Q1 2020 Earnings Call
This time all participants are in listen only mode. A brief question answer session will follow the formal presentation to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star Zero as a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. John crystals.
Vice President of Investor Relations. Thank you you may begin thank you and good afternoon with me today from at towns leadership team or at least <unk>, Chairman and CEO and Mike Randolph <unk> Senior Vice President and CFO .
Like to remind you that this conference call will contain forward looking statements within the meaning of the safe Harbor for provision of the private Securities Litigation Reform Act of 1995.
Respect to the future performance and financial condition that add talent global education that involve risks and uncertainties actual results may differ materially from those projected where implied by these forward looking statements.
Such risks uncertainties and other factors that could cause results to differ are described more fully and item one a risk factors and the most recent annual report on Form 10-K for the fiscal year ended June 30, 2019 filed with the FCC on August 28 2019.
Any forward looking statement made by US is based only on information currently available to us and speak only as of the date on which it has made we undertake no obligation to publicly update any forward looking statement, whether written or oral that may be made from time to time, whether as a result of new information future developments or otherwise.
During today's call our commentary will refer to non-GAAP financial measures, which are intended to supplement no not substitute for our most directly comparable GAAP measures.
Our press release, which contains the GAAP financial and other quantitative information to be discussed today as well as a reconciliation of non gap to GAAP measures is available on our website.
It is also important to note that our first quarter results and guidance reflect the application of discontinued operations for our business and lost segment as a result of the recently announced divestiture of AD, how in Brazil, which made up the entire segment.
Telephone and webcast replay of today's call are available for 30 days access to replays. Please refer to today's press release.
With that I'll now turn the call over to Lisa.
Good afternoon, and thank you for joining us on today's call I will discuss the highlights from our first quarter before turning to our strategic focus the fiscal year 2020.
Then turn the call over to Mike to discuss our financial results before we open the line up to your question.
Let me first again by welcoming Mike My cousin to accomplish CFO with significant leadership experience in the consumer services industry and we are delighted that he has joined our team as we continue to execute on our workforce solutions strategy to serve our student and employer partners.
We had a busy start to fiscal year 2020.
Last week, we announced the strategic divestiture of our Brazil assets, which include ever Mac Dimascio and widen.
We reached an agreement to sell the assets to eat do the second largest education company in Brazil, which operates various universities and colleges and distance learning centers.
The highly capable education provider you do because both the scale and resources to take these institutions to the next level and continue the highest academic quality for our students and partners.
This transaction valued at roughly $465 million unlock significant shareholder value as we were able to sell the business 10 times EBITDA compared with that towns current valuation of approximately seven and a half times EBITDA strategically it's better aligns our portfolio allows us to address the global workforce skills gap.
Server markets getting more competitive and comprehensive way and provides another meaningful milestone in our transformation into a leading workforce solutions provider. This divestiture also streamlined our enterprise significantly reduces portfolio risk and advances exciting opportunities for growth and innovation in both our medical and how.
Care and financial services verticals.
On that note during the first quarter, we capitalized on healthy demand in our medical and healthcare and financial services verticals to deliver 7.5% revenue growth.
However, we experienced declines in operating income an EPS in the quarter as we continue to increase our investments in marketing and student recruitment to drive future growth in enrollments and revenue.
In addition, we encountered some onetime transitory costs in the quarter, which negatively impacted year over year comparison, Mike will walk through these costs in more detail. During his comments overall, we're pleased with our topline growth in the quarter and we believe our stepped up investments in marketing along with increased corporate cost discipline position us well to deliver on or.
Expectations for the full year as such we are reaffirming our revenue and earnings guidance for fiscal 2020 .
Now, let me walk you through the highlights of each of our segment.
We posted another solid quarter overall in medical and healthcare driven by growth in our Chamberlain onsite B S and graduate programs as well as a year over year increase in housing revenue from our Ross University School of Medicine campus in Barbados.
Chamberlain saw increases in both revenue and enrollments for the quarter. The on campus BSN program experienced high single digit enrollment growth as we enrolled our highest September class ever with nearly 2200 students.
We also generated double digit enrollment growth in some of our graduate programs, including the Doctor of nursing practice and the Master public health.
In addition in September we accepted our first class in mass for social work.
The Nevada Board of Nursing recently approved an increase in the enrollment cap for Chamberlain's Las Vegas campus for 400 students to 600 students and Chamberlain's, New San Antonio campus opened and began teaching students just yesterday.
As mentioned during our fourth quarter call, we're focused on keeping up the pace of new enrollments with a record number of graduation for RN to BSN program at a very competitive environment, we're taking strategic actions to increase chamberlain's level of competitiveness by better aligning our advertised pricing with what students actually peg in order to capture new students and but.
Mr topline growth.
Good day fees pricing initiatives have been rolled out across 21 state and we're beginning to see some early positive traction in this initiative and its early stages.
We're also diligently working on developing new educational partnerships with healthcare institutions as well as further expanding the ones. We've already established one partnership. We recently expanded is with the Cleveland clinic in Florida.
Our existing partnership which includes summer Chamberlain's Emerson and DNP clinical rotations was recently expanded to include Ross University School of Medicine.
All right students will now complete their first clinical clerkship internal medicine foundations at the Cleveland clinic their hands on education, the physician supervise clinical clerkship prepares our U.S.M. students for their subsequent clinical rotation in a small group learning environment that lays the foundation for them to be residents ready.
At Ross University School of Medicine, we continue to drive quality student outcomes at high benchmarks, achieving a first time you Assembly test pass rate average of 94% at a 92% first time residency achievement rate. In addition, we have further expand or institutional partnerships with Ross University School of Medicine.
With the recent addition of C. S. You Domingos Hills and see Peters University. Both notable Hispanic serving institutions as a part of our continued effort to address position diversity in the U.S. These marked the fifth and sixth partnerships with either an H.B.C. you or HSR, respectively that we've announced this year and we saw our first.
Enrolled students from these partnerships in the September class.
Ross University school of Veterinary medicine enrolled its largest fall class in more than seven years in September and further strengthen student outcomes. During the first quarter would be average Napoli score cheaper students, having now reached 88% at school record.
We also began a new partnership with rough that and Lincoln Memorial University, giving students a broader range of clinical options across a variety of locations, we're expanding our partnerships into campuses in the UK, including Glasgow and Bristol can provide new opportunities for students seeking global experience.
At the American University, if the Caribbean School of Medicine, we further developed relationships with key partner, including the University of Central Lankershim are you plan in the UK as we enrolled our first class in a new partnership where students can pursue a degree in international Medical Sciences from you clans Preston, England campus.
Followed by pursuing an M.D. degree from eight you see say Martin.
It is shouldn't you see received approval for an affiliation with the World Association for disaster, an emergency medicine. We also expanded our relationship with the Caribbean disaster Emergency Management Agency, which has agreed to participate in our upcoming 11th annual Caribbean Conference. In March. We're also excited to share that Dr. Heidi Trembley executive.
Dina Basi was recently honored with a seat on the hospital Supervisory Council in St. Martin.
The financial services segment delivered strong double digit growth in the first quarter driven by robust growth in eight cans and the addition of encores learning Becca saw the successful launch of its new website, an ecommerce platform during the first quarter, which has begun to the gained significant traction better aligning academic support with learning.
Ladies and improving the overall student experience.
Traffic to the back a website is up nicely and more importantly, our paid media conversion rate is up 36% and a social media conversion rate increased 117%.
Additionally, backer has renewed over 70% of its large enterprise contracts and expects to renew the remainder prior to calendar year end.
It comes had a particularly strong quarter with a 15% year over year increase a membership to more than 75000 globally revenue growth was even stronger driven by the successful Las Vegas conference, which shifted to the first quarter. This year versus the second quarter last year. In addition to record attendance at the event, we experienced a sizable increase.
Since sponsors for the conference this year, reflecting the strong demand for the content delivered at our conferences.
Earlier this month. It can also launched training packages for its first new certification in 16 years, the certified global sanction specialists and we're excited about the growth potential for this new offering.
Finally, the strategic partnership between Backer, a camp and northeastern University launched its first offering a certificate of course in a I for financial services, bringing on several major corporate customers, which have adopted the course offerings internally.
As we advance into the new fiscal year, we're highly focused on driving growth across the business, which includes increased investments in our strategic initiatives, while maintaining a disciplined approach to managing our cost.
Better aligning our portfolio with our strategy, we believe will drive substantial long term shareholder value.
Solving our workforce solution provider offerings allows us to expand our payer base beyond federal funding and ensure continued excellence in our cohort default rates all of which are well below comparable rates before profit and nonprofit institutions alike. Our strategy also demonstrates the return on investment ever education offerings, as we gain greater share.
Our of while it from our employer customers I am encouraged by the progress we made in the first quarter and believe we have a number of opportunities ahead of us as we progress our transformation into a leading workforce solutions provider.
With that let me turn the call over to Mike for a deeper look at our financials.
Thank you Lisa and good afternoon, everyone I'm thrilled to be part of the at how long team and I'm very excited about the strength of our reposition portfolio and the long term potential for growth.
I'd also like to quickly note that I'm, a big believer in transparency and clear and simplified disclosure along those lines. You'll note that we are now including slides to accompany our commentary on the earnings call and we will continue to refine and improve our quarterly disclosure going forward.
We ended the first quarter fiscal 2020 with strong revenue growth that was in line with their expectations.
With a focus on unlocking future growth, we continued our step up in the first quarter marketing and student recruitment investment.
Well that negatively impacted our operating income and contributed to a decline in earnings per share. We believe these investments will enhance our enrollment and membership trends in the back half of fiscal year 2020, and set the stage for increased long term revenue growth.
During the quarter at Hallum revenue increased 7.5% to $254.6 million from the prior year.
This increase was driven by growth in both our medical and healthcare and financial services segments.
Operating costs, excluding special items were $227.1 million in the first quarter compared with $200.7 million in the prior year.
13.2% increase.
Approximately half of the increase was attributable to costs directly associated with the revenue growth in the quarter.
About one quarter of the increase was due to investments in marketing and student recruiting to support enrollment and revenue growth in future periods.
The remaining increase was the result of severance associated with our CFO transition and a higher bad debt reserve.
Operating income from continuing operations, excluding special items was $27.5 million compared with $36.2 million in the prior year.
Net income from continuing operations, excluding special items was $18.9 million compared with $26.7 million in the prior year.
Diluted earnings per share from continuing operations, excluding special items was 34 cents compared with 44 cents in the prior year.
Turning to our segment results.
Starting with medical and healthcare revenue increased 2.7% to $207.5 million compared with the prior year.
Chamberlain first quarter revenue increased 2.5%.
In the September 2019th session, New student enrollment at Chamberlain increased 2.9% and total student enrollment grew 1.4% compared with the prior year driven by growth in the on campus Bachelor of Science of Nursing program as well as the graduate programs, including the Master social work.
Which just launched in September .
Revenue in the first quarter for the medical and Veterinary school increased 2.9%.
In the September 2019 session, new student enrollment declined 1.9%.
While total student enrollment declined 4.7% compared with the prior year, primarily reflecting lingering effects of the permanent campus relocation of Ross University School of medicine to Barbados, and a third quarter 2019.
Operating income for the medical and healthcare segment in the first quarter was $28.5 million compared with $1.7 million in the prior year due to a 39 million dollar charge in the prior year related to the closing of the Ross Med campus into Mexico.
Excluding special items segment operating income in the first quarter decline, 29.6% to $28.6 million compared with $40.7 million in the prior year.
The decrease in segment operating income is the result of increased marketing expenses to drive future enrollment growth cost of expansion and growth in campus and online programs and increase in our bad debt reserve and corporate costs that were previously allocated to our business and lost segment in the first quarter 2019 that are now I will.
Hit into medical and healthcare and financial services in the first quarter of 2020.
To aid comparability see slide 13, where we adjusted the first quarter 2019 operating income and margin to similarly allocated corporate costs on a comparable year over year basis from business in law to medical and healthcare and financial services segments.
Turning now to our financial services segment.
First quarter segment revenue increased 32.2% to $47.1 million compared with the prior year.
First quarter segment revenue included $7.6 million of revenue from the acquisition on course learning.
Excluding special items segment operating income in the first quarter declined 13.5%.
$4.1 million compared with $4.8 million in the prior year.
As previously noted corporate costs that were previously allocated to our business and lost segment in the first quarter of 29 team are now allocated to financial services in the first quarter 2020.
You'll note on slide 13, when the corporate allocation as adjusted.
On a like for like basis for both periods operating income was roughly flat.
Now turning to our balance sheet and financial position cash flow from continuing operations for the first quarter totaled $33.3 million compared with $53.5 million in the prior year.
Capital expenditures for the first quarter totaled $10.4 million compared with $13.3 million in the prior year.
With regard to free cash flow from continuing operations, we generated $22.9 billion in the first quarter.
On a trailing 12 month basis, we generated $110.6 million.
We closed the first quarter with cash and cash equivalents of $121 million. However that does not include $89 million and cash contained within discontinued operations that is available to add talent at closing of the Brazil transaction.
Including this cash which will be available to us our total balance would be $210 million.
Our outstanding Bank borrowings at September Thirtyth were $336.3 million.
We remain committed to maintaining a healthy balance sheet and ensuring we have ample resources to support our growth strategy.
Share repurchases remain an integral part of our capital allocation strategy and our strong balance sheet continues to allow us to pursue this.
Over the last three years, we've returned nearly a half a billion dollars to shareholders through share repurchases for dividends.
During the quarter, we repurchased approximately 900000 shares at an average price of $43.81 for a total of $40.3 million.
Moving onto our full year 2020 outlook.
We are reiterating our guidance with the exception of our effective income tax rate for the year.
Which we now expect to be in the 19% to 20% range due to divesting at Talen, Brazil, which was subject to a lower tax rate.
As we look towards the rest of the year, we're continuing to focus our capital around investing in our core institutions and companies, making disciplined strategic acquisitions and returning capital to shareholders, all while maintaining our financial strength and flexibility we plan on continually allocating our capital towards these.
And to ultimately grow shareholder value with that ill now turn the call over to the operator for QNX.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound or hash key please standby bill we compile the Q and a roster.
Your first question comes from Corey Greendale, the first analyst your line is open.
Hey, good afternoon.
I appreciate all the detail.
At a little bit of fear I'm going ask questions that are in one of the slide somewhere so forgive me if I do that but.
I guess my first question is are we going to be getting full financial kind of restated for discontinued operations that's model off of.
Yes, those are in the slides in the appendix and the slides for Brazil.
You have.
You do have the additional results on the discontinued operations that are provided and they're also in our 10-Q.
Okay I'm talking about is like when we get all the quarters of fiscal 19 restated.
Yes on slide 20 inquiry in the supplemental slide deck that that's right hostess.
Yes, Okay I was hoping for more information has been how the split between the different line items, but if we can follow up on that.
So you referred to the guidance is unchanged.
At least I was expecting sort of lower growth from Brazil, which suggests that if you've been doing the same growth rate, that's Brazil that the growth in many other segments is potentially lower than it would have been.
Is that is can you just comment on that your expectation for the other segments isn't changed from what was when we when you get initial guidance.
Sure I mean this this is our thoughts around that when we built our plans.
For for the fiscal year 2020, we took into account, where Brazil was trending last year.
And we had initiatives that will ultimately drive a resumption of growth.
What's in Brazil, and also recognizing that the comps, particularly in the back half of 2019.
We're quite a bit easier and so when we looked at our overall when you look at our overall plan levels of growth.
Brazil was contributing similar to the level of the rest of the business. So when we take that out.
All right does it doesn't have a meaningful impact on our guidance.
Okay and in terms of the.
Additional spend on marketing.
Could you comment on kind of whats driving that like are you seeing a tougher demand environment is.
You mentioned the conversion rates on some pieces going up I don't think on the medical and healthcare piece. So what's what's driving the idea that decision to increase marketing spend.
Sure. So what I would say what's driving our underlying decision is is we.
See ourselves, having part of a business that just has tremendous opportunity.
Tremendous potential for growth and.
Marketing is.
One of the ways and one of the tools to help us drive that that growth and reach our full us potential and to give you a little bit more context on marketing and just how were.
Investing and how we think about marketing overall first as we invest marketing dollars. The way, we think about that in the way will be thinking about that is really in terms of what's the long term value, we're going to generate from those marketing dollars applied relative to the investment now that also means we may make.
Marketing investments in period with the payback being in subsequent periods and that's the case and this instance, and you know what I would say is just to give you a little bit more context.
On the marketing we're spending our overall increase for the year in this quarter.
Is about $5.5 million about three and a half million dollars of that is on the marketing side about $2 million on the recruiting side on the other marketing side.
We're spending a fair amount and medical and healthcare, particularly to support Chamberlain their new programs.
In particular and also on supporting Ross Med, which is still still recovering from the link lingering impacts of the relocation and then also spending money on the financial services side to support a camps to support the new global certified sanctioned specialist certification.
And also the overall back our brand and 2.0. So those are the big initiatives that we are supporting.
And we feel really good about the investments, we're making a quite the only visibly side. The only thing I would add to that is.
If we say why it on the timing as we had allowed things we needed to fix so as an example, becker and the branding in the website I mentioned that in the last call. If you look at it now completely different user experience for our students in customers coming through there Chamberlain RN to BSN, we talked about pricing and how we will communicating to the market now that.
We are frankly have fixed that in a rolling that out across the state. We can put in that did those digital marketing FPL dollars, because it's not putting money under some after something by the messaging is incorrect as two examples and I would say something similar on a on the ATM side, we really have the ability to give a good user experience.
Those are on those sites and therefore, we can ramp up the marketing.
Great. Thank you Paul that's very helpful detail and they just that's one quick numbers question, then I'll turn it over the.
In a cabins.
Shift in timing of the comments can you give us some sense of what the year over year impact was of that on the other segment revenue.
Sure the impact in the quarter was approximately.
$6 million and so.
Basically we had 6 million all the revenue from the conference. This quarter that we wouldn't have had in the first quarter last year and similarly, as you think about the second quarter.
In the second quarter, that's coming up.
We won't have the ACAMS conference, obviously, and we will be lapping the ACAMS conference. So overall when you look at our revenue trends in the second quarter for global add talent, you should expect lower revenue growth in the second quarter than you saw in the first quarter because of the timing of the conference.
Yes, again about one point condition, which is on that conference. If you would just to take conference. The conference. It grew about 15, 15% to 20% based on a higher sponsor and sponsorship of the Las Vegas Conference. So we are we're feeling confident about that.
Perfect. Thanks.
Your next question comes from Jeff Mueller with Baird. Your line is open.
Yes. Thank you.
So on the initial dilution and congrats on the transaction like the divestiture, but on the initial dilution I guess two pieces, maybe if we could hit them.
On stranded cost is to 3.4 million in the year ago annualize $14 million is that.
Right annual number to use and then related to that.
How much does guidance assume that you will reduce the stranded costs this year and long term how much opportunity is there to reduce it.
So yes to answer your first question the full amount for the year last year's around 13 million so you're about in the ballpark.
And.
The way I would think about the costs that are that were previously allocated the business in law and are now being allocated to medical healthcare financial services. The portion that was unique too.
Brazil.
That's that's already in discontinued operations the rest of the costs are kind of central costs that.
Aren't necessarily unique to Brazil, and basically each of the individual parts of our business basically leverage the benefit off of now with that being said what I would say is just more broadly on cost. Overall is we will continue as we have had in the past to have a very strong focus on it.
Fishy and continuing to.
Enhance our overall cost structure and the way the way we think about it in the way we will think about it over time is I would put it in a few buckets.
First post Brazil.
We have approximately 4500 employees.
Throughout at Alamo and over time, we're going to continue to work to continue to improve.
The tools and the processes and and do what we can to help improve the overall efficiency and productivity of our team members.
And that will open ultimately overtime.
Increase our overall productivity level, secondly, we spend today around $50 million to $60 million.
All in with regards to our cost of real estate, we will continually be looking at.
Real estate and how to optimize the efficiency of our real estate portfolio and then thirdly, what I would say is is when you separate from our employee costs separate from our real estate costs.
We spend over $200 million in various other cost categories and that really as an opportunity for our procurement team overtime to identify how to create additional efficiencies through contract negotiation. So.
Looking out more broadly than just a $13 million.
I would say.
I think there's a lot of opportunity.
Overall from from a cost structure standpoint.
Okay, and then I guess the other points hitting the dilution just not getting the proceeds until about a year from now I guess.
What's the ultimate plan for those slick how much do you expect to return to shareholders via repurchase or.
Or consider onetime dividend or is a.
Would it be open market repurchase as some sort of like modified Dutch tender or something like that an option.
Oh, Jeff. Thank you for thinking about though for us [laughter] Oh, yes. So the answer is absolutely we look at that as part of the overall capital allocation as you know share repurchase we've been pretty aggressive in the market because of where we are well continue to do that and and obviously when that cash coming in it's really got to be between.
The three things it always is which is returning to shareholders I can't can't we want to close the deal I can't say, we've thought about the actual process or procedure for that but certainly that is we are stewards of that capital for our shareholders No question.
Then as we've said before investing in our core you see us doing it a bit now which is putting.
Pressure on the on the bottom line, but it is going to really bear odd dividends and fruit with this new streamlined focused portfolio going forward and then.
Potentially are there acquisitions that are core to driving growth in synergies and scale for our remaining two areas of focus medical healthcare and financial services, where we believe we got the right to win.
Then absolutely we take a look at that's what's going to be in those three buckets as it always is but we recognize.
That we need to have something very compelling to do with in the current verticals in order to spend that money of investors.
Okay, and then gross profit was only up 1%, which im guessing puts it down organically year over year, even more so if I would normalize for ACAMS conference timing so.
When you talk about the expenses a lot of the focus was on marketing and student recruitment other than higher bad debt reserve I'm not sure I understand like why is gross profit down organically.
So I think you have you have a few things going in this quarter one is.
As I highlighted you do have about five and a half million dollars in quarter of higher marketing expense.
That is higher in the first why wouldn't that have EBIT, but not gross margin I'm focusing on gross profit.
Yes.
That you would have had with yes, you're right that would have hit feedback in terms of.
On on gross profit you have a couple things obviously going on there you do obviously as you mentioned have timing.
With regard to make him we have growth in particularly on our on campus businesses.
Obviously that has somewhat little bit of a lower lower margin.
In the rest of our business. We also have growth and our housing revenue line, which also tends to be a little bit tends to be lower margin than some of our online offerings as well as becker and outcomes.
Okay, and then last one from me on medical International what are you seeing in terms of new enrollment, leading indicators inquiry rates and what not just given that.
The new enrollment trend remains weak, but you're obviously lead again on on marketing spend an important now with decent onetime removed from the campus relocation. Thank you.
Yes sure.
Thanks, Jeff So a couple of things out while we do still have a slight decline in new and a bit of decline in total obviously that coming from the newer as being lower its certainly certainly closing the gap. There. So if you look at a little less than 2% across the three schools at less than 20 students across those three schools, obviously, the one being most effect.
Good its Ross Mad and as a reminder, I know you have no this but add the permanent home.
Maybe 12 months until until January so as I indicated in the last call. A we knew we continue to see some pressure we're seeing the right to application and inquiry models for cross med fat, which gives us confidence that.
As we look at that 300 or sell day so.
Michael If you will for students and prospective students, making that decision that we're at where on the right track and have confidence for the January I may enrollments.
Thank you.
Your next question comes from Greg Pendy with Sidoti Your line is open.
Hey, guys is taking my question just wanted to I guess I understand the cadence on how we should think about the marketing spend if I'm not mistaken. It seemed like you know in Fourq here that we should have been expecting it to be maybe front half loaded is that still the same as we think about the remaining three quarters, because I know you're not giving.
Quarterly guidance, but I'm, just thinking I mean by the fourth quarter should we anniversary just the Ross spend and is Chamberlain kind of going to be frontloaded in the first half.
Yes, I mean, I think the way you're thinking about it is about right that we have made active decisions to essentially front load our marketing throughout the year and a disproportionate amount of our spend is focused.
Both Chamberlain.
And then secondly.
At Ross Med, and then we'll get to the back part of the year.
You both don't have the same the same quantum necessarily of spend but you also start to lap next year spend level I.
I mean last year spend level.
Got it.
Thanks.
Your next question comes from Alex Paris with Barrington. Your line is open.
Good afternoon, and this is Chris how sitting in for Alex Paris.
Just going through my list of questions here I have few last you've talked a lot about Brazil.
And the proceeds.
That could come in upon the closing.
When it comes to share repurchases.
Are you still remaining with your initial expectations for the year.
And as far as these proceeds how would you evaluate the pricing environment. When it comes to inorganic growth in kind of areas of interest that you may see.
That are under evaluation for build versus buy decisions.
Sure a couple of things I'll take the first part of that and then listen to take the second part with regards to.
What our initial assumptions are with regards to share repurchases what are what our original plans have been and what our guidance is predicated upon.
Is approximately $100 million of share repurchases.
And the other thing I would also just highlight just to give you a little bit of color adjusted as you're modeling EPS is particularly around.
The second quarter relative to the.
Trending in the back part of the year is looking at the trending of bps through the year.
In the second quarter I wouldn't expect that we would have EPS growth in the second quarter.
As we have we continue to have.
Higher level of marketing spend in the second quarter and on initiatives ramp up in the back part of the year.
Yes.
In terms of the.
Acquisition question and pricing.
Our perspective, we have the platforms in the two verticals, where we wish to play and feel like we have the right to win a particularly that health right. We've got the rights Apple onsite and online platform as well as Infinium services were able to be lower.
Well and so for US we that allows us the ability to be really disciplined and how we pursue acquisitions.
To ensure that we're maintaining.
The IR and the ROI see for the for the vertical in the segment.
And what I mean by that is as we look at LCL being a perfect example, as we look at acquisitions, we can really build in the synergy case and the cross selling case et cetera et cetera, because we're not looking for the startup platform. If you will so it will be disciplined and we always have the ability to invest in the core.
Chamberlain campuses online programs, new offerings partnerships, you're seeing that in our script today and you will continue to see that to fiscal plenty and beyond so.
There is no must do acquisition, which allows us to be disciplined.
That's great and also very helpful.
My last question is just in regard to on you talked about it at a recent conference.
You've talked about at more than once about the 300 day.
Sort of cycle between one student goes online until they actually enrolled in regard to men health.
Can you share some of the refinements that you're making or the conversion processes in place.
That are going to drive higher conversion of leads going forward and just following up on that on that note.
Can you also comment on what you're seeing.
As far as lead volumes and retention within men's health.
Yes, sure and so the 300 that I mentioned a bit is sort of first click to two enrollments. This couple of things where we're doing first is just in general across our actual site. So if you go to our web sites today as it as it relates to the med schools in the vet school very different.
Experience in terms of ease of use and sort of click through if you will get the inquiry and get those increase sort of open and I get the information we need from those students. So certainly a better experience and then just more touch points do that funnel into conversion. So if you will recall using that as an example, but.
The AC has gone through this to.
This time last year, we couldn't even told folks where that school and location was going to be or give them. All of the things that go into that decision around housing and family in finance and all of those things because we were influx and so now we're much better able to have those touch points with the students as they go through the process.
The second is making sure that our inquiry.
Volume is coming from those places where folks are we really do have the intent to enroll and so that we're working through our data analytics and digital marketing side, an SCR to make sure that were pursuing you always want to obviously have to large funnel by pursuing those inquiries that I just have the higher intact. So that's what we're doing on the actual.
On sort of business of of marketing and student experience to convert to to increase those conversions on if that were also as I mentioned today and it's been a couple of calls now we've talked about it but it's starting to really gain traction is partnerships with those places that we now have these undergrad students in this case.
BC using the HSR eyes is banik service institutions, who have on students who want to enroll in just did not happy awareness and into the September class. A we have students from all six of the partnerships that we have enrolled.
In either our marriage or our schools. So we know that that the funnel that makes sense and that those students I can be successful within that first semester. So I think between those two things and the way that we're tracking the data around the students who are coming to the sites and starting inquiries were seem really good really.
Traction.
Thank you so much Lisa those very helpful. Thats, all I have from them.
Thanks, Chris.
Your next question comes from Henry Chen with BMO. Your line is open.
Hi, everybody answers I mean.
Just a just a follow up question on the medical and healthcare said I guess specifically medical.
<unk>.
The new enrollments just if you could comment on some of the volatility in new enrollments I know that there is.
Some delays last quarter.
And Oh I guess this quarter is.
To do with the relocation and just.
I guess.
If you could comment on you know excluding maybe some of these onetime things wed what sort of like the underlying growth you would be targeting for that.
For those schools. Thanks.
Yes, so I would say it in terms of where we are what will the traction what we're looking at again as we mentioned, it's Russ Mad where we're we're really working to drive the marketing spend now that we have a permanent home. The eight you see obviously now has its satellite.
Campus in the first class there are some to satellite, but UK track in the first class in the UK and so were expecting to see some some to see some positive growth there and the vet school actually sat its largest class I guess ever a in September and so there we remain.
Excellent and confident with the January and May classes that tend not to not to to fill as fast as because obviously the traditional school engines time in September . So we're very confident that we will be able to get too I sort of mid to high single digit growth across med that as we.
As we work through both the marketing challenges and the sort of aftermath at the relocation.
With AC and with Ross Matt.
Okay got it that that's helpful and on the on the marketing side I know you kind of walk through some of how you're thinking about strategy.
Just in terms of the that the market or the.
The competition out there or is it.
What happened like because there's a change in.
Sort of their marketing environment do you see more competitors I guess is it.
Sort of what's going on there.
Yeah, I would say and Chamberlain certainly it depends on the area. Obviously, we've talked about RN to BSN and just online is more competition for sure, but the Chamberlain brand certainly carries weight and were able to drive that through through the market and sort of cut through some of the noise at the low cost.
Provider and we talked about just our pricing strategy, we've rolled that out to more than 20 States now we're seeing really get traction on that side on the on site vs. On a grown quite nicely and we don't see as I mean, obviously, there's more barriers to entry there in terms of state boards et cetera, we don't see competition.
Changing the way that were marketing there were just sort of best practices and getting better on the med that side I think it really does have a lot to deal with the flow through of I'm, just all of the disruption again over the last on spend year and a half now, but we're seeing sort of steady state and increased inquiries and applications.
Interest to across that segments, so feeling pretty confident about the next couple of session.
As we go into the back half of the fiscal year.
The only thing I would add there is is there is a good pull piece of our marketing that supporting our new initiatives, we've launched new degree programs.
Chamberlain.
We.
Becker, we had a relaunch of our website and the brand and where we don't really leaning heavily into the CP space at a camps.
We.
Launched our first new certification in 16 years.
And we also at a camps.
At a 15% increase in membership to over 75000 and so.
Our marketing dollars in our initiatives are targeted towards those those growth lovers.
Got it okay. Thank you.
Your next question comes from Corey Greendale with first analyst Your line is open.
Hey, Thanks for taking just a couple of follow ups.
So maybe I'll start with a big picture question, which for Lisa.
Since it's been a little bit time now since you have publicly discuss the workforce solutions positioning just interested in.
Feedback and if you're talking to large employers how they're thinking about working with you.
Yes. Thanks for the question actually really good feedback and I think it becomes far more I'm sort of credible and confidence building as we've really been able to streamline the portfolio. I'd say you know we are focused on solving really big problems for folks in financial services and and.
Employers in medical and healthcare so.
As an example of this AI for financial services program that we launched with northeastern University I'm getting a lot of traction not just in financial services, but also multinationals and other corporate to have folks coming into a day one ready in domain expertise in.
Since services, but just need that extra certification and Upskilling, that's exactly the kind of proof point that we're looking for across the portfolio and really well received on the hospital system side, we are starting to gain the traction across our institutions, which is always something that was.
Aspiration, all earlier, but now that we can really focus on if you think about the Cleveland clinic in Florida that I mentioned on the script to be able to have that cover Chamberlain as well as Ross and be able to drill to these hospital systems and talk to them not just about physicians, which is important but also about.
Masses of social work and masses of public health as well as BS ads as well as upscaling their RMBS and it starts to paint a broader picture for them that we're a solution provided that they can come to so really good traction on both places and now we have the ability to.
Be clear about our focus in these areas and the supply and demand. These are the right places for us to be until the noise has come out of the portfolio in a way that I can are really reach out and drive some of these relationships at the CEO and board level.
Okay, that's good to hear.
Then I just had a real quick numbers question, which is I think looking at the revenue growth and met invented it implies a pretty significant increase in revenue per student is that that the housing impact you've been talking a lot of what's what's driving that.
Yes, the what you're seeing there is the increase in housing housing revenue, particularly at Ross met in Barbados.
And is that like sometimes you see that all year.
Yes, no we will see that all year, we have.
We have.
Significant number of student residences there.
And.
We have that will be something that's those are students that are living right by our campus in Barbados and.
And we will be generating that revenue for the foreseeable future.
Oh, Thanks for taking my question.
Uh huh.
Your next question comes from Stephen Farley with Farley Capital. Your line is open.
Hello.
Few questions.
On the Stephen a cash flow amortization of in adjustments to operating lease assets.
It was.
$12.8 million can you talk about that.
Sure that is essentially the adoption of SC 842, that's basically where you're putting the.
You are basically you're putting your leases on your balance sheet and essentially when you put your leases on the balance sheet, you basically amortize the lease assets and that you see you have the expense associated with that and then you have that go through your your you have the offset in your cash flow.
Oh.
Okay. So that there was it wasn't it's you're saying, it's not a right not writing something down or are you ready.
No no we're not writing anything down under the new.
[noise] lease accounting standard that.
Became adopted as of the first quarter of this year. This is.
A 42, you could actually look at our 10-Q and it elaborated a detail you basically essentially put.
Your operating leases.
Centrally are capitalized on the balance sheet, and then or the amortization of those leases which flows through your.
Financial statements.
Okay. Okay.
Okay.
And then also the tilts with the the provision for bad debt went from up from 1.2 million to 5.6 million ultimate that.
Sure. So what I would say is every every month every quarter, we evaluate our loan portfolio to make the best estimate based on the data we have at the time with regards to collections.
Over this quarter, we saw some increase in the aging of some of our loan receivables in the med that area.
And so our reserve simply indicates it's simply reflects the new data points from from this quarter and so our reserve was adjusted.
Based on the increased aging of some of our receivables.
And so just can you kind of give us a picture of the people that you thought were good credits that now aren't good credits are the people that were had been out for long time or people it dropped out middle away with what caused the.
What assumptions turned out not to be true.
Yes, well I don't know that it's an assumption that turned out not to be true. These are unique to the individual so I don't know that I can call out you know specific circumstances. This is.
We look at like I said every quarter, we look at the overall portfolio.
No person who loans money to someone.
Virtually no one has 100% collectability.
And so you're always making an assessment with regards to.
The reserve and.
So we assess that on a regular basis based on the data we have I think just to add to that so if you look at med that you look at our cohort default rates right. There are less than 1% to these folks. These these are not folks who have dropped out or anything like that these are just aging receivables for the for the private loan part, which is a much smaller part and there.
Paying their their federal alone. So a part of this is just making sure that we're doing the collections piece to ask them to pay the loans I'm sure. Although some Sam asks them every month and so we're just going through that process has been great haven't Mike on board to take a look at that so we don't expect us to be a an ongoing or sort of shifting up with.
Number. These these are folks who are employed in there and they're paying loans because the pancetta alone.
Can you give us a sense of the size of the portfolio. If the provision for bad debt was 5.6 million in the quarter, how large is the or the receivables from people at.
The the meds that.
Yeah, we actually have that specifically disclosed in our 10-Q side just refer you to our 10-Q.
Okay and then.
Also in the press release, you talked about.
There were.
3.2 million.
Charges related to.
The right University in Carrington, which had been.
Ownership of trends from the second quarter, 2019, and then Brazil tell us about that.
How much of that was was that the Brian Carrington and why is it that we're now getting charged for something that got.
Yeah.
Six months ago.
Well, even though something maybe divested there are certain things, where we still have obligations associated with that and so any obligation associated with that where we may have a charge.
Particularly tied to facilities or some other.
Since.
Where we still have an obligation that goes through discontinued operations.
Let's all that but just because just can you just tell us what what it was what you know.
Yes, I have to refer you to our 10-Q on that specifically.
Okay.
No more questions. Thank you.
There are no further questions at this time I don't know turn the call back over to John Christoph.
Thank you. Thank you everyone for joining us today and as always.
You have follow up questions. Please contact me directly.
This concludes today's conference call you may now disconnect.