in our strategy and outlook through our active share repurchase program. As we execute our plans, we're continuing to evaluate ongoing opportunities to adjust our cost basis to support our streamlined organization to build on a strong portfolio of institutions.

Now, let me turn the call over to Patrick for the financial review.

Thank you, Lisa, and good afternoon, everyone. Now turning to our results, during the first quarter, Adtalem revenue of $284 million was down 3.1% from the prior year as a result of strong foreign currency headwinds in Brazil and the planned shift of the ACAMS conference to October. This more than offset revenue growth in our Medical and Healthcare segment.

On a constant currency basis, Adtalem revenue in the quarter increased 1.2% compared to the prior year. Operating costs excluding special items for the first quarter were $247 million, down 5.7% compared to last year. Pretax special items were $39.5 million, primarily for the restructuring charges and asset write-downs in Dominica related to Ross Med's relocation to Barbados, of which $37.8 million were noncash charges. We are tracking to our plan to reduce home office expenses, which decreased 2% in the quarter.

Operating income from continuing operations excluding special items for the first quarter increased 19.4% as compared to last year to $37 million. The largest driver of the improvement in operating income was anniversarying the impact of the hurricanes last fall. This increase more than offset the negative impact of the planned shift in the large ACAMS conference and headwinds from foreign exchange. Net income from continuing operations excluding special items was $27.3 million during the first quarter compared to $26.2 million in the prior year. Earnings per share from continuing operations excluding special items was $0.45, up nearly 10% as compared to Q1 last year.

Now to review our segment performance for the first quarter, starting with Medical and Healthcare. Revenue of $202 million increased 5.7% from the prior year. Segment operating income excluding special items increased 54.4% to $40.7 million compared to the prior year quarter, which included the effects of Hurricane Irma and Maria. Anniversarying the impact of the hurricane contributed approximately $21 million of operating income in the first quarter of fiscal year 2019 as compared to the year-ago quarter. Chamberlain revenue was essentially flat in the quarter. In the September session, new Chamberlain students grew 9.5% and total students grew 4.1%. Coming off our strong September session, with solid enrollment growth, we continue to expect to deliver mid-single new student enrollment growth at Chamberlain for fiscal 2019.

Revenue at our medical and veterinary schools was up 14% during the quarter, of which 10 percentage points related to the effects of the hurricanes in the prior year. In September, new student enrollment increased 9.5% and total student enrollment was up 2.5%. For the relocation of Ross Med to Barbados, we anticipate $4 million to $5 million of incremental expenses in the remainder of fiscal year 2019.

Turning to our Professional Education segment. Revenue declined, as expected, 11% from the prior year to $35.6 million. Segment operating income excluding special items was $4.8 million compared to $10.5 million. The declines reflect the planned shift and timing of the ACAMS conference, which is approximately $5 million in the first quarter of the prior year to the second quarter in fiscal 2019. ACAMS continues to be poised to deliver revenue growth in the high-30% range on a full-year basis. Becker revenue declined 4% during the quarter.

In our Technology and Business segment, revenue was $47.3 million, a decrease of approximately 24% and down 4.2% on a constant currency basis. In the September session, new student enrollment increased 23.8% and increased 9.4% excluding distance learning, while total enrollment was up 3.5% and increased 0.7% excluding distance learning. The segment operating loss excluding special items for the first quarter was $2.7 million compared to operating income of $1.9 million in the prior year.

Our strong student enrollment growth, ongoing cost management and an improving exchange rate position us well for improved financial performance for the balance of fiscal year.

Our effective income tax rate from continuing operations excluding special items was 17% for the first quarter.

Now turning to our balance sheet and financial position. Cash flow from operations for the first quarter was $78 million as compared to $90 million in the prior year. Our capital expenditures in the first quarter were $15 million compared to $12 million in the prior year. We closed the quarter with cash and cash equivalents of $409 million, with outstanding bank borrowings were $299 million. We're committed to maintaining a healthy balance sheet to support our growth strategy and enhance shareholder returns. Our net accounts receivable was $167 million, an increase of 9.8% from the prior year due to the timing of financial aid disbursements. For the quarter, bad debt as a percentage of revenue was 1% compared to 1.5% in the prior year, reflecting the quality of our programs and solid student outcomes.

During the quarter, we repurchased approximately 1.2 million shares for a total of $59.2 million. This represents more than a twofold increase over the shares repurchased during the fourth quarter of fiscal 2018, reflecting our confidence in our ability to execute on our long-term strategic plan. We continue to see opportunity as we implement our strategic plan to incorporate share repurchases as a part of our capital allocation strategy.

Now turning to our outlook. Overall, we see a slight acceleration in our growth prospects on a full year basis for both revenue and earnings per share. This is being driven by a modest improvement in revenue growth with the recent stabilization in the Brazilian real and solid enrollment growth in Medical and Healthcare in the September session. We also expect to drive improved operating leverage as well as the benefit from a modest improvement in our projected income tax rate.

For the second quarter of fiscal 2019, we expect revenue to increase approximately 3% to 4% compared to the prior year. Second quarter fiscal 2019 operating costs before special items are expected to increase 5% to 6% compared to the prior year, driven by investments including Ross Med Barbados transitionary costs and Chamberlain new campus startup costs, as well as from the impact from the stranded costs. Our second quarter outlook assumes an exchange rate of BRL 3.75 to the U.S. dollar.

For the full fiscal 2019, revenue is expected to grow approximately 4% compared to the prior year. We anticipate our tax rate from continuing operations excluding special items for the year to be in the 17% to 18% range. We now expect earnings per share from continuing operations before special items to grow in the 2% to 3% range. Our full year outlook assumes an exchange rate of BRL 3.7 to the U.S. dollar. We anticipate capital spending for fiscal 2019 to be in the $70 million to $75 million range, including approximately $25 million to $30 million for the relocation of Ross Med to Barbados.

Note that we have expanded our supplemental press release financial comparison of our results to the prior year as well as our 2018 quarterly results with DeVry University and Carrington classified as discontinued operations.

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

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

So Lisa, the nursing start is very impressive. Can you give us any color on the mix in terms of what's driving it?

Yes, sure. As I mentioned in the script, we're really pleased with the BSN intake, the largest across all of the campuses, with Atlanta, New Orleans and Sacramento being standouts there. So continuing to grow that and diversify that mix. Also really good as it relates to our MSN, including the FNP program, they are up almost 13% for new students and 12.3% for total. So we're seeing some really good traction across the base, as we alluded to, coming into fiscal '19.

And then I assume the RN to BSN is down some amount?

It has offset slightly, a little under 5%, about 4.7%, it's down for new students about 5% total. But again, not something that we didn't anticipate as we're growing the BSN base.

Got it. And then can you talk a little bit about pricing, please, in the -- actually both nursing and Brazil?

Yes, sure. So to start with, to stay with Chamberlain and talk pricing there, we have -- we're very comfortable as it relates to how we're pricing across the programs. We have not -- well, obviously, we do scholarship, we have not felt that there is a need to change or modify our pricing, our go-to-market pricing. As you know, Chamberlain is a gold standard brand, it is associated with quality. And so in relation to pricing, what we've done more is to look at, as an example, completed programs, where we're able to put the RSN to BSN scholarships in place so that -- for students who have started our program or have been out 2 to 3 sessions, they're able to come back because we should have given them that jump start versus full pricing across the portfolio because we're still seeing really good, great growth, as you saw, almost 10% in new students.

Moving to Brazil, I think we mentioned before that we were doing a full pricing analysis across the portfolio there. Obviously, very different. Ibmec and et cetera, we are comfortable there with pricing, and we're seeing good growth. Wyden Online, lots of growth there in that distance learning piece, which everyone will recall, really just came into place in March, so feeling good there. We did have some of this volume across the institutions in the North is driven certainly by some scholarship-ing and price competition, because we've seen more competition there. But we've certainly been able to make it up in volume across the student base. And we need to be responsive to pricing adjustments in the market, but we've also got some opportunities on the cost basis and rightsizing that. So we're feeling actually pretty confident with Brazil now as we've got the elections behind us.

Right. And Lisa, you mentioned campus openings for nursing? Any color on that in terms of timing of potential further new campus openings?

Yes. So Peter, first, the campus most recent opening in May with Ochsner in New Orleans has been a very strong continued success, and we were more than oversubscribed there with the September session. And then as we look forward, our next campus will most likely be, pending regulatory approval, in San Antonio, bringing our fourth campus location in Texas. So starting to get some very nice scale there, and we look for that to be most likely in early fiscal 2020.

Okay. And then I'll just ask one more, sorry for this. The ACAMS shift, Pat, how big an impact on profit did that have?

Pretty big. So the flow-through on our conferences is very high margin. A year ago, that conference did about $5 million, and so something well in the 60%, 70% gross margin range on profit there.

Our next question comes from the line of Jeff Meuler with Robert W. Baird & Company.

This is Nick Nikitas on for Jeff. Just going to the new students, looked really good across the board. We talked a little bit about Medical and Healthcare. Brazil, anything else, I guess, relative to your guys' expectations came in much stronger than expected?

Yes. I would say on the medical side of Medical and Healthcare, so the medical schools. I mean, we did believe that it was going to be strong, but again, 2 brand new kind of scenarios, right. One where we're going all the way back to St. Maarten after a shift and then obviously with Ross Med still being in temporary location. Both came in very, very strong, we're pleased with that. And then the vet school, largest class ever in history for that September class. So we knew it would be strong, but it did over-perform across the med healthcare portfolio.

Okay, that's helpful. Then Brazil, obviously, really strong distance learning. How much runway is there? And can you just talk about the competitive dynamics in that market right now?

Sure. It's a highly competitive market. But in terms of runway, a significant upside for us is we're really able to leverage the quality and the reputation that we have with our campus-based operations, then the extension of that with the Wyden brand. So it is very much a large and growing market, and we were very pleased with our second launch here. So we see a significant opportunity over the next couple of years to really gain some share and have a very sizable distance learning presence. And as we look at -- compare ourselves versus our competitors, over time, this is really going to start then to narrow the profitability gap with Adtalem Brazil. So we're quite pleased with the progress we're making there. And quite frankly, Nick, we're also very pleased with just the base business with -- excluding Wyden online, traditional higher ed enrollments were up almost -- just a little over 9%. So the market is responding really well to some of the adjustments that we made in pricing there.

Yes, good to see. Shifting to the guidance, the bump-up to kind of higher end of the previous 3% to 4% range. Is that just, I guess, new enrollment strength coming through? Or anything else to call out there?

Sure. A couple of things there. It is the new enrollment strength little bit better than expected in Medical and Healthcare. And then with the elections in Brazil, we're starting to see a very nice stability and strengthening of the real versus the dollar of where we had been earlier in the quarter. So we're pleased with a little acceleration in both revenue and earnings as we look at it on a full-year basis. And as we move into the second half of the year, really starting to see revenue and earnings moving in the right trajectory together.

Great. Then one last one for me. The EPS target, I think, is per share for the full year guidance now. Does that incorporate incremental buybacks or just kind of a run rate share count from Q1?

It's similar run rate share count from Q1.

Our next question comes from the line of Corey Greendale with First Analysis.

On Brazil, you've mentioned a couple of times the benefit of the election on currency. Could you just speak more broadly about what you expect the effect of the election to be in terms of demand for support for private sector education?

Yes. So it's early to tell, but I think for us, we look at it more as where is the -- from a FIES perspective, we are out ahead of that. We -- if you recall last quarter, we were in the low 20%. We're 16% today of our students across the entire portfolio that have government funding. Obviously, we support that and we are aligned with being supportive and being a part of the discussion in Brazil. They do allow higher ed institutions to be a part of that discussion, or at least have to date. But for us, it's all about making sure that we're diversifying that payer base. Obviously, we've seen the movie before, and so we feel like we're really out ahead of our competitors as it relates to that.

Okay. And also on Brazil, on Wyden. So first, can you just remind me, is that -- I know there was a branding thing that happened, are they actual programs? Is that all new or was some of that in place a year ago?

Some. So Wyden is the original DeVry Brazil, which were both online and on-site. But those institutions are aligned with DeVry Brazil, mostly in the North, Recife, Fortaleza, et cetera. And then since then we've taken the distance learning piece and branded that because we had a successful shift from DeVry Brazil to Wyden. Obviously, each of those institutions also have their institution brand name, but the Wyden really resonated. So we used that to go into the newer distance learning that started in March. So it's aligned our distance learning and the use of our franchise model, our 200 franchisees who are able to provide distance learning with the Wyden brand that already is associated with 8 to 10 institutions across the country.

Got it. It's really the online that I meant. So in terms of the growth from that online, are you looking at that as all incremental to what you had? Or do you think there's some shifting of people of people who might have gone to the ground campuses into the online?

We're looking at it as mostly incremental. And the reason for that is because, in this instance, we are the competitor, right, who was not able to do that before at all and now we have 200 outlets to do something and frankly, for the most part, geographically located in different areas to where our institutions are. There's some overlap, but we are not seeing -- we've been very close to this, we're not seeing this kind of either-or. We're seeing incremental students. Because you will recall, for online or distance learning in Brazil, you still have to go to the facility to take a test and so it's not you can be anywhere in the country. So for us, it's a real upside in terms of taking share from competitors in the market that -- who have been doing this for a long time. That will help us close that margin gap and operating margin gap that Adtalem Brazil has and that we've been talking to you all about.

Good. I just had two last ones, then I'll let you go. The first one, quick, Pat, could you just repeat the year-over-year change in Becker? I just missed the number you gave.

Yes. Revenue was down in the first quarter year-over-year, about 4%.

4%?

Yes.

Okay. And the other question is, Lisa, you gave a very definitive or clear statement about your view of the stock price. In light of that, should we interpret that to mean kind of the buyback activity that you've done recently is more what we should expect and relative prioritization of that versus M&A, given that commentary?

Yes. I mean, I don't really say either-or, right, because we obviously have said, and I'll maintain, we've got great run rate as it relates to inorganic -- excuse me, organic revenue growth. But we're in markets where we need to be looking and we feel like we've earned the right to look at inorganic growth. That being said, we still maintain that we've got lots of runway on the stock, on the price, on where we are and the intrinsic value even if we just deliver on what we have right now in our strategic plans. So yes, you're going to continue to see us being very confident as it relates to the share repurchase program.

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

It's Henry Chien calling for Jeff. I wanted to follow up on Brazil. So I mean, it's a pretty meaningful uptick in new enrollments. Is it really the environment that's improved? And I know the election was recently, but was there anything that the schools have done themselves to really boost that as well?

Yes, absolutely. And I'm glad you said that, because when you say recently, really recently, right. Like a couple of days ago. So obviously, we were doing things before that. And I think in the last call, I really talked a bit about some of the things that we operationally -- I like to talk about when we feel like from a marketing, branding, operational, admissions perspective, we have room within our schools to improve. We've done it with medical healthcare several calls ago, and I really felt that was the case here with Brazil. And we took some lessons learned, some really good lessons learned are from some of our other schools. In fact, we took an entire group down to Brazil to really look at what we were doing as it related to our call centers, to enrollment, to admissions. And we also looked at what's the best approach to go into Wyden Online and the distance learning piece and whether we were doing it the right way and took a hard look at our pricing, which we had not done. We have done it, but not to the extent that I felt we needed to do in order to say we've done everything operationally that we could as a management team, and that paid off this quarter. I actually, frankly, thought it would take a little bit longer to see that flow through, but it didn't. Kudos to the team for being able to be nimble. I've always said that team is really agile as it relates to both cost containment, if there is softness in the top line, but also taking a hard look at their processes on the top line when we're not getting the kind of growth that we think we should. So I think the macros are just all upside for us as it relates to currency, et cetera.

Got it. Okay, that's great. And I had a similar question for the medical and vet side, the sort of increase in enrollments. And I know you have mentioned putting together some changes in marketing, but was there anything else that happened in the quarter that you've done recently to boost that growth rate up?

I would say not necessarily recently because this is -- we've been working on this for a while. And couple of earnings calls ago, I would say we've got it in place, but it's just a flow-through situation, right. So if you look at students, let's take medical school students, you're talking about a 300-day cycle, right, from the time that they decide and take a click and look at a few websites to enrolling. And so this is a flow-through from processes that, frankly, were changed early on in our tenure in the CEO and CFO seat. What I think we're looking at now though is, in addition, ability to, as I mentioned, expand and think through how we can add to our AUC programs portfolio, et cetera, because of the U.K. experience. Had a great experience there and great partnership there with UCLAN. And then Ross, as we talked a bit about last call, January, will be in Barbados, on the island nation of Barbados. And when you look at the airlift, when you look at all of the healthcare system there, it's just going to give us such a great platform to compete with schools there or in the Caribbean.

Got it. Okay, great. And final one on the guidance that -- the increase in guidance from the operating income side. Is most of that from leverage from the Medical and Healthcare side? Or is there also, I guess, margin sort of increasing on the professional and tech and business?

So great question. We're going to most likely see this -- the leverage across all 3 verticals. We've got the benefit of the shift of the ACAMS conference that will be additive to our revenue and then obviously, a little bit over-performance in Medical and Healthcare. And as we've said before, we've got ample capacity at medical, specifically. So those incremental students will really drive some nice leverage.

Our next question comes from the line of Alex Paris with Barrington Research.

This is Chris Howe sitting in for Alex Paris. Most of my questions have been taken, but I did have a few left in regard to these partnerships in the Medical and Healthcare segment. How should we think about how much revenue can be extracted from the existing capacity as you fill that out? And in terms of these partnerships, the one with Ochsner Health and San Antonio coming in 2020, can you kind of fill me in on the process of this partnerships coming to fruition and perhaps some insights into the continuous backlog or the continuous strategic insights that you're applying to these decisions?

Great. So Chris, I'll take the first part of that question, really unpack that and specifically set it around med and vet and how do we think about (inaudible) there. So at the vet school, we do have some capacity in our January and September. And then at med, at both Ross and AUC, we do have capacity. So if you just step back, high level, we are about 800 students below our peak capacity in 2014 with similar existing footprints. And our new footprint in Barbados will replicate, if you will, in a much more efficient way, but still provide for the same amount of students when we were at our peak capacity at Ross Med back in 2014. So short answer there is ample capacity, about 800 students, primarily on the med side for some very nice operating leverage.

Chris, so then if you talk about then partnerships, so staying with medical health -- excuse me, the med schools and then going to Chamberlain, how we fill that capacity. Obviously, by our renewed marketing efforts, but then also partnerships such as the one I mentioned in the script with Ross University School of Medicine and Charles Drew. So there, that is a school in California that has the basic, the health sciences, the undergrad, and does not have the capacity to push through all of the students that would want to be in their medical school or get the MD degree. Those are students that for the most part are incremental and maybe some of that would have applied to us before, but that are incremental to the student pool that we have. So from our perspective, that's just another way for us to close that operating margin or improve that margin as we have a lower -- over time, a lower student acquisition cost for filling that capacity within the med schools, both AUC and Ross. You also mentioned Ochsner, and we've talked about it a bit, but worth repeating in that what the Ochsner partnership does for Chamberlain is really help us, again, as it relates to margins because those marketing costs are just so much -- and operating, for that matter, in general. But the marketing costs are lower because we are located on that healthcare system campus. So hence, the first session of the Ochsner -- of the New Orleans campus was at capacity with much lower marketing. So as we look at that model, we think about how we can roll that out and tap into tertiary markets that would not be large enough for us to otherwise enter.

That is very helpful. And then one more question as it relates to Barbados. You mentioned it previously, but if you could just highlight the differences that you see in Barbados as opposed to Dominica and what that could mean moving forward for enrollments and future potential.

Yes, sure. So the first thing I mentioned is airlift. So there is greater -- and frankly, it was one of the hardest things for us as it related to Dominica. So there is airlift from -- direct from several cities in the U.S., the U.K. and Canada. So while we do have about 10%-or-so Ross Med international students now primarily from Canada, that opens up an ability for us to market out of -- and have additional Title IV diversification outside, and then within the U.S., to be able to get more of those students just an easier logistics. When you then think about what we're doing on Barbados, we have a housing center where we literally will have all 1500 of our students and including student services and restaurants and hair salons and all these things all in one place as well as daily -- 7 days a week, most times of the day, because they're medical students, transportation to and from the academic campus. All of those things are really important to students. And then Barbados is a place where, even in Dominica, we've got a lot of family and friends and folks being part of that economy. And I think that Barbados is just going to increase that, and it's all around the brand awareness. And it's going to frankly give us an ability to market and be competitive head-to-head with St. George's, which has always touted that Grenada is an easier island than Dominica. So to get down into the tactical, that is going to help us a lot too. And then I mentioned the healthcare system because, as you all know, at the end of the day, student success and student outcomes and student experience is what drives all of these great financial metrics for us. And for us to be able to be on an island that has a far more sophisticated healthcare system where we can get clinical training and -- for our students, that really matters to us. And so that's why we're excited about Barbados.

Our next question is a follow-up from Jeff Meuler with Robert W. Baird & Company.

Yes, it's Nick again. This is a pretty boring one, but the Q1 depreciation was pretty significantly below our estimates. So just -- I'm assuming it's the Ross asset write down, but is that a good run rate to kind of bake in over the rest of the year?

Hey, Patrick can make depreciation exciting. So don't call it boring. Patrick?

Yes and yes to your question.

Thank you. There are no further questions at this time. I would like to turn the call back over to Ms. Wardell for any closing remarks.

Thank you. I just wanted to say thank you to all of you, our fellow owners, for your support of Adtalem Global Education, we appreciate it. And we'll be talking again soon.

Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.

Thank you for your participation, and have a wonderful day.