Grand Canyon Education (LOPE) Q4 2018 Earnings Conference Call Transcript

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Grand Canyon Education (NASDAQ:LOPE) Q4 2018 Earnings Conference CallFeb. 20, 2019 4:30 p.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Grand Canyon Education Incorporated fourth-quarter 2018 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr.

Dan Bachus, chief financial officer. Please begin, sir.

Dan Bachus -- Chief Financial Officer

Thank you. Joining me on today's call is our Chairman and CEO Brian Mueller. Please note that many of our comments today will contain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statement.

These factors are discussed in our SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in GCE. And with that, I will turn the call over to Brian.

Brian Mueller -- Chairman and Chief Executive Officer

Good afternoon, and thank you and welcome to Grand Canyon Education's fourth-quarter fiscal-year 2018 conference call. During the fourth quarter of 2018, enrollment increased 7.8% to 97,400. New working adult students attending GCU online, grew in the low teens year over year, which exceeded expectations. I want to start by reviewing the size and scope of GCE services that they were delivered in the fourth quarter of 2018.

First, from the curriculum-development area, two new programs were released to the universities for implementation. I want to remind you that GCU is responsible to select all new programs, is responsible for the content and learning outcomes of those programs, sets the admissions requirements for students and the academic requirements for faculty teaching the program. The new programs were Bachelor of Science in Elementary Education, with an emphasis in STEM and a Master of Education in School Counseling. In addition, there were 11 programs and certificates that were revised or updated.

Second, from the faculty services area, there were six full-time and 245 adjunct faculty recruited and trained. There were also 100 additional sessions of faculty training and professional development. These examples of these trainings include boosting student success, the first-year experience, from theory to practice and creating collaborate classrooms. Third, in the admissions area, a total of 19,875 transcripts were evaluated, which provides prospective students the information they need in order to make a decision to start a program.

Fourth, in financial aid, 154,339 files were touched. Fifth, in the scheduling area, 19,631 classes were scheduled, with an average class size of 14.3. Sixth, our academic counselors performed 550,000 activities on behalf of students in the quarter, including activities such as welcome call to new students, course reminder calls, GPA concerns, attendance, finance changes, missing documents, practicum or licensure follow-up and schedules built or changed. Seventh, in technical support, 57.3% of the calls were answered with no hold time and if placed on hold, the average time was less than a minute and 26 seconds.

Eighth, our advertising work was very efficient in providing the necessary coverage to significantly exceed our enrollment goals. Ninth, we continued to enhance our technology platforms during the fourth quarter. We are currently working on over 80 software projects. We have successful pilot of our cloud-resource platform doing GCU's full term.

GCU has increased the use of platform, excuse me, during spring term when we are jointly modifying GCU curriculum to use the platform in additional IT, cybersecurity and programming courses going forward in both traditional and online course delivery. We continue to use our deep-analytic platform to improve student support. One key area we use this information is in automating the scheduling and tracking the field experience required in several of our programs, including education and counseling. GCE has invested over $200 million in advanced technologies, resulting in automated services and artificial intelligence to support students, faculty and counselors over the last 10 years.

I've reviewed just some of these. The objective going forward is to implement those capabilities over six core growth strategies. The goal is to work with partners to provide high-quality academic services, that will produce quality outcome metrics for the university and career opportunities for the students. The metrics include but are not limited to high graduation rates, low debt amounts and low default rates on student loans.

First, GCU's traditional ground campus will continue to grow, both in quantity and quality of the students. GCU's new nonprofit status has provided a tailwind from a new student growth perspective. In the fall of 2018, the ground campus produced a record 7,000 new students. Given the current flow of applications, registrations and deposits, for fall of 2019, we expect approximately 8,000 new students.

The average incoming GPAs will again be over 3.5 and the Honors College will grow to 2,400, with average incoming GPAs exceeding 4.1. The campus will grow to 30,000 students, with over 300 academic programs over the next five to seven years. Average revenue per student will continue to rise because the percent of all students living on campus will continue to go up. Second, the goal is to grow GCU's online campus at 6% to 7%.

However, the nonprofit status of the university has created a tailwind impact for online students as well. In the fourth quarter of 2018, new enrollments grew in the low teens, which is well above the goal. GCE will continue to support GCU's goal of growing the online campus with 60% of the students working on graduate degrees or RN to BSN degrees. This will enable the university to continue to produce quality metrics around graduation rates, loan amounts and default rates on student loans.

Third, GCE will support Orbis, as it grows its existing 18 locations, with its partners BSN licensure programs -- pre-licensure programs. Orbis will expand a number of locations through its partners by adding seven new locations in the 2019 calendar year. Orbis will continue to focus on the high-quality outcomes it has produced with its partners, including a 90% graduation rate and a 93% first-time pass rate on the NCLEX exams. Fourth, Orbis will use GCU's pre-licensure program to add a limited number of locations in certain western marketplaces, where it makes sense.

There are still over 70 markets in U.S., where Orbis can expand. Fifth, Orbis will work with its partners to expand the number of programs it offers in the healthcare area on its existing locations. Programs such as nurse practitioner, occupational therapist and physical therapy will eventually be added. There's going to be huge shortages of healthcare professionals in the next 10 years as the baby boom generation ages and requires increased levels of care.

Orbis has established an outstanding reputation for working with its University partners to produce high-quality outcomes. Sixth, GCE will continue to work with -- work to gain additional University partners. The goal is to find partners that want to combine the strength of their local or regional brand with GCE's capability to execute at a high level from an operational perspective. We continue to look for partners that are clearly differentiated based on geography, brand, programs, price point, etc.

We have walked away from several opportunities to date, because we haven't found the right amount of differentiation. In last quarter's call, I indicated we were considering five options. We've walked away from two of those, are continuing to have discussions with three and have entered into discussions with two additional entities. Now turning to the results of operations.

As a reminder, beginning July 1, 2018, the results of our operations do not include the university operations of GCU. It rather reflects the operations of GCE as a service-technology provider. Therefore, for comparability purposes, we will discuss amounts on an adjusted basis as is discussed in a minute. Service revenues were $177.5 million in the fourth quarter of 2018, compared to $271.4 million of university related revenue in the prior year.

Had the transaction occurred on July 1, 2017, comparable service fee revenue would have been $162.9 million in the fourth quarter of 2017. This represents an increase of 9% between fourth quarter of 2017 and fourth quarter of 2018 on a comparable basis. The increase year over year in comparable as adjusted revenue was due to an increase in GCU's enrollment and an increase in GCU's ancillary revenue, resulting from increased traditional student enrollment. Enrollment at GCU increased 7.8% between December 31, 2017, and December 31, 2018.

As adjusted operating income and as adjusted operating margin for the three months ended December 31, 2018, were $80.5 million and 45.3% respectively. As adjusted operating income, as adjusted operating margin for the three months ended December 31, 2017, were $69.7 million and 42.8% respectively. Technology and academic services grew from $10.7 million in the fourth quarter of 2017 to $11.1 million in the fourth quarter of 2018, an increase of $0.4 million or 3.3%. This increase was primarily due to increases in employee compensation and related expense compensation due to the increased number of staff needed to support our client, GCU and its increased enrollment, tenure-based salary adjustments and increased benefit cost between years.

As a percent of comparable revenue, these costs decreased 30 basis points to 6.3%, primarily due to our ability to leverage our technology in academic services personnel across an increasing revenue base, partially offset by the planned reinvestment of a portion of the savings provided by our lower tax rate in increased employee compensation and benefit cost. Counseling services and supports expenses grew from $50.2 million in the fourth quarter of 2017 to $52 million in the fourth quarter of 2018, an increase of $1.8 million or 3.5%. This increase is due to increased employee compensation and benefit cost between years, to service GCU and its enrollment. As a percentage of comparable revenue, these costs decreased 150 basis points to 29.3% from 30.8%, due primarily to our ability to leverage our counseling services and support expenses across an increasing revenue base, partially offset by the planned reinvestment of a portion of the savings provided by our lower tax rate in increased employee compensation and benefit costs.

Marketing and communication expenses as a percent of comparable revenue decreased 80 basis points from quarter 4, 2017 to quarter 4, 2018. General and administrative expenses increased $0.7 million between years and as a percentage of comparable revenue increased 10 basis points to 3.8% in quarter 4, 2018 from 3.7% in quarter 4 of 2017. This increase was primarily due to increases in employee compensation and benefit costs between years as our staffing increased to service GCU and its enrollment growth. With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2018 fourth quarter, talk about changes in the income statement, balance sheet and other items as well as to provide 2019 guidance.

Dan Bachus -- Chief Financial Officer

Thanks, Brian. Service revenues slightly exceeded our expectations in the fourth quarter of 2018, primarily due to GCU's higher enrollment and higher ancillary revenues. Revenue per student decreased as expected in the fourth quarter of 2018 compared to the prior year due to a shift in the timing of start dates for our clients' ground traditional students, resulting in one less revenue-producing day in the fourth quarter of 2018. GCU has not raised its tuition for its traditional ground programs in 10 years and tuition increases for working adult programs have averaged 1% or less.

Our effective tax rate for the fourth quarter of 2018 was 19.5%, compared to 25.5% in the fourth quarter of 2017. The lower effective tax rate year over year is a result of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. The Act reduced the corporate federal tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018. The act also created the opportunity for GCE to submit method changes in conjunction with the filing of its 2017 federal tax return that resulted in a favorable impacted tax expense of approximately $1 million in the fourth quarter of 2018.

Our increased contributions made in lieu of state income taxes from $2 million in Q3 2017 to $3.7 million in Q3 2018, also helped reduce our effective tax rate. We receive a dollar-for-dollar state tax credit for these contributions, which are recorded in general and administrative expenses in the third quarter, 75% of these amounts are recorded as a reduction in the effective tax rate in the third quarter and 25% is recorded in the fourth quarter, as did the favorable impact from excess tax benefits of $2.6 million in quarter 4, 2018, compared to $1.1 million in quarter 4 of 2017. Given that the effective tax rate included in our fourth-quarter guidance was 21.7%, $0.05 of the earnings beat is due to the lower effective tax rate. We repurchased 52,784 shares of common stock in the fourth quarter of 2018 at a cost of approximately $5.5 million.

We had $88.1 million available under our share-repurchase authorization as of December 31, 2018. In January 2019, under previously executed 10b5-1 plan, we purchased an additional 107,527 shares of our common stock at a cost of approximately $10 million. Turning to the balance sheet and cash flows. Total unrestricted cash and short-term investments at December 31, 2018 were $120.3 million.

Restricted cash and cash equivalents were $61.7 million as of December 31, 2018 and represents the cash collateral on the credit agreement, which was released in January with the amended and restated credit agreement, which I will describe in a minute. GCE CAPEX in the fourth quarter of 2018 was approximately $4.4 million or 2.5% of net revenue. We estimate GCE's 2019 CAPEX, including Orbis should range between $20 million and $25 million, consisting primarily of software development and the build-out of Orbis partner locations. We anticipate funding CAPEX on behalf of GCU through the secured note of approximately $100 million in 2019.

This funding is to finish the 2018-'19 school year projects and three additional apartment-style residence halls and a parking garage for the 2019-'20 school year. Based on recent conversations with GCU, it's likely that the university will not request us to continue to fund its CAPEX after this year as the university anticipates they will be able to fund its own CAPEX moving forward. On January 22, 2019, in conjunction with the closing of the Orbis acquisition, GCE entered into an amended and restated credit agreement and two related amendments that, together, provide a credit facility of $325 million, comprised of a term-loan facility of $243.75 million and revolving credit facility of $81.25 million, both with a 5-year maturity date. The term facility is subject to quarterly amortization of principal commencing with the first quarter -- with the fiscal quarter ended June 30, 2019, in equal installments of 5% of the principal amount of the term facility per quarter.

Both the term loan and revolver have monthly interest payments currently at 30-day LIBOR, plus an applicable margin of 2%. The proceeds of the term loan, together with $6.25 million drawn under the revolver and cash on hand, were used to pay the purchase price of the acquisition. Concurrent with the acquisition and credit agreement, we repaid our $60 million in term debt and the cash collateral of $61.7 million was released. Last, I would like to provide color on guidance we have provided for 2019.

As you have probably noticed, we're again providing estimates for each quarter of 2019. We do this because our financial results including GCU and the universities that Orbis services are seasonal. The guidance that we have provided includes Orbis financial result with the exception of intangible-asset amortization, transaction costs associated with the acquisition and the tax impact for those items. We plan to provide a non-GAAP as adjusted net income beginning with the first quarter of 2019 that reconciles as reported GAAP net income to as adjusted non-GAAP net income to reflect these adjustments.

Although, the intangible asset valuation is not yet finalized, we estimate that annual book intangible asset amortization expense will be approximately $11 million and we anticipate transaction costs recorded in the first quarter of 2019 to be approximately $5 million. Our enrollment guidance assumes high single-digit GCU online new start growth. Our guidance assumes an increase in GCU graduates between years of approximately 13%. The significant retention gains and accelerated start growth GCU has experienced in recent years continues to result in year-over-year increases in graduates that exceed its total enrollment growth rate.

As we have discussed previously, enrollment growth rates for GCU ground students are impacted by a high percentage of its students are graduating in less than four years. We anticipate that GCU revenue per student will continue to grow year over year as a result of the growth of GCU's ground traditional student. GCU revenue per student will be impacted by changes between 2018 and 2019, when the traditional campus semesters begin and end and when online breaks occur. The spring, summer and fall semesters start one day earlier in 2019 than in 2018, pushing revenue from Q2 to Q1 from Q3 to Q2 and from Q4 to Q3.

The 2018 Christmas break had a net impact of pushing one day of revenue from 2018 to 2019 and the 2019 Christmas break has a net impact of pushing one day of revenue from 2019 to 2020. We estimate the effect of these changes are $900,000 of more revenue in quarter 1, $600,000 of less revenue in quarter 2, $700,000 of more revenue in quarter 3 and $1.1 million of less revenue in quarter 4. The net loss of revenue about $100,000 is related to the timing of the online Christmas breaks. We estimate the Orbis revenue will be approximately $87.7 million 2019, which represents a 40.3% growth over its 2018 revenue of $62.5 million.

Given that the close of the transaction occurred on January 22, 2019, $3.7 million of this revenue will not be recognized in our financials. Total enrollment will be approximately 101,900 at March 31, 91,000 at June 30, 109,400 at September 30 and 108,000 at December 31, with Orbis enrollment being approximately 3,200 at March 31, 3,300 at June 30, 3,800 at June -- at September 30 and 3,800 at December 31 of those amounts. On the expense side, we anticipate the core GCE business to see increased margins of 30 basis points year over year, excluding $2 million of fees incurred in Q1 2019, related to a discreet tax item that will have the effect of lowering our quarter 1, 2019 effective tax rate. This item is included in the guidance provided.

Orbis will be approximately breakeven from an EBIT standpoint, excluding the intangible asset amortization and transaction cost. We anticipate technology and academic services, counseling services and support, marketing and communications and general administrative expense will be approximately 11%, 29.8%, 18.5% and 6.1% of net revenues respectively, and thus consolidated operating margin will be 34.6% of net revenues. We estimate interest income on the note from GCU will be approximately $58.2 million as the note continues to grow over the course of 2019, as GCE funds GCU's CAPEX. We estimate interest expense will be approximately $10.5 million, declining slightly over the course of the year due to principal pay downs and that other interest income will be approximately $2.3 million, a substantial portion of which will be in Q1, 2019.

Our guidance this year assumes an effective tax rate, excluding contributions made in lieu of state income taxes to be 17.3% in Q1, 24.5% in Q2, 24.6% in Q3 and 24.1% in Q4. The lower rate in Q1 is due to the majority of restricted stock vesting occurring in that quarter each year and the decrease from the prior year is due to the discreet tax item I mentioned earlier. The year-over-year increase in the effective tax rate especially in the fourth quarter is due to higher estimated state income tax as a result of the transaction, the one-time method change benefit received in the fourth quarter of 2018 and due to the contributions in lieu of state income taxes not being factored into our guidance. If a contribution in lieu of state income taxes is made in the third quarter of 2019, it will have the effect of the increasing general and administrative expenses and decreasing income-tax expense.

Although, we might repurchase additional shares during 2019, these estimates do not assume repurchases other than those made in the first quarter. I will now turn the call back over to Brian to share a few final thoughts.

Brian Mueller -- Chairman and Chief Executive Officer

In this conference call, we have referred to three organizations: Grand Canyon Education, Orbis and Grand Canyon University. Prior to the recent transaction, Grand Canyon University and what is now Grand Canyon Education was a single entity. We operated as a single entity for 10 years and during that time, developed a culture or ethos that came to define us. Our goal was to make private Christian higher education affordable for all socioeconomic classes of Americans.

Using the public market to get access to capital and building a hybrid campus consisting of traditional students on our campus and nontraditional students online, leveraging a common infrastructure created huge efficiencies. The greater or common good was clearly being served. We were able to grow to 97,000 students, invest over $1.2 billion in educational infrastructure and not raise tuition in 10 years on a traditional campus with less than 1% increases in the online campus. This has led to huge diversity on the campus, with 28% of our students being Hispanic, 7% African-American and over 40% students of color.

Again, the greater or common good being served. Grand Canyon University is now a nonprofit institution, with its own board and mission. Grand Canyon Education is now an educational services company, with its own board and mission. There is no overlap from a broad perspective.

However, the culture or ethos of the greater or common good lives on in both organizations. This can best be witnessed in a continued commitment from both organizations to transform into inner-city neighborhood, where we both reside. Our now joint five-point plan continues to make amazing progress. We have created 10,700 jobs between the two organizations and another 400 jobs through eight new businesses.

Our partnerships in investment with the City of Phoenix police has crime dropping in the neighborhood. Our Habitat program has improved over 220 homes and housing values are up over 50% since we started the program. We now have over 1,200 students providing tutoring to over 100 local schools between 3:00 and 8:00 p.m. Monday through Friday, and 10:00 a.m.

to 6:00 p.m. on Saturday. In addition, there are dozens of student-led projects going on in the neighborhood on a daily basis to support disadvantaged populations and drive increased levels of prosperity. We like the business model at Orbis but also like their culture or ethos.

They are serving a greater or common good, as they create a win-win relationship with healthcare providers and universities in order to service students and communities in a very unique way. Orbis will continue to move forward with the full support and resource of Grand Canyon Education. Grand Canyon Education will continue to look for partners to create win-win situations that are sound and productive from a business perspective for both parties, but also always serve the greater or common good. I will now turn the call over to the moderator so we can answer questions. 

Questions and Answers:

Operator

[Operator instructions] Our first question or comment comes from the line of Peter Appert from Piper Jaffray. Your line is open.

Peter Appert -- Piper Jaffray -- Analyst

Thanks. Good afternoon. So Brian, based on your comments, based on the guidance, definitely feels like you're seeing a tailwind in terms of the enrollment growth numbers from the conversion. Do you have a new target in terms of what you think would be a reasonable growth rate going forward for the online business in particular?

Brian Mueller -- Chairman and Chief Executive Officer

Well, we knew that would be the first question. We still say 6% to 7% from an online standpoint. There definitely was a tailwind. We had a very strong fourth quarter, especially in terms of new starts.

We're off to a good start in the fourth -- in the first quarter. The question is how long will that last? And so we're going to be conservative like we always are. We'll try to under-promise and over-deliver. So yes, low teens, new students online growth was more than we expected.

And I think, it's evidence that being out there now a million times a day saying we're nonprofit has had an impact. We've had our competitors tell us openly. We bullied you guys every single day for 10 years with the fact that you shouldn't go to a for-profit institution. We grew in spite of that and now we are benefiting from that nonprofit status even though tuition levels haven't changed, etc.

But increasing our goals in the short run, we're not ready to do that yet.

Peter Appert -- Piper Jaffray -- Analyst

OK, fair enough. And then on the Orbis business, the growth -- enrollment growth numbers, Dan, that you gave, would that assume any new university clients? And then, sort of related to this, you've mentioned breakeven from an EBIT perspective. Any thoughts in terms of the longer-term financial model for Orbis?

Dan Bachus -- Chief Financial Officer

Yes, so that does include, as Brian said on the call, seven additional locations opening in 2019. Those partners have already been signed-up locations, have already all been determined and they will open at different times over the course of the year. They obviously, continue to work on additional partners and additional locations for 2020 and going forward but a lot of those locations and partners have already been determined for 2020 and going forward.

Brian Mueller -- Chairman and Chief Executive Officer

So the new locations in 2019 do not need additional university partners. They're going to be done with the current partners.

Peter Appert -- Piper Jaffray -- Analyst

Right. Exactly. OK. And then...

Dan Bachus -- Chief Financial Officer

In terms of margins, as we've talked about before, the EBIT is basically breakeven, which is actually slightly better than what we had thought going into the year but as they've completed their budget process that's where they got to. The margin profile of the business as a whole is highly dependent on the number of new locations that are opened during the year in comparison to the number of existing or more mature locations. And so as the percentage of new locations, as a percentage of the total number of locations decreases over time, you will see Orbis be profitable.

Peter Appert -- Piper Jaffray -- Analyst

OK. And then, last thing, Brian, in terms of the discussions with new potential OPM clients, it sounds like you're being obviously, very thoughtful in this process, which might imply that it's still a ways off in terms of signing that first client. Is that how we should think about it?

Brian Mueller -- Chairman and Chief Executive Officer

We don't have anything to announce in the next 30 to 60 days. Although, you're right, the first -- we are being very careful. This Orbis purchase for us gave us a lot to do and it's a big -- it's just -- it fits so nicely into how we feel about the future of higher education, that getting behind them and supporting them is become a big priority now. It doesn't mean we're not looking for new partners, because we are.

We've got something that we're fairly excited about that will -- we think could be very, very successful. But yes, I would say not in next 30 to 60 days.

Peter Appert -- Piper Jaffray -- Analyst

OK, great. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Jeff Meuler from Baird. Your line is open.

Jeff Meuler -- Baird -- Analyst

Yeah, thank you. Just on the guidance. Dan, you gave us a ton of detail but you ran through some of it pretty quick. Just on Orbis, I think, you're saying EBIT breakeven, excluding amortization expense, which is going to be excluded from adjusted EPS.

And then we'll have to layer on, I guess, the incremental interest expense, but then there's some tax savings. I guess, just -- can you net it all out for us? Like what is the EPS impact under the new adjusted EPS methodology for 2019 in terms of the Orbis impact?

Dan Bachus -- Chief Financial Officer

So the guidance we gave includes the interest expense -- higher interest expense associated with the purchase. So that's included in the guidance. The effective tax rate does not assume the tax deduction associated with the amortization of the intangible asset, because that actually turns out to be a temporary item not a permanent item, because we'll have book amortization of that asset. So the plan is to carve out in the adjusted EPS number, to carve out the intangible asset amortization along with the tax benefit of that intangible asset amortization as well as the transaction expenses.

But everything else associated with the Orbis is in the guidance that we've given, including the higher interest rate.

Jeff Meuler -- Baird -- Analyst

Enrolling that all together, it is dilutive and that's fully embedded in this $5.10 EPS figure. I didn't have it in my numbers, I don't think some of the others that they could incorporate it in consensus had it in, so I'm just trying to I guess make things as apples for apples as possible.

Dan Bachus -- Chief Financial Officer

Yeah, I think, what we try to do is give guidance that would be in line with that as adjusted EPS number that we'll give, similar to if you're all familiar with Strayer and the Capella acquisition, we'll do something similar to that. And so the things that are carved out will be the intangible asset amortization, along with the tax impact of that and the transaction cost. Everything else is embedded in the guidance that we gave, including the higher interest expense.

Jeff Meuler -- Baird -- Analyst

Got it. And then just to follow up to Peter's question on the school services or OPM clients for GCE as opposed to Orbis. Just if and when you eventually sign a client, is there -- the initial I would imagine there's initial expense that runs ahead of revenues. So is that the case? Is there initial dilution when you are first ramping a client? Any way to size up what you think that would be or the time lag to get that client to free cash flow or adjusted EBIT profitable? And then, are you embedding anything in the 2019 guidance for potential additional client signing?

Dan Bachus -- Chief Financial Officer

No, we haven't embedded anything in either the revenue or the expense guidance associated with the new GCE client. The reason, frankly, is it's going to be highly dependent on which client we sign and how aggressive that client wants to ramp-up. So if it's a client that wants to take a slow ramp, it'll have a smaller upfront expense impact, but the revenue obviously, will ramp slower than if it's a client that wants to ramp up at a faster rate. So until we have that client signed and know what -- how fast they want to ramp up, we just can't even size that upfront loss and then the revenue impact.

Jeff Meuler -- Baird -- Analyst

OK. And then just finally to the extent to which to improved marketing efficiency persists and it's a new normal. How do you think about reinvestment, flow-through? I guess what I'm wondering if each marketing dollar is more efficient, do you spend even more on marketing to drive even more enrollment? Or at some point, do you just start to stretch your operational capabilities if you're running at a teens rate or north of that?

Brian Mueller -- Chairman and Chief Executive Officer

Well, the answer to that is continue to build the quality of the students. And so if what's currently happening continues to happen and it happens for a while with the same quality of students, producing the high-graduation rates, the low-default rates and all of that, then we'll continue to invest at the current rate, which means we would have additional dollars to invest. And that would be perfect in terms of us being able to go into a relationship with another client. Another way to talk about this new GCE client thing, is the discussions that we're having, it becomes very apparent to people, because they tip their toe a little bit into online-delivered education.

They know they can't do to it. But they also know the power of their brand locally. And when they get accustomed to what our ability to operationalize something is as compared to theirs, they get excited about combining the two things and we do too. We've talked about the Northeast for example, where our brand has the least amount of visibility.

If you combine -- I say to people all the time, how does Grand Canyon University have any students in New Jersey for example? Well, it's very simple, a teacher calls a local university and they might get a call back in 30 days and maybe something happens with financial aid in 60 to 90 days. They get frustrated. They see our ad, they call Grand Canyon and within 72 hours, everything is done. Application is filled out, transcripts are evaluated, three different schedules are built, the financial aid is done.

They go to our website, they see Grand Canyon University, who it is and they say, OK, this just sounds good and they start. That's why we have students in the Northeast. What we're trying to convince people, obviously, if you take our ability to execute and combine it with the brand and sometimes three times the price point of one of those private universities, if you would have something that could be extremely productive and profitable for both groups. We just don't want to do that with four or five institutions in the Northeast, we'd like to do it with one, maybe two.

And so that's kind of -- those are the kind of the discussions that are evolving. And we think, based upon the direction things are going now, we're going to find one or two really good partners. And GCU's accelerated growth rate in the short term will produce revenues that allow us to get involved in some way and minimize the negative impact in the short run from a margin standpoint.

Jeff Meuler -- Baird -- Analyst

Excellent. Thanks and look forward to seeing you guys, tomorrow.

Brian Mueller -- Chairman and Chief Executive Officer

OK, thank you.

Operator

Thank you. Our next question or comment comes from the line of Jeff Silber from BMO Capital Markets. Your line is open.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks. Just to focus a little bit more on your potential partnerships with new university. You mentioned you walked away from a couple -- I'm not asking for proprietary information. But at a high level, I'm just curious what drove that decision to walk away?

Brian Mueller -- Chairman and Chief Executive Officer

Well, we -- without giving specific names, we had this state university in the West that was really interested in. And we had talks and we were getting down to the -- they really wanted to be a partner of ours and we really wanted to be their partner. But as we got down to the nitty-gritty of modeling it out, it just became apparent that at the price point of that state University system, with them having programs so similar to ours, both having brands pretty visible in the West, there wasn't going to be enough differentiation to make it worth our while. It was -- there would have been just too much cannibalization there.

And it wouldn't make sense. And so that is really what happened with the two that we walked away from. So in our minds, geographic differentiation, branding differentiation, price point, those are all things that if we can find the right place and those things all work together, it will be an optimal partner. And rather than sign three or four suboptimal partners, we'd rather sign one or two optimal partners, where all those things are working.

And we've got lots of data on the Northeast and the Southeast and what we convert leads at and what price point we can charge versus what our competition is charging. And so we're being careful. And we'll get there, we will get there. We'll get there with the right people.

But in addition to that, and I can't tell you how excited we are about this Orbis thing. They've got a really, really good business. And it's got tremendous scale potential and the class that -- the path to profitability is very clear. And so we'll continue with university of -- with Grand Canyon University.

We'll continue with Orbis and we'll eventually find the right one or two partners that can really enhance Grand Canyon Education.

Jeff Silber -- BMO Capital Markets -- Analyst

OK, that's great. And I don't mean to deflect attention away from Orbis. I know we're going to be hearing a lot about it tomorrow evening. But just to go back to the other university partners.

And again, I'm not asking for proprietary information, but at a high level are you approaching them with the revenue share agreement similar to what you have at Grand Canyon University? Is it more of a fee for service? Or are you flexible on either pricing model?

Brian Mueller -- Chairman and Chief Executive Officer

We're doing the same. We're approaching them with the same model that we have here. Although, I will tell you that we've got one program that is a little bit different than -- and one that we're -- will come out of left field and we're very excited about. We'll see if it happens.

I can't give you any more detail on that. Hopefully, in 30 to 60 days, I will be...

Dan Bachus -- Chief Financial Officer

I think, Jeff, we're flexible. I mean, our preference will be a revenue share similar to GCU but that doesn't mean we wouldn't do a cost-plus or some other type of arrangement.

Jeff Silber -- BMO Capital Markets -- Analyst

Got it. And I just got one more follow-up on the guidance. And forgive me I can read this about in the transcript, but did you say that if we take out the Orbis impact on your guidance that the pure business itself, you're looking at about 30 basis points in margin expansion in 2019? Is that what I heard?

Dan Bachus -- Chief Financial Officer

Yeah, that's correct. The guidance includes 30 basis points of margin expansion for the core GCE business.

Jeff Silber -- BMO Capital Markets -- Analyst

All right, perfect. Thanks so much.

Dan Bachus -- Chief Financial Officer

We have reached the end of our fourth-quarter conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions, please contact myself, Dan Bachus. Thank you very much for your time.

Operator

[Operator sign-off]

Duration: 44 minutes

Call Participants:

Dan Bachus -- Chief Financial Officer

Brian Mueller -- Chairman and Chief Executive Officer

Peter Appert -- Piper Jaffray -- Analyst

Jeff Meuler -- Baird -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

More LOPE analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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Weak 4th Quarter Shipments Sets Up Buying Opportunity For Harley-Davidson

Investment Thesis

With a difficult 2018 in the books and a similarly difficult short-term future ahead, Harley-Davidson (NYSE:HOG) was still able to return significant value to shareholders. With the low PE ratio of 11.6 versus the industry average of 14.6 and optimism over new products, international expansion and the stabilizing domestic market, now is a great time to buy in on Harley-Davidson's turnaround story.

Overview

When Harley-Davidson (NYSE:HOG) reported fourth quarter 2018 earnings results, the company missed market expectations with a revenue decline of 9% year over year and non-GAAP and GAAP EPS of only $0.17 and $0.00, respectively. This was a huge reversal from an impressive third quarter where revenue was up 16.4% year-over-year and non-GAAP and GAAP EPS of $0.78 and $0.68, respectively. In the third quarter, I was optimistic on the company's future given the improving domestic results, international expansion, and innovation which was continuing to fuel returns to shareholders in the form of dividends and buybacks. Let's take a look at what went wrong in the fourth quarter.

Domestic Results

Harley-Davidson's domestic business is continuing to struggle, with shipments declining 10.1% in the fourth quarter. While this is consistent with the full year 2018 reduction of 10.2%, it is a slight improvement from the 13.3% decline in Q3 2018. This isn't a new trend and Harley-Davidson has been fighting the headwinds for years as the domestic market is hurting due to increased competition fighting for less new motorcycle demand. For new riders, there are plenty of less expensive options than buying a new Harley-Davidson motorcycle. They have other manufacturers in the new motorcycle space or they can buy a used Harley-Davidson as aging riders are selling, both at much lower cost points. In order to help stabilize the domestic market, Harley-Davidson is focusing on lower inventory, increasing margins, continuing to build their brand, and increasing motorcycle ridership. This can be seen in the company's strategy and 2027 objectives: build 2 million new riders in the U.S. and launch 100 new high impact motorcycles and do so profitably and sustainably.

Despite the double-digit decline in shipments, the company has made some headway in this goal by increasing the number of Harley-Davidson riders by 52,000 over the past year. This has been accomplished by four major initiatives including Harley-Davidson Riding Academy, innovation leading to new products, Freedom Promise, and influencer and entertainment integrations. These initiatives were largely successful for the year. The Harley-Davidson Riding Academy increased its sales conversion by 2.2%, the new LiveWire bike debuted at the EIMCA show in Milan, and 17,000 opportunities for a customer to trade-up to a new motorcycle. Additionally, the total estimated media value was up over 80% compared to 2017. These investments are key to stabilizing the reduction in domestic shipments and appear to be gaining momentum that should pay off in the future.

Expanding Internationally

Also in the company's strategy and 2027 objectives is growing international to 50% of annual volume. This will be a shift from the Q4 2018 sales mix of 53% domestic vs. 47% international which shifted slightly from the Q3 2018 sales mix of 61% domestic vs. 39% international.

Note: Obtained from the company's investor relations site.

While the company will achieve this mix through domestic attrition, international retail motorcycle sales were down 2.6% in the fourth quarter of 2018 compared to the same quarter in 2017. This was a slight reversal in recent trend considering that international retail motorcycle sales were up 2.6% in the third quarter of 2018. Management attributed the decline due to ongoing weakness in Japan and Australia. These two markets experienced reduced industry sales and competitive new product introductions. Despite the weakness, Harley-Davidson was able to continue sprawling its retail network with 56 new dealers opening in 2018 with 28 in the fourth quarter alone.

In order to reach 50% of annual volume goal, the key is really just replicating the domestic business model. This focuses on expanding the dealer network, building the Harley-Davidson brand awareness, and increasing sales/profitability. This will take time, but Harley-Davidson is making all of the right moves. The company anticipates opening 25-35 new full-line dealerships per year through 2027. Additionally, the company recently opened a plant in Thailand in an effort to improve margins in the international markets.

Innovating New Products

In addition to returning value to shareholders through buybacks and dividends, management is committed to innovating new products to drive revenue. In addition to creating a large portfolio of new bikes, the company finally announced official plans to build the Livewire bike that was announced in 2014. After years of waiting, the Model Year 2020 motorcycle was finally released at CES this past year. There were a few key details released including:

Top speed: 110 mph Acceleration: 0 to 60 mph in under 3.5 seconds with 100% of its rated torque always available Distance: Estimated 110 miles of urban road Price: $29,799

Note: Photo obtained from Revzilla.

It has been a long road to get to this point, but it's finally gaining traction and dealers are excited to add the electronic motorcycle to their sales portfolios. With these latest announcements, preorder is available now with availability in August 2019. It's encouraging to see Harley-Davidson moving away from traditional bikes in response to market trends. I continue to expect the introduction of the electric motorcycle to be the necessary direction of the future market and a key factor for the company's long-term success. And as I've stated many times before, when it comes to introducing a motorcycle to the market, there is no one I trust more than Harley-Davidson.

Returning Value to Shareholders

Harley-Davidson's management has a commitment to returning value to shareholders and the fourth quarter was consistent with their track record. In the fourth quarter of 2018, the company paid a quarterly dividend yield of 4.2% and repurchased $194.2 million of stock. See the comparisons to 2017 below.

Note: Obtained from the company's investor relations site.

Consistent with previous years, the dividend payout received its annual increase. The quarterly dividend increased to 37 cents per share from 36.5 cents per share which represent a near 1.4% increase. As stated by Harley-Davidson management during the earnings call:

Despite the challenges we faced in 2018, Harley-Davidson's demonstrated its incredible resilience by growing revenue and profits, delivering significantly higher year-over-year operating cash and returning $628 million to our shareholders through dividends and share repurchases.

Additionally, at the end of the fourth quarter, 16.4 million shares remained on board-approved share repurchase authorizations; therefore, I fully expect additional buybacks on any market weakness which will help create a floor for the shares.

Valuation

The stock has traded lower as a result of shipment decline during the quarter despite management forecasting a full year decline of 3% to 5% in 2019 (vs. 6.7% in 2018). This decrease over the past quarter has lowered the PE ratio to 11.6 which is cheap for the company on all fronts as the industry average is 14.6, the S&P 500 is 18.4, and the stock's 15.1 5-year average (all metrics as of 2/20/2019).

Note: 3 Month Stock Price history chart obtained from Morningstar.

Conclusion

Despite slowing demand in the U.S., Harley Davidson is optimistic internationally despite growing competition resulting in a fourth quarter sales slowdown. With the company's strategy focusing on growing internationally, stabilizing domestically, and innovating products with a mission to return value to its shareholders, I am optimistic about the company's future. There is no reason that company can't replicate its domestic success internationally while retaining its dominance in the U.S. With a difficult 2018 in the books and a similarly difficult short-term future ahead, the company was still able to return significant value to shareholders. With the low PE ratio of 11.6 versus the industry average of 14.6 or nearly 26%, now is a great time to buy in on Harley-Davidson's turnaround story.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HOG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Zacks: Analysts Anticipate Acadia Healthcare Company Inc (ACHC) to Announce $0.48 Earnings Per Share

Brokerages predict that Acadia Healthcare Company Inc (NASDAQ:ACHC) will post earnings of $0.48 per share for the current fiscal quarter, Zacks Investment Research reports. Eight analysts have made estimates for Acadia Healthcare’s earnings, with the highest EPS estimate coming in at $0.51 and the lowest estimate coming in at $0.32. Acadia Healthcare posted earnings per share of $0.61 during the same quarter last year, which would indicate a negative year-over-year growth rate of 21.3%. The business is expected to issue its next earnings report after the market closes on Thursday, February 28th.

On average, analysts expect that Acadia Healthcare will report full-year earnings of $2.26 per share for the current year, with EPS estimates ranging from $2.24 to $2.28. For the next fiscal year, analysts anticipate that the firm will post earnings of $2.42 per share, with EPS estimates ranging from $2.26 to $2.70. Zacks Investment Research’s EPS calculations are an average based on a survey of sell-side analysts that follow Acadia Healthcare.

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A number of brokerages recently issued reports on ACHC. Zacks Investment Research raised shares of Acadia Healthcare from a “sell” rating to a “hold” rating in a report on Monday, November 12th. BidaskClub raised shares of Acadia Healthcare from a “sell” rating to a “hold” rating in a research report on Wednesday, October 31st. ValuEngine raised shares of Acadia Healthcare from a “sell” rating to a “hold” rating in a research report on Friday, October 26th. UBS Group began coverage on shares of Acadia Healthcare in a research report on Thursday, November 15th. They issued a “neutral” rating and a $39.00 target price on the stock. Finally, Citigroup decreased their target price on shares of Acadia Healthcare from $46.00 to $43.00 and set a “buy” rating on the stock in a research report on Wednesday, November 14th. Two investment analysts have rated the stock with a sell rating, nine have given a hold rating and three have issued a buy rating to the company’s stock. The stock currently has an average rating of “Hold” and a consensus target price of $40.36.

Shares of ACHC opened at $28.41 on Friday. The company has a quick ratio of 1.26, a current ratio of 1.26 and a debt-to-equity ratio of 1.19. Acadia Healthcare has a 12-month low of $24.27 and a 12-month high of $45.35. The stock has a market capitalization of $2.51 billion, a P/E ratio of 12.35, a PEG ratio of 1.27 and a beta of 0.64.

A number of hedge funds and other institutional investors have recently bought and sold shares of ACHC. Oregon Public Employees Retirement Fund lifted its position in shares of Acadia Healthcare by 2,686.1% during the fourth quarter. Oregon Public Employees Retirement Fund now owns 897,973 shares of the company’s stock worth $35,000 after purchasing an additional 865,743 shares in the last quarter. Advisor Group Inc. lifted its position in shares of Acadia Healthcare by 23.9% during the fourth quarter. Advisor Group Inc. now owns 3,039 shares of the company’s stock worth $78,000 after purchasing an additional 587 shares in the last quarter. Pearl River Capital LLC acquired a new stake in shares of Acadia Healthcare during the fourth quarter worth about $92,000. Ffcm LLC lifted its position in shares of Acadia Healthcare by 183.6% during the fourth quarter. Ffcm LLC now owns 4,697 shares of the company’s stock worth $121,000 after purchasing an additional 3,041 shares in the last quarter. Finally, NumerixS Investment Technologies Inc acquired a new stake in shares of Acadia Healthcare during the fourth quarter worth about $156,000.

About Acadia Healthcare

Acadia Healthcare Company, Inc develops and operates inpatient psychiatric facilities, residential treatment centers, group homes, substance abuse facilities, and outpatient behavioral healthcare facilities to serve the behavioral health and recovery needs of communities. The company operates acute inpatient psychiatric facilities, which offer evaluation and crisis stabilization of patients with severe psychiatric diagnoses; specialty treatment facilities, including residential recovery facilities, eating disorder facilities, and comprehensive treatment centers that provide continuum care for adults with addictive disorders and co-occurring mental disorders; and residential treatment centers, which treat patients with behavioral disorders in a non-hospital setting, including outdoor programs.

Further Reading: How to interpret a stock's beta number

Get a free copy of the Zacks research report on Acadia Healthcare (ACHC)

For more information about research offerings from Zacks Investment Research, visit Zacks.com

Johnson Controls International (JCI) Stock Rating Reaffirmed by Cowen

Cowen reiterated their hold rating on shares of Johnson Controls International (NYSE:JCI) in a research note released on Friday. Cowen currently has a $32.00 price target on the stock.

Other analysts have also issued reports about the stock. Citigroup reduced their price target on shares of Johnson Controls International from $46.00 to $43.00 and set a buy rating for the company in a research note on Friday, November 16th. TheStreet lowered shares of Johnson Controls International from a b- rating to a c+ rating in a research report on Tuesday, October 30th. ValuEngine upgraded shares of Johnson Controls International from a sell rating to a hold rating in a research report on Friday, February 8th. Zacks Investment Research restated a hold rating on shares of Johnson Controls International in a research report on Tuesday, November 13th. Finally, Morgan Stanley set a $35.00 target price on shares of Johnson Controls International and gave the company a hold rating in a research report on Friday, November 2nd. Three equities research analysts have rated the stock with a sell rating, nine have assigned a hold rating and four have given a buy rating to the company. The stock has an average rating of Hold and a consensus price target of $38.17.

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Shares of NYSE JCI opened at $35.10 on Friday. The company has a debt-to-equity ratio of 0.45, a current ratio of 1.03 and a quick ratio of 0.85. The stock has a market cap of $31.63 billion, a P/E ratio of 12.40, a price-to-earnings-growth ratio of 1.75 and a beta of 1.05. Johnson Controls International has a 1 year low of $28.30 and a 1 year high of $40.33.

Johnson Controls International (NYSE:JCI) last issued its earnings results on Friday, February 1st. The company reported $0.26 earnings per share (EPS) for the quarter, topping the consensus estimate of $0.24 by $0.02. Johnson Controls International had a net margin of 7.77% and a return on equity of 10.73%. The business had revenue of $5.46 billion during the quarter, compared to analysts’ expectations of $5.47 billion. During the same period in the previous year, the company earned $0.54 earnings per share. The business’s revenue for the quarter was up 3.0% compared to the same quarter last year. As a group, research analysts forecast that Johnson Controls International will post 1.81 earnings per share for the current fiscal year.

Johnson Controls International declared that its board has authorized a share buyback program on Thursday, November 8th that permits the company to repurchase $1.00 billion in shares. This repurchase authorization permits the company to repurchase up to 3.2% of its stock through open market purchases. Stock repurchase programs are usually an indication that the company’s board of directors believes its stock is undervalued.

Several institutional investors and hedge funds have recently bought and sold shares of the business. Millennium Management LLC lifted its holdings in shares of Johnson Controls International by 948.2% in the fourth quarter. Millennium Management LLC now owns 1,725,672 shares of the company’s stock worth $51,166,000 after buying an additional 1,561,043 shares in the last quarter. River & Mercantile Asset Management LLP lifted its holdings in shares of Johnson Controls International by 39.0% in the fourth quarter. River & Mercantile Asset Management LLP now owns 323,827 shares of the company’s stock worth $9,603,000 after buying an additional 90,846 shares in the last quarter. Macquarie Group Ltd. lifted its holdings in shares of Johnson Controls International by 2.6% in the fourth quarter. Macquarie Group Ltd. now owns 483,291 shares of the company’s stock worth $14,332,000 after buying an additional 12,039 shares in the last quarter. Hancock Whitney Corp lifted its holdings in shares of Johnson Controls International by 33.6% in the fourth quarter. Hancock Whitney Corp now owns 17,098 shares of the company’s stock worth $507,000 after buying an additional 4,301 shares in the last quarter. Finally, Legal & General Group Plc lifted its holdings in shares of Johnson Controls International by 6.0% in the fourth quarter. Legal & General Group Plc now owns 4,530,888 shares of the company’s stock worth $134,339,000 after buying an additional 257,157 shares in the last quarter. Institutional investors and hedge funds own 93.09% of the company’s stock.

About Johnson Controls International

Johnson Controls International plc operates as a diversified technology and multi industrial company worldwide. The company operates through Building Technologies & Solutions and Power Solutions segments. The company designs, sells, installs, and services heating, ventilating, and air conditioning systems, controls systems, integrated electronic security systems, and integrated fire detection and suppression systems for commercial, industrial, retail, small business, institutional, and governmental customers; and energy efficiency solutions and technical services, including inspection, scheduled maintenance, and repair and replacement of mechanical and control systems, to non-residential building and industrial applications.

Featured Article: How to calculate compound interest

5 Facts About High-Yield Dividend Stocks Every Investor Should Know

Dividends are the unsung heroes of investing, powerfully helping our portfolios grow while often being dismissed as boring. Many people don't appreciate just how powerful they can be, so check this out: Between 1960 and 2017, reinvested dividends accounted for about 82% of the total return of the S&P 500 index, as per The Hartford Funds.

It's smart to include dividend-paying stocks in your portfolio, but don't jump into them without reading up on and understanding them first. You may be drawn to the highest dividend yields you can find, but that can lead to trouble. Here are five things you should know about high-yield dividend stocks.

Image source: Getty Images.

No. 1: A big dividend yield can mean a bargain stock

First, a little math lesson. A key thing to understand about dividends and dividend yields is that a company's dividend yield is really just a simple fraction: It's the total annual dividend divided by the stock's current price. So if a stock pays out $0.50 per quarter, or $2.00 per year, and is trading for $40 per share, you'd divide $2 by $40 and would get 0.05, or 5%. That's the dividend yield. It reflects the fact that if you spend $40 on a share of the stock, you'll get 5% of your investment back in the form of a dividend.

Next, a company's dividend tends to remain unchanged for at least a year. Many companies increase them annually, while others can leave them unchanged for years. But a company's stock price will be changing all the time -- up and down, up and down, sometimes a lot, sometimes a little. That means that the dividend yield will also change all the time -- and most importantly, it means that when the stock price falls, the yield will rise, and vice versa.

If we go back to the example of the company with a $2 annual payout, imagine that its shares fall in value from $40 to $30. Divide $2 by $30 and you'll get a yield of 0.067, or 6.7%. The share price fell and the yield rose.

Thus, when you see a high-yield stock, it often means that the share price has fallen, pushing up its yield. So high yields can be indicators of bargain-priced stocks. But they can also suggest something else.

No. 2: A super-high dividend yield can indicate trouble

A fat dividend yield can also reflect a company in trouble. A company's challenges can push the stock price down, which, in turn, boosts the yield. That's not a big problem if these problems are temporary, such as a factory fire delaying production or an inability to keep up with demand due to an insufficient workforce. In such cases, you might snap up some shares and eventually profit from their rebound, while collecting the dividend.

But many times, a company will be facing serious, lasting problems, such as new, deep-pocketed competition, a major accounting scandal, or a high cash-burn rate. In such cases, a company may have to reduce or even eliminate its dividend, and even if it doesn't, its stock price could fall further, hurting investors. High-yield stocks demand some due diligence by would-be investors.

No. 3: A fat dividend may be tied to a more complicated security

It's also important to understand that there are different kinds of dividend-paying securities. Most of the time, it will be an ordinary public company offering a dividend payout. But sometimes, you'll be looking at a real estate investment trust (REIT), a company that owns lots of properties and collects lease payments from them. In exchange for some favorable tax treatment, REITs must pay out at least 90% of their income as dividends, so they do tend to sport generous yields.

Then there are preferred stocks, which work a little differently than common stock. They tend to appreciate more slowly but will pay out more in dividends. And should the company enter bankruptcy, they'll be ahead of common stockholders when any remaining assets are distributed.

Master limited partnerships, or MLPs, are another kind of security that tend to have hefty dividend yields. They have a certain kind of legal structure that permits greater cash flow, but come tax time, MLP dividend income can be taxed at higher rates than ordinary dividend income and you'll likely need to receive and report a K-1 tax form, too. Be sure to read up on any special kind of stock you're interested in.

Image source: Getty Images.

No. 4: All dividends need to be sustainable

It's great if you find a delightfully large dividend yield tied to an appealing business, but don't assume that all is good based on that information alone. You need to be sure that the dividend is sustainable -- and ideally, that it has room for growth. Enter the payout ratio.

The payout ratio is simply the amount of the company's annual dividend divided by its annual earnings per share (EPS). If a company is paying out $2 annually in dividends and its EPS over the past year is also $2, that's a payout ratio of 100%, meaning that the company is paying out all its earnings as dividends. That can seem great, but it gives the company no breathing room if earnings shrink or it wants to do something else with that money, such as hire more people, buy more advertising, or buy another company. Ideally, a company will have a payout ratio near or below, say, 60% or so. Be wary of ratios near or above 100%.

Cast an eye at the company's cash flow, too, because earnings per share are more of an accounting-based measure and can be manipulated more than cash flow. Ultimately, a company's dividend payments are coming from its cash flow, so you want to see ample flow. In some cases, a payout ratio may be steep, but a look at cash flow will be reassuring.

No. 5: Dividend growth is important, too

Don't just seek big yields. Yes, all things being equal, the bigger the yield, the better. But all things are rarely equal. So when you're seeking dividends for your portfolio, favor solid dividend growth.

Imagine, for example, two companies: ABC Inc. and XYZ Co. ABC has a fat yield of 6%, while XYZ is only yielding 3%. ABC might seem like the better investment, but if its payout is growing very slowly, while XYZ's payout grows briskly, XYZ's payout and dividend yield might outstrip ABC's over the long run.

In case you're not yet convinced that dividend growth really matters, consider this: The folks at Ned Davis Research studied the dividend payers in the S&P 500 index from 1972 through 2017 -- a whopping 46 years. They found that, while the overall index averaged annual gains of 7.7% during that period, dividend payers averaged 9.25%. They also found that it wasn't just enough to pay a dividend: Dividend payers that weren't busy upping their payouts only averaged 7.5%, while those companies that either started paying a dividend or boosted it regularly averaged 10.1%.

Here are some familiar dividend payers and their recent five-year dividend growth rates:

Stock

Recent Dividend Yield

Five-Year Dividend Growth Rate

Apple	1.7%	9.2%
Verizon Communications	4.5%	2.6%
Boeing	2.03%	23%
Starbucks	2.1%	6.7%
Microsoft	1.7%	10.4%
3M	2.9%	16.5%
Pfizer	3.4%	6.7%

Source: Yahoo! Financial and author calculations.

Armed with the information above, go ahead and consider adding dividend-paying stocks to your portfolio. Don't be afraid of ones with very high yields, but take a closer look at each such contender to see why its payout is so rich -- and favor dividends that are being increased regularly and significantly.

Aerojet Rocketdyne Holdings Inc (AJRD) Position Reduced by Victory Capital Management Inc.

Victory Capital Management Inc. cut its holdings in Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) by 10.1% during the fourth quarter, according to its most recent Form 13F filing with the SEC. The fund owned 2,064,627 shares of the aerospace company’s stock after selling 232,451 shares during the period. Victory Capital Management Inc. owned 2.64% of Aerojet Rocketdyne worth $72,737,000 at the end of the most recent reporting period.

Other institutional investors and hedge funds have also added to or reduced their stakes in the company. Pacer Advisors Inc. acquired a new position in Aerojet Rocketdyne in the third quarter valued at approximately $360,000. Paloma Partners Management Co acquired a new position in Aerojet Rocketdyne in the third quarter valued at approximately $1,763,000. James Investment Research Inc. acquired a new position in Aerojet Rocketdyne in the fourth quarter valued at approximately $1,053,000. Carillon Tower Advisers Inc. lifted its holdings in Aerojet Rocketdyne by 40.5% in the third quarter. Carillon Tower Advisers Inc. now owns 1,860,944 shares of the aerospace company’s stock valued at $63,253,000 after acquiring an additional 536,697 shares during the last quarter. Finally, Seven Eight Capital LP acquired a new position in Aerojet Rocketdyne in the third quarter valued at approximately $207,000.

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A number of research firms recently commented on AJRD. Zacks Investment Research upgraded Aerojet Rocketdyne from a “hold” rating to a “buy” rating and set a $45.00 price objective on the stock in a report on Wednesday. Credit Suisse Group raised Aerojet Rocketdyne from a “neutral” rating to an “outperform” rating in a research report on Monday, January 14th. Finally, ValuEngine raised Aerojet Rocketdyne from a “hold” rating to a “buy” rating in a research report on Thursday, November 1st. Four analysts have rated the stock with a buy rating, The stock currently has a consensus rating of “Buy” and a consensus price target of $43.00.

NYSE AJRD traded up $0.33 on Thursday, reaching $39.92. The stock had a trading volume of 4,454 shares, compared to its average volume of 842,283. The firm has a market cap of $3.10 billion, a price-to-earnings ratio of 53.95, a PEG ratio of 4.99 and a beta of 0.80. The company has a quick ratio of 1.24, a current ratio of 1.24 and a debt-to-equity ratio of 0.90. Aerojet Rocketdyne Holdings Inc has a 12-month low of $25.06 and a 12-month high of $40.99.

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Aerojet Rocketdyne Company Profile

Aerojet Rocketdyne Holdings, Inc engages in the provision of innovative solutions in the field of aerospace and defense, as well as in the field of real estate. It operates through the following business segments: Aerospace & Defense, and Real Estate. The Aerospace & Defense segment operates through the Aerojet Rocketdyne, Inc in developing and manufacturing of aerospace and defense products and systems for the United States government, the National Aeronautics and Space Administration, major aerospace and defense prime contractors as well as portions of the commercial sector.

Read More: Diversification Important in Investing

Want to see what other hedge funds are holding AJRD? Visit HoldingsChannel.com to get the latest 13F filings and insider trades for Aerojet Rocketdyne Holdings Inc (NYSE:AJRD).

Wyndham Hotels & Resorts Inc (WH) Files 10-K for the Fiscal Year Ended on December 31, 2018

Wyndham Hotels & Resorts Inc (NYSE:WH) files its latest 10-K with SEC for the fiscal year ended on December 31, 2018. Wyndham Hotels & Resorts Inc has a market cap of $5 billion; its shares were traded at around $51.00 with a P/E ratio of 64.57 and P/S ratio of 2.95. The dividend yield of Wyndham Hotels & Resorts Inc stocks is 0.99%.

For the last quarter Wyndham Hotels & Resorts Inc reported a revenue of $604.0 million, compared with the revenue of $347.0 million during the same period a year ago. For the latest fiscal year the company reported a revenue of $1.9 billion, an increase of 38.7% from last year.

The reported diluted earnings per share was $1.62 for the year, a decline of 38.4% from the previous year. The Wyndham Hotels & Resorts Inc had a decent operating margin of 15.15%, compared with the operating margin of 22.49% a year before. The 10-year historical median operating margin of Wyndham Hotels & Resorts Inc is 22.10%. The profitability rank of the company is 4 (out of 10).

At the current stock price of $51.00, Wyndham Hotels & Resorts Inc is traded at close to its historical median P/S valuation band of $53.76. The P/S ratio of the stock is 2.95, while the historical median P/S ratio is 3.13.

For the complete 20-year historical financial data of WH, click here.

Chegg Inc (CHGG) Q4 2018 Earnings Conference Call Transcript

Image source: The Motley Fool.

Chegg Inc  (NYSE:CHGG)Q4 2018 Earnings Conference CallFeb. 11, 2019, 4:30 p.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Greetings, and welcome to the Chegg's Fourth Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your your host, Tracey Ford, Vice President of Investor Relations for Chegg.

Tracey Ford -- Vice President of Investor Relations

Good afternoon. Thank you for joining Chegg's Fouth Quarter and Full Year 2018 Conference Call. On today's call are Dan Rosensweig, Co-Chairman and CEO; and Andy Brown, Chief Financial Officer.

A copy of our earnings press release, along with our investor presentation is available at our Investor Relations website, investor.chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our media center website at chegg.com/mediacenter. We encourage you to make use of these resources.

Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements. In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on October 29, 2018, as well as our other filings with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and the investor slide deck found on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is posted on our IR website.

Now, I will turn the call over to Dan.

Dan Rosensweig -- President and Chief Executive Officer

Thank you, Tracey and welcome everyone to our 2018 Q4 earnings call. It was another incredible year for Chegg, as we exceeded all of our expectations, realizing the benefits of being a high growth, high margin business with increasing leverage as we scale. We continue to believe that the education industry is in the midst of a necessary realignment, to more closely associate it with the needs of its most important constituent, the students. For years, we have been strategically building Chegg as an online, on-demand, personalized, and adaptive platform to serve the needs of the modern student; students whose average age is older than ever before, who often have children of their own, are working part-time or even full-time jobs, and juggling many priorities. And these students have grown where the world comes to them, on their devices, 24 hours a day. Chegg has been built, from day one, to serve the needs of this audience and that is why we are seeing such powerful results.

With 87% awareness of services on the Chegg platform, our brand recognition is at an all-time high. For 2018 we generated record revenues, record subscribers, record engagement, and record profitability, demonstrating the overwhelming value we bring to our students and our shareholders. This success wouldn't have happened without our incredible team around the globe and I couldn't be prouder of the recognition they received this past year, as we were acknowledged as one of Fortune's top 50 best workplaces in technology, top 100 best workplaces for women, and top 100 small and medium sized companies. Our team's focus, effort, and passion for improving student outcomes has made Chegg a truly great place to work because our north star continues to be putting the students first.

In 2018, we articulated three key objectives for Chegg: one, to meet our financial goals; two, to expand our TAM by making key investments in new content, adding new subjects, new formats, and new services; and three, to add new capabilities to the platform that leverage our brand, our reach, our student graph, and our balance sheet.

We successfully exceeded all of our objectives and we believe the results reflect the power of our model. For the full year we had 5.1 million paying customers and grew Chegg Services subscribers 38%, to a record 3.1 million; resulting in total revenue growth of 26% and Chegg Services revenue growth of 37%. All while we made important investments for continued growth. We enriched our content offering, added new subjects, strengthened our writing tools with advancements in AI, which improves our ability to help students go from citing to writing, and extended our flash tools offering with the acquisition of StudyBlue. We believe that the more we invest in different formats and modalities, and the more content we can offer students, the larger the opportunity gets and we will continue to focus on investments that increase our addressable market, by providing students an expanded platform of services to help them go from learning to earning.

The core of Chegg remains Chegg Study where we have made significant investments in content and capabilities throughout 2018. We now have a catalog of 26 million questions that have been answered by our proprietary network of subject matter experts, including textbook solutions for 35,000 ISBNs. We increased the number of modalities, to meet students needs at whatever level, in whatever format they learn best, including expanding our video offering by adding 15,000 new videos. We continue to invest deeper in STEM related subjects, however we also added ISBNs and Q&A content from outside of the STEM category. This increases our TAM and our value, and we are doing it to meet the increased student demand in subjects such as business, law, and nursing. The best indicator of the value of Chegg Study to our users is the significant increase in engagement every year, which we measure by content views. We reached 650 million views, which is a 48% increase from last year.

We also made important investments in our writing service, which included the integration of WriteLab, and the very exciting announcement of our exclusive agreement with Purdue OWL. For those of you who don't know, Purdue OWL is a world renowned online writing lab from one of the country's leading academic institutions. Through our partnership, Chegg's Writing Tools will be integrated in to Purdue OWL to support students on-demand, whenever and wherever they need it. We want to take a moment to thank the Purdue team and we believe, together, we are creating the world's premier writing service. The need for writing support is massive, as students continue to struggle in this subject, with 75% of high school seniors deficient in writing competencies. We see an enormous opportunity to help them develop writing skills and the earlier we can help the more impactful we can be. And, the more users that we have, and the more content users upload, the better the service gets. Last year alone we had 5 million papers submitted to Chegg and nearly half a billion citations were created on our platform.

Chegg was created to support the students at any school, in any subject, in any system to level the playing field, which is more important than ever, because of the changing demographics of our country. The people entering the education system today are from different backgrounds, cultures, socio-economic status, with different educational experiences and different educational goals; but all of them benefit from online learning tools that adapt to their needs, increasing their chances for success both academically and professionally. That's why we have built our platform online to serve students on-demand, in a personalized, adaptive, and more affordable way. This allows students to choose the way they learn best, because with Chegg Services they can access textbook solutions, expert Q&A, video content, or connect with a live subject matter expert, 24/7. We are always adapting our technology and our services to best serve the learner. Even with the many advancements in technology, many students still prefer, and benefit from, live help. So, we are excited about our continued investment in chat-based tutoring, which will allow students to get the additional support they need from live experts just one click away.

Education is a trillion-dollar industry where the pace of change is accelerating, and Chegg is a big part of that change. We are proud of all the accomplishments of our team in the past year and are even more excited about the year ahead. As we head in to 2019, our priorities remain the same: To deliver on our financial goals and to continue to provide services that create overwhelming value for our learners; To expand the subjects we cover and the modalities and formats of content we offer, including coverage of other countries; and To continue investing in opportunities that leverage the strength of our brand, reach, and customer base and provide opportunities for meaningful growth in future years.

Many believe that our country is at a crossroads, but the one thing almost everyone agrees on is the importance of improving our education system, making it more accessible, more affordable, and more relevant, for an increasingly diverse student body. This fuels us to put the student first and guides us on what we build, how we build it. We believe the momentum behind Chegg is accelerating, because we remain focused on serving the needs of the modern-day student and we are excited for what this new year will bring.

And, with that, I will turn it over to Andy. Andy?

Andrew Brown -- Chief Financial Officer

Thanks, Dan, and good afternoon, everyone. Today, I will discuss our financial performance for the fourth quarter and full year 2018, as well as our increased outlook for 2019.

2018 was another great year for Chegg. We exceeded all of our financial targets, made key investments in our existing and future services, expanded our offerings organically and through acquisition, and strengthened our balance sheet with a very well received convertible debt offering early in the year. As such, we believe we enter 2019 in an even stronger position than we entered 2018 and expect to have another great year.

For full year 2018, total revenue grew to a record $321 million, a 26% increase over 2017. More importantly, Chegg Services revenue grew 37% to $254 million, and hit a record of 3.1 million subscribers for the year, a net increase of 850,000 or a 38% increase over 2017. This drove gross margin to 75%, up from 69% in 2017, resulting in adjusted EBITDA margin of 26% or $83 million, up 80% year-over-year, demonstrating the leverage of our subscription services model where the unit economics get better as we continue to scale.

Reflecting back for a minute, three years ago we laid out our long-term goals for 2018 of 30% Chegg Services revenue growth, 65% gross margin and 25% adjusted EBITDA margin. We are very proud we exceeded all of those expectations and believe our model will only get better as we continue to grow.

We also ended the year on a high note, with Q4 revenue of $96 million, which was driven primarily by 35% year-over-year growth of Chegg Services revenue to $82 million. And as you would expect, with that performance, gross margin exceeded our expectations at 77%.

This led to adjusted EBITDA of $35 million, an increase of 65% year-over-year.

Looking at the balance sheet, we ended the year with cash and investments of $484 million, more than double the balance we had at the end of 2017. This is the result of proceeds from the convertible debt offering we completed in Q2 and improved operating cash flows. Free cash flow for 2018 was $44 million, or 53% of adjusted EBITDA, exceeding our expectations due to higher adjusted EBITDA and the timing of cash outlays at year end.

For 2019, we are increasing our revenue guidance due to the fact that we exited the year with more momentum than expected; in addition, we are raising our adjusted EBITDA margin guidance to reflect our anticipated leverage as we scale.

As such, we now expect: Total revenue for 2019 to be between $390 million and $395 million, with Chegg Services revenue between $327 million and $331 million. And as similar to last year, we expect Chegg Services revenue and annual subscriber growth rates to be closely aligned; Gross margin to be between 75% and 76%; Adjusted EBITDA to be between $115 million and $118 million, an increase from our prior guidance of $112 million, or approximately 350 basis points higher than the 26% margin we achieved in 2018, as we continue to drive leverage in the model, while investing in both our current and future services; CapEx to be between $40 million and $50 million, which includes an upfront payment for a recently completed contract extension with a major publisher, where we increased the licensed content, doubled the timeframe, all for a similar annual cost. The increase in CapEx also includes investment in localizing content for our international customers, as well as expanding our video catalog. In addition, we expect non-content CapEx to be larger than it has historically been, because we are expanding several offices this year to accommodate our growth; And finally, we now expect adjusted EBITDA to free cash flow conversion to be a healthy 50% to 60%, ahead of our previous guidance of 40% to 60%, as we believe the model just gets better as we continue to scale.

Moving to Q1 2019 we expect: Total revenue between $93.5 million and $95.5 million, with Chegg Services revenue between $72.5 million and $74.5 million; Gross margin between 74% and 75%; And adjusted EBITDA between $22 million and $23 million.

In closing, 2018 was another great year for Chegg. Our team executed at a high level and we have positioned ourselves for more success in 2019. It's an exciting time at Chegg and we are glad you are with us for the journey.

With that, I'll turn the call over to the operator for your questions.

Questions and Answers:

Operator

At this time, we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Jeff Silber with BMO Capital Market. Please proceed with your question.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Thank you so much. On the prior quarter's call, I believe you talked a bit about the strategy to bundle some of your products, I think in the upcoming fall, if I remember correctly. Can we revisit that are, how is that going, are you doing any pilots that I'm just curious if you can talk about the momentum we have? Thanks.

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So as you can see in the business, we have great momentum overall, and we continue to grow Chegg Study and Chegg Services quite nicely. We've been testing different configurations of the bundle as we said, we would and just as a reminder, we don't have any revenue associated with the bundles in 2019. We have cost associated with -- no revenues. So these are -- all numbers are all based on our current business. The concept of the bundles is, if we can package more things into Chegg Study with students pay more to be able to get Chegg Study, plus rating, plus map, plus other things.

So we have been testing, since the end of last year and into the first quarter. We really won't have much to report on it until the second half of this year, because we need to go through several iterations of quarters, we do it by every month, we do it by different messaging, different price points. But overall, you can see by just the demand for Chegg and what we offer that there's just a huge appetite for what we do. And so we feel very good about the future of Chegg and the ability to Chegg bundles. As we've said in the past, we also believe we have significant pricing power. But as long as we continue to grow like this, we want to continue to pick up as much market share as we can.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Right, that's great. In the announcement of Purdue looks really interesting, I just was wondering if you can give us a bit more color on it.

Dan Rosensweig -- President and Chief Executive Officer

I'm sorry. Do you see the announcement with Purdue?

Jeffrey Silber -- BMO Capital Markets -- Analyst

Yes. We announced the Purdue OWL announcement.

Dan Rosensweig -- President and Chief Executive Officer

Yeah, no, -- look, it's pretty significant for a lot of reasons. And I'm glad you brought it up. First of all, produced one of the great institutions in the country. They've been one of the most advanced, they recognized what we have seen for years which is that there something like 88 million Americans in have partial degrees, so they bought capital and they now go online degrees, they go offline degrees, but one of the things that they proud of themselves in for a long time is having, we would argue, I think pretty easily that they have the best on online writing lab, which is what all stands for. And the opportunity to combine their information, their content, RAI technology that we are building and that we acquired, we think together we can build seriously the world's premier writing service, first in the US and that on a global basis.

So, if you look at the number of people that use Purdue OWL and you look at the number of people that use Easy bet for us, you're talking about 10s and 10s and 10s of millions of people. And so, as we said on the prepared remarks, the more content you get, the more users you get, the more -- you're able to read into machine learning and use the AI, but better we can teach people actually how to write, not just be able to help them site. So we couldn't be more excited, it's an endorsement of the quality of checking the quality of our services and the power of our education platform.

Jeffrey Silber -- BMO Capital Markets -- Analyst

All right, great. I'll jump in back in the queue. Thanks.

Dan Rosensweig -- President and Chief Executive Officer

Okay. Thanks.

Operator

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

Alex Paris -- Barrington Research -- Analyst

Hi, guys, congratulations on the quarter and the raise.

Dan Rosensweig -- President and Chief Executive Officer

Thanks, Alex.

Alex Paris -- Barrington Research -- Analyst

I have a follow-up question on OWL. So how does it work financially, are you going to combine your -- some elements of Chegg's Writing with Purdue OWL that bolsters the Purdue OWL offering, does that master also the Chegg Writing offering that you have the subscription service?

Dan Rosensweig -- President and Chief Executive Officer

Yes. Both services benefit will be integration on both sides, this will actually help Purdue OWL, monetize a system that they really haven't been able to monetize in the past. And for us remember that -- you see we continue to exceed our own expectations in our business, and particularly with textbooks. A lot of it is because we are continued to reach into high schools and writing is probably our largest product and math is the second one now going into high school. So the ability to get students younger with a high quality advanced writing tool allows us to grow our current core business as well as other monetization opportunities that really have to do with our programmatic ads. So we couldn't be more excited.

Alex Paris -- Barrington Research -- Analyst

Great. And correct me if I'm wrong. Historically the OWL offering was offered to produce students free of charge.

Dan Rosensweig -- President and Chief Executive Officer

Correct. And so we will continue to be -- what will happen is, you can now go from Purdue OWL into Chegg Writing, if you want to sell it creates another funnel for us, there is well as the fact that we are going to help them figure out how to monetize and so they can invest more inside of their own product and services, because as you know, institutions need revenue streams and this gives them the opportunity. So it will help us on the subscription site as well as the ad site and we will help them with revenue monetization through the programmatic advertising.

Alex Paris -- Barrington Research -- Analyst

Great. Thank you. That helps. And then a question about required materials, I guess, we have the Ingram arrangement for print textbooks. My question is eTextbooks and then consignment, are those outside of the Ingram relationship we are -- they push through the Ingram the great agreement.

Dan Rosensweig -- President and Chief Executive Officer

Well, there is above. And what I mean by that is, for those of you who aren't as familiar with the Ingram deal. When we sign a new deal several years ago, it's kind of another year and a half to go by the way, that we use Ingram to help finance for buying of textbooks and we only recognize the net revenue. And to that degree, Ingram is not involved in all, which is all books are come from consignment, there is no capital changes here, and so that's also the benefit of Chegg and Chegg Shareholders.

On eTextbooks, that's all on our own. So we do use vital source, but we pay them a small fee to be able to use vital sources. We don't have to build our own reader and there could be ubiquity and the readers that students use, because I think we would argue that between vital source B2B business in Chegg's consumer business, we're probably the largest on the consumer side, they're largest on the B2B side that gives students a ubiquitous reader platform to use, but other than that the only monetization that Ingram makes on our consignment business is just the fact that we pay them to pick, pack and ship, which is a pretty standard cost. So it's a lot cheaper for us to do it that way and have our own warehouse and do all the logistics, so it's been a phenomenal deal for both parties. But the more consignments more eTextbooks, the more of the business. The next term gets in the favor of Chegg, because we don't really need capital anymore.

Alex Paris -- Barrington Research -- Analyst

Great. And then, could you give us a little bit of an update on what's going on in the eTextbook business. I realize eTextbook was kind of slow to take off given the pricing model of the traditional text book publisher, has that been changing.

Dan Rosensweig -- President and Chief Executive Officer

It has, and we have now a great relationship with all the significant publishers. And as a result of that we've been working with them for several years to encourage them to move faster the eTextbooks. And their best way to do that is to give them data based on what the pricing should be for each one versus say a regular or a new textbook going. So we provide that pricing back to the publishers, so they can make better economic and business decisions, which has been good for the publishers, but more importantly, good for the students. So that's brought the price of everything down.

So, we've actually seen significant upswing in eTextbooks. We don't share with the number is, but obviously every quarter and every year, it's a record and it's pretty significant growth. Would you used to be way below 8% in terms of what eTextbook was now significantly above 10%. So directionally it's moving in that direction. So, every one of the eTextbooks we don't have to put our cash for, every consignment we don't have to put our cash flow, so the amount of money that Ingram used to have to put out when we first did the deal was like the $100 plus million a year, we expect by the time the deal and we assume that will continue working relationship, you're talking about maybe $15 million or $20 million a year. So it's really changed dramatically in the favor of Chegg's business model. And we've helped drive that and the publishers have been great.

Alex Paris -- Barrington Research -- Analyst

Great. Thanks so much for the additional color. I'll get back in the queue.

Dan Rosensweig -- President and Chief Executive Officer

Yeah.

Operator

Our next question comes from the line of Aaron Kessler with Raymond James. Please proceed with your question.

Aaron Kessler -- Raymond James & Associates -- Analyst

Yes, I guess, congrats on the quarter. A couple questions. One is on the international, I think you noted that in your shareholder letter, if you can talk or maybe the timing there, how we should expect to rollout. And second, just the brand awareness maybe among the middle school, high school, age groups and opportunities to further penetrate that category as well. Thank you.

Dan Rosensweig -- President and Chief Executive Officer

Yeah, so this is Dan. Let me talk about just the penetration numbers. So on our prepared -- in our prepared remarks, I think we've said we're now up to 87% brand recognition in college, it's lower than that, but significant -- very. I mean, it's almost doubled every year in the last couple of years into high school, a lot of that is because of the acquisition of easy base and now the launch of Chegg Math. Those two products and with the acquisition of StudyBlue, we now have three free products that can be used by students at any age. Don't expect us to put much of an effort into middle school. Of course, middle school parents and students can use it. It's much more difficult to target parents and students to have students use something. So we go directly to the student that's always going to see our model that's been our model.

And so with that in mind, what we're trying to do it's free services that students are likely to find, and so now with the leading flash cards service and a leading writing service and emerging leading map service, we feel really good about our penetration into those categories, also all of them are relevant on a global basis because math and writing and learning are all consistent every resort everywhere in the world. So the subject matter doesn't matter when use of (inaudible) you can use it for anyone if you want. And STEM products like Math or relevant everywhere. So the way we think about international as we've talked in the past that three first countries that we'll spend time on our Canada, UK and Australia for obvious reasons. The top publishers in the US are the top publishers in those countries. You won't see -- I've mentioned that several times in the past, you won't see us make any big splash or announcement, because what we're doing is we continue to add content that is relevant to those countries worked out improving the capability of our expert answers to not only be able to answer questions from books that are not from the US, but also in different languages and we're working on translation capabilities to be able to go even bigger global on other places. And so you'll see us start to launch mobile apps in those countries where they are more likely to use those and they are use the desktops and we'll continue to invest in the content, which is included in the CapEx that Andy mentioned earlier. And we believe that we continue to invest in those things you'll consistently see growth over 30% which is what our objective has been, and because those markets will just keep getting bigger for us and we're excited about it.

Aaron Kessler -- Raymond James & Associates -- Analyst

Got it. Great. Thank you.

Operator

Our next question comes from the line of Doug Anmuth with JPMorgan. Please proceed with your question.

Douglas Anmuth -- JPMorgan -- Analyst

Thanks for taking the questions. First, Dan, if you could talk a little bit, just curious about how you are thinking about expanding into other verticals and areas of education. I guess, more depth about how you think about kind of the build purchases by scenarios has really looking for things.

And then secondly, Andy, you talked about the higher free cash flow conversion going to 50% to 60%. Can you just elaborate on that a little bit and just give us a little more sense, what gives you the confidence there. Thanks.

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So -- Doug, I didn't catch the last part of your question. Could you just repeat it?

Douglas Anmuth -- JPMorgan -- Analyst

Just on free cash flow conversion that 50% to 60%. What gives you the confidence in the higher number there?

Dan Rosensweig -- President and Chief Executive Officer

I'll answer that one. I'll reanswer that one. Let me talk about, we thought that the first part of your question which is sort of the build by partner present and other verticals. So as you saw, we specifically called out in the prepared remarks, things like nursing, and this is well. What's happening is the students are driving us in the direction they want us to go. One of the great benefits of the giant moat we have with the expert Q&A in those 26 million question is -- there is no governor on what the student ask. So when they start asking questions in categories we're able to answer them. And then we know the kind of content to add whether it'd be video content or students in that category or step by step solution that we can add over time, what's really clearly happening at the community college level and at the boot camp level is they're looking for more job related skills, so for kids who are in the college -- four-year college is now, if you want to call them that their programing parallel to the curriculum they have in addition to using us for the curriculum that they're assigned, so you can see things. Then they're moving more into professional category. So we're just going to keep moving where the jobs are, where the students are, where the questions are, and so we don't actually have to guess, which is a nice part of the business. On the build by our partner, our philosophy has been that no matter where student goes to school, no matter where they choose to learn, we're going to be with them every step of the way. So we are programing to support them in the institutions that there in, as well as over time we're going to have content that their institutions should have and don't currently have because they can move fast enough.

So you will see us support a student, no matter where they go to school or where they're learning from with the kinds of products and services we have students in Chegg Study and Writing and Math and those things and we'll build out more professional content and then you're going to see us ultimately start to program courses that aren't necessarily in this institutions they're going through, but they need to get jobs.

As it relates to build by our partner. I think, we've been very judicious because of the success that are Andy and Tracey had raising of capital, we have nearly $0.5 billion to be able to buy things, should we see things at the right value that we could grow faster, leverage our brand, leverage our network and leverage our data. And so you'll see us still a balance of both over time, because we think there are certain things that we can build out data like content in areas and then there will be capabilities that we might acquire like we did with StudyBlue or like we did with Math.

So, I'll let Andy talk about the free cash flow conversion.

Andrew Brown -- Chief Financial Officer

Yeah, it does on the free cash flow. I mean, if you think about our model, as our topline scales and it's primarily scaling as a result of subscription business. The economics just get better for us, and as a reminder it's every incremental subscription is super high margin to us, we're kind of a -- when you think about our proprietary content it's right once and read many, and it's content that, that doesn't really doesn't get old.

And so our view is that as we continue to scale and as we continue to drive our EBITDA margins, which we talked about earlier on the call up again -- up 350 basis points this year 2019. We believe that will continue to drive free cash flow in that 50% to 60% range. And if you think about what we did this past year 2018, it was 53%. So we have a high degree of confidence that we can drive 50% to 60% and that's really driven by our subscription model that that's driving our growth.

Douglas Anmuth -- JPMorgan -- Analyst

Okay. Great. Thank you, both.

Dan Rosensweig -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.

Michael Grondahl -- Northland Securities -- Analyst

Yeah. Thanks guys, and congratulations on the quarter. Could you just kind of update us your thoughts on the Math subscription, how that's kind of performing against that expectation?

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So, Math, I -- we acquired an amazing team in Berlin, Germany, to help us build out Math, because it's a global language and whether you need Math just learn Math for Math sake and become professionated or whether you needed for the Scientists or whether you're going to be a Math Major, you're going to be at Engineer, Math is ubiquitous and global and that was a big part of our thinking.

The second thing is we acquired it in essence to create a value for us that we can put it inside of Chegg Study or the Chegg Study bundle. So the people would either pay more or we get higher conversion rates. We also do sell it as a standoff on the cart like we do for writing and it's super early because we've owned -- we haven't even had it for a year, but it's performing very well. Unexpectedly, meaning that we really didn't acquire to have stand-alone subscription. But it's a great product and people are really responding to a well. So we're seeing really good uptake early on, I mean, it's not big enough to affect the numbers, the way. Some of the other businesses are, but over time it will be.

Michael Grondahl -- Northland Securities -- Analyst

Great. Great. And then with Chegg Study, are you seeing any change in retention or duration of the students? Is that lengthening at all?

Dan Rosensweig -- President and Chief Executive Officer

Yes. So the best way to think about, it's been more difficult in the past to really look at our subscription businesses and our ARPU, because it's sort of been masked by other business is that we had that we no longer have like our enrollment business. And is that has worked its way off, you can get a much clear view of really what's going on with our subscription services. So you'll see that it's more clear that it's ever been that our ARPU actually went up.

So that's a reflection, since we haven't changed the pricing, that's the actual reflection of the more subscribers we get, they're coming on an earlier and they are staying longer, and then they are renewing faster. And so all of those are really positive signs and that's why you continue to see Andy authorizes to make really strong investments inside Chegg Study with more content, more modalities that earlier that come on the longer they stay, and so that's been a really great formula for us.

So you can actually see it in the subscription numbers now, which you haven't been able to see in the past or ARPU is actually rising and since it's not about price at this point, it's really a reflection of renewals and longevity.

Michael Grondahl -- Northland Securities -- Analyst

Great to hear. Great. Thanks, guys.

Dan Rosensweig -- President and Chief Executive Officer

You bet.

Andrew Brown -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Alex -- Jefferies -- Analyst

Thanks for taking the question. This is Alex (ph) on for Brent. Two questions. First for Dan. Can you just provide your updated thoughts on the three years business. We noticed the investment in way up last quarter, so just curious on the thought process there and how you see the careers business developing over the next few years. And then for Andy, similar to a previous question. But on the 19 guide in the 300 basis points of margin expansion.

You talked about the main puts and takes that are driving the expansion, whether it's anything other than the continued shift to subscription revenue that we should be aware of, especially given the investments you're making throughout the year on subjects and content. Thanks.

Dan Rosensweig -- President and Chief Executive Officer

I'll take the first one and turn it over to Andy. So on the question of careers. Look, the bigger the Chegg platform get, the more we become and educator, the more content that we're actually providing that around things that are not only academic, but our professional. The more logical it is for us to help students prepare for and then ultimately get and then stay with their jobs and improving their upscaling in their jobs. It's a long journey to do that, and we're making really good progress in our opinion. We have more data, we believe that anybody else. And part of the reason for the investment way up was of course they have a great team and a great brand and they have a great CEO. And it allows us to utilize our data to help match and improved skilled matching and platforms other than our own. And so we think the two of us working together will be very good. The goal really is just to get a student job and the right job and the job that they can get paid for and helping payback college loans, which will be a subject for another day.

And so that was the reason for the investment in way up and we're very proud of that. They're a great team and lose it's been terrific to work with. As it related to what we're doing is very clear that there are multiple steps along the way internships ends up first job and so we're taking a lot of the content and technology that we've been building a lot of the data, a lot of the skills matching and remember we read over 100 million resumes over the last 10 years to be able to predict where students -- given where they gone-to-school, given what they take with a major and where they're likely to end up working and what they're likely begin to end up getting paid. And then we want to be able to apply that helping students not only get a job, but also get an internship.

So you're going to see us continuing to make that investment, but also in the insurance shifts.com we are able to expand because we have millions of students to go through that and it's becoming increasingly clear the path of great job starts with an interest. We want to do both. And that's one of the reasons we acquired that asset. So we think it's a very big and important and necessary opportunity for Chegg and it's one of those that we're doing a combination of organic and through investment in acquisition and we'll continue to invest in it. We are making great progress in it.

Andrew Brown -- Chief Financial Officer

Yeah, so, Alex. Your question on the EBITDA margin expansion and the watches I want to make sure you're aware, it's 350 basis points -- not 300, that's the first thing, but nonetheless really what's driving our financial performance and has driven our financial performance for the last few years really has been Chegg Study and Chegg Writing.

Having said that, we've now, we're now at a point where when you look at our business modeling has great balance to it so well. While we continue to drive margin expansion, like we talked about in 2019. We're also making the necessary investments to continue to put ourselves in the continued growth path in 2020, '21, '22 things like Dan already talked about and talk about the investment in Math, flash tools, Chegg tutoring, the international investments that we're making this year for the future in the bundles and so we've got this great balance where we're making investments while continuing to deliver value to our shareholders.

Alex -- Jefferies -- Analyst

Great. Thank you, both.

Dan Rosensweig -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Please proceed with your question.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Yeah. My question on the seasonality, you didn't redo the slide that you put up in Q3, but in Q3 you talked about some seasonality to be revenue and adjusted EBITDA for 2019. I assume that remains unchanged?

Andrew Brown -- Chief Financial Officer

Yeah, Eric. Absolutely. We didn't see a reason that we needed to change the seasonality relative to what we had talked about in Q3 and so that would still be applicable based upon the new guidance.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Okay. And then just diving into the cash flow statement. The $10 million strategic equity investment, what was that?

Andrew Brown -- Chief Financial Officer

I think Dan just talked about it. That was the investments that we made in a company called WayUp. Dan just talked about that on the with the last with Alex on the last question.

Dan Rosensweig -- President and Chief Executive Officer

So what we're seeing is, Eric, is that a number of companies are coming to Chegg because of our scale. I mean, remember we have over 13 million registered users now combined last year in 2018. I think we had over 5 million people paying us for something, we become really large, we have a lot of data, we have the Sierra (ph) systems. We have the ability to message and communicate and build the relationships with students. And so, there's a number of companies that are approaching us about partnering, whether it's an investment in them or whether it's to leverage the Chegg platform like Sallie Mae deal. And so we're just seeing more opportunities like that and we want to make sure that we invest in our ecosystem whenever it's appropriate able to present the opportunities for students and Chegg.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Thank you.

Operator

Our next question comes from the line of Alex Fuhrman with Craig-Hallum. Please proceed with your question.

Alex Fuhrman -- Craig-Hallum -- Analyst

Great. Thanks very much for taking my question. Dan, I want to to ask a little bit about what you were talking about with moving into some of the poor skilled oriented subject. I think you'd mentioned that law and nursing on the call. Just wondering, is it fair to assume that most of that focus will be on post graduate students and then just thinking more broadly as where to demand from students tend to migrate more toward that skills as you said, is it possible that there could be an offering down the road, catering score, students who aren't necessarily customers of an accredited university, but maybe more self study or just don't starter getting out the job market?

Dan Rosensweig -- President and Chief Executive Officer

Yes to all of that. And what I mean by that, and you'll have to forgive me I'm in the New York office and the heat is starting to act up. So yeah, different coat, different heater. So look credited, non-accredited for profit, not for profit, all things are labels that may or may not matter anymore. And I really point you to read a great article on reads on a raft manual without had a changing education systems. So all it's whatever needs to learn or wants to learn, we're going to support them and the ability to do it. So we are either going to support them in the system there in or we are going to help them find the content and experiences that can help them learn it or we'll provide those services.

So in the case of nursing and business law and statistics and accounting, those are currently today to help people that are currently going in the accredited system. But you see increasingly a number of products and services being used at that -- I think, people have written off that years ago, but aren't which is moves in other categories. So you're beginning to see our students -- even our own employees are coming to us for non-accredited content, because it's just better sometimes, it's more relevant, it's been updated so Chegg's goal is to support new whenever you take from whomever you take it from, but also to provide you over time with content that will help you be better in getting a job, be better at your job and be better finding a new job. And also I just want to point out that that 70% to 80% of our students go to a state school, 43% of them don't finish, and so there's a whole lot of students out there with partial degrees that may or may not get a degree, but they absolutely need to get a scale and the 50% of high school students they graduate. But don't go on to further education, they also need skills and career pathing. So, the opportunities for Chegg to program to support people and the systems they go into or create content programming for the -- for them directly just keeps getting bigger for us.

So I think we're going to stop using the labels and full year and two year and community college in vocational. I think we're going to start just focusing on how does a student accelerate their path and learning to Ernie and that's been something Chegg's been on for nine years now, and I think we are driving the industry to move in that direction and we think that just creates great opportunities for students to more accessibility, lower cost, higher quality, more relevant on demand and then much more affordable and that's the role that Chegg is going to play.

Alex Fuhrman -- Craig-Hallum -- Analyst

Great. That's really helpful. Thank you very much.

Operator

Our next question comes from the line of Brian Essex from Morgan Stanley. Please proceed with your question.

Brian Essex -- Morgan Stanley -- Analyst

Hi, good evening, and thank you for taking the question. Congrats on the results, guys.

Dan Rosensweig -- President and Chief Executive Officer

Thank you.

Brian Essex -- Morgan Stanley -- Analyst

Again, I think, taking your prepared remarks, you noted an increase in engagement with students and maybe if you could unpack that a little bit in addition to absolute engagement. How is that on a per subscriber basis and then maybe rank order the contributors to that, whether it's content our tax rate or above.

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So, it's not attach rate, meaning what we focus on is one-third in the service. Are they using the service, more or less than they have in the past. And the numbers are just staggering. When you take a look at the fact that in Q4 there was something like 224 million content view. And so when you take the number of subscribers we have in the quarter, you take the amount of use if they have, they're going steady or up. It's a little bit interesting for me is somebody who work together for a long time, the goal is to get them to consume as many patients as you could, because that was the business model. And Google came along with that consumers few pages you can click off the ads and that's how they make money in the case of us what we really look for is the content consumption, which is, are they using us to ask more questions they have in the past and I think using to consume more content -- more category they have in the past, because that really shows the expansive nature in the value and shows the pricing power Chegg Study and we think that's what we're seeing.

Brian Essex -- Morgan Stanley -- Analyst

That's super helpful. And then maybe just on the services revenue per subscriber. You inflected to positive growth in spite of some of the elements within that category there a headwinds, maybe a little bit of color on that. I mean are you seeing the kind of promotional related revenue deteriorate to levels that matter much less and now subscriptions growing faster and, is that sustainable the case going forward?

Dan Rosensweig -- President and Chief Executive Officer

Yeah, I mean, we've been and you guys have been great, but you guys, it's sort of join the story in the last year. So in previous years, we had assets that we ultimately shutdown or shut because they weren't right for the future. And so, while we've been referring to has been our enrollment business, which is a company that we had called rich and which we did a partnership and then we ship in that was revenue that we had that was beginning we believe was going to ultimately decline and so we've been rolling off that revenue and we are rolling off that revenue that we essentially have our subscription revenue in our programmatic advertising revenue are the two biggest part of that revenue stream.

And so, yes, you are seeing subscriptions to be worth a lot more. As Andy has pointed out in the past, there a lot easier to model. We know all the key levers, which is how many do we have with the cost to acquire, how long do they stay on, how much do they renew, how much can we charge them, what's the yield, all of those variables are moving up into the right and you're seeing that reflected in our business model. Look, it's not been easy, it's taken us nine years to get to this point. But you're really seeing since we did the Ingram deal changed our model to all digital and put ourselves in position to do this and the investments that we've made already showing that they have great leveraging great value to students.

Brian Essex -- Morgan Stanley -- Analyst

Helpful. Thank you very much.

Dan Rosensweig -- President and Chief Executive Officer

You bet.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Dan Rosensweig for closing remarks.

Dan Rosensweig -- President and Chief Executive Officer

Close enough. I'll take it. So first of all, happy New New year to anybody that celebrating. Second of all, I just want to have a shot out from my team to do Heather Morris, who just had a beautiful baby girl, and so we hope she takes a long valuable maternity leave. But we can't wait for her to come back. But on top of that look, check it off, we closed the year in a very strong position, we have a great relationship with students, we're known for creating extraordinary value for really low-cost and we found a way to be able to do that and create a high growth, high-margin business where we can continue to invest, but returned a lot in the form of free cash flow to our investors. And so we're really excited about the business model, the future of the business.

As we look out, we just see non-traditional becoming more traditional, which is, we believe the industry has got to move and is moving toward being able to be on demand, more affordable, more relevant, more contextual to the student personalized adaptive, and then ultimately help the students to accelerate from learning to earning. And we think we are in the best position of anybody in the ad-tech space to be able to support students in the current system, while at our own programming to help them if they're not able to complete those systems to be able to accelerate learning to earnings, and do so at a much lower cost than they've historically had to do it. We've got a $1.5 trillion (ph) in college debt and we've got M&A and check is in a position to really help millions and millions and millions of students and then expand on a global basis. So we're thrilled that all of your board for the ride, and for your support and we look forward to talking you on the next call. Thanks everybody.

Operator

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

Duration: 55 minutes

Call participants:

Tracey Ford -- Vice President of Investor Relations

Dan Rosensweig -- President and Chief Executive Officer

Andrew Brown -- Chief Financial Officer

Jeffrey Silber -- BMO Capital Markets -- Analyst

Alex Paris -- Barrington Research -- Analyst

Aaron Kessler -- Raymond James & Associates -- Analyst

Douglas Anmuth -- JPMorgan -- Analyst

Michael Grondahl -- Northland Securities -- Analyst

Alex -- Jefferies -- Analyst

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Alex Fuhrman -- Craig-Hallum -- Analyst

Brian Essex -- Morgan Stanley -- Analyst

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