Q2 2021 Adtalem Global Education Inc Earnings Call
Okay.
Greetings and welcome to the AD tell them and global Education second quarter fiscal year 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.
Please note this conference is being recorded.
I will now turn the conference over to our host Maureen reset Vice President Treasury and Investor Relations. Thank you you may begin. Thank you I'd like to remind you that this conference call will contain forward looking statements within the meaning of the safe Harbor provision and the private Securities Litigation Reform Act of 1995.
Back to the future performance and financial condition and that challenge of global education and involve risks and uncertainties.
Actual results may differ materially from those projected or implied by these forward looking statement of.
Potential risks uncertainties and other factors that could cause results to differ are described more fully and item one a risk factors of our most recent annual report on form 10-K filed with the SEC on August eight 2000, and 'twenty and our other filings with the S E T.
Any forward looking statement made by us and based on the aliens and.
Formation currently available to us and speaks only as of the day on which it was made we undertake no obligation to publicly update any forward looking statement, whether written or verbal that may be made from time to time, whether as a result of new information future developments or otherwise and except as required by law.
During today's call our commentary will refer to non-GAAP financial measures, which are intended to supplement though not substitute for our most direct comparable GAAP measures.
Our press release, which contains the GAAP financial and other quantitative information and to be discussed today as well as reconciliation of GAAP to non-GAAP measures is available on our website.
Please note that all financial results and comparisons made during today's call are on a continuing operations basis.
These special items and are in comparison to the prior year period, unless otherwise stated.
Telephone and webcast replays of today's call are available for 30 day to access the replay please refer to today's press release.
Well begin todays presentation with prepared remarks from Lisa Wardell and talents, Chairman and Chief Executive Officer, and Mike Grondahl sheet, Senior Vice President and Chief Financial Officer. Following the prepared remarks, Stephen Byrd, Our Chief operating officer will join US for the question and answer session.
And with that I'll now turn the call over to Lisa.
Good afternoon, and thank you for joining us today. This quarter, we continued to achieve strong operational results with revenue growth of $6 four per cent and earnings per share growth of 35% and the quarter.
This was driven by operational execution and marketing fueled by prior period marketing spend efficiency and admissions due to inquiry conversion improvements new cash.
And contributions and structural changes and several of our institutions and strong demand and the segments, where we have strategically focused our businesses.
And the past decisions to invest in marketing and operational improvements are bearing fruit and generating double digit enrollment growth at Chamberlain and along with double digit new enrollment growth and AUC and high single digit and new enrollment growth at Ross Med and the first half of fiscal 2021.
During the quarter, we also drove robust revenue growth and both medical and healthcare and financial services with each growing revenue up 6%. Our superior student outcomes continues to be a hallmark of our success and the foundation for future enrollment growth given the strong first half of our fiscal year, we've raised our full year earnings guide.
And which Mike will discuss further in his remarks remarks.
The demand for health care professionals remains extremely strong and we are continuing to assist our partners and filling their critical work force gaps with the COVID-19 vaccine and beginning to be distributed on a wide scale. We are pleased to share that many and health institution students and graduates will be part of the solution and helping distribute and deliver the vaccine.
Worldwide.
We continued to execute on our enterprise strategy during the quarter.
And then it has put a great deal of stress on the health care industry and has exacerbated healthcare and workforce shortages that have existed for years and.
Talent and seeks to help increase the talent supply to address the rapidly growing and unmet demand for health care professionals and solve complex issues for employers. This strategy continues to be validated and accelerated by the needs of our employer partners during the pandemic.
Our medical school and graduate and average of nearly 1000 physicians each year and put that into context. The average number of graduate and annually by all of US Medical School combined is under 20000 graduate and every year over the past five years at Hal and medical school and graduate more than twice as many physicians and.
And the largest U S based medical school.
Yeah.
Regarding our planned acquisition of Walden University, we remain confident that the transaction is strategically complimentary to the legacy accounts institutions, who providing additional online capabilities scale and health care offerings graduate program mix and behavioral science offerings being requested by our employer partners I want to.
And sure investors are aware that 77% of the revenue and 88% on the EBITA for Walden, and the healthcare related program offerings, including nursing and social and behavioral Sciences.
And December anchored volume industry wide from behavioral sciences increased 63% year over year.
In terms of degree mix, 85% and programs are gradually and of the 15% of undergraduate programs approximately one third our degrees and nursing.
The us nursing education market is currently at 28 billion as and and is expected to grow at a 21% CAGR to $60 billion by 2020 for these.
These programs allow us to assist providers and addressing the societal dirt determinants of health and their employees shortages, which have increased as a result of the pandemic.
England University and Walden University combined we will have the largest nursing enrollment and the market, which still represents less than 10% of the total market. The collective scale will further enable future growth from both institutions.
And Walter and increases our scale fulfill the need for qualified healthcare professionals that is both required by our employer partners and as a national imperative during and post pandemic, Walter and significantly increases our capabilities and online and hybrid learning modalities. Another secular shift that has been accelerated by the current pandemic.
And we see that trend continuing well into the future well and is expected to provide incremental unlevered free cash flow of 120 million post flow.
And in addition in addition, as a reminder, we are targeting $60 million and cost synergies to be fully phased in within 24 months of the transaction flow.
With cash considerations and $60 million on cost synergies and eight four times multiple decreases two and even more attractive multiple under six times EBITDA. We have provided additional information on the walls and transaction and a supplemental slide deck posted on our investor website.
Yeah.
The acquisition of Wild and it is progressing well and we remain on track to meet the targeted closing date in mid calendar year 2021 subject to closing conditions as it relates to the US Department of Justice inquiry on the content and cost of Walgreens Master of Science, and nursing program and the availability.
And of clinical science placements for this program I want to reiterate that we take these matters very seriously.
Conducting a thorough independent investigation.
And have hired independent legal advisers to do so to date, we have not found evidence that substantiates and CHP allegations.
Turning to highlights by segment and across our medical and health care institutions. Our teams are working diligently to meet the surging demand for health care professionals and continue to leverage the opportunities that our scale provides us what truly sets our institutions apart from their peers are superior academic outcomes and focus.
On student support and success and our strong relationships with employer partners.
Following the largest enrollment period and Chamberlain's history and September we are pleased to see continued strong growth and the November session with new and total students enrollment increasing $8 one per cent and 10, 2%, respectively, representing all time highs for the period and.
And Robin during the quarter was driven by ongoing investments to further strengthen the Chamberlain brand targeted messaging by program and our focus on operational execution.
We are also seeing substantial growth across the country and our campus programs, which included expansion of our evening and weekend classes now offered and five campuses and several campuses with mid session November starts.
Because 16 of our 22 campuses do not have cash on enrollment we can continue to meet the growing demand for these programs and see a clear runway to further expansion.
Demand in California in particular has been very strong and well above our current campus cash later this year, we plan to open a second campus and southern California and on.
Current California campus, we have approved we have been approved to raise the enrollment cap by 50% in the meantime, we have also successfully implemented a process the channel perspective, California students to Chamberlain other campuses further increasing enrollment and demonstrating the power of the Chamberlain brand and scale.
Our students continue to perform well academically with first time and <unk> pass rates through the third calendar quarter of 2020 of 91%, which is on par with the national average pass rate. These academic results achieved despite challenges from the pandemic speaks to the continued strength of our programs are.
Nation, and predictive analytics and our robust student support.
Chamberlain has worked to establish strong connections with community and junior colleges, serving as a further differentiator and we partner with these schools to build a pathway to our programs, notably our jumpstart program, which enables students burning and associates degree and nursing to also take two RN to BSN courses at Chamberlain and no cost.
That is generating strong interest and ultimately enrollments into our RN to BSN degree program.
And our medical and veterinary schools, we are focused on expanding and developing strong relationships with our clinical partners.
<unk> been focusing on driving more synergies between Ross med and AUC, including combined operations, such as marketing admissions and student services as well as joint clinical programs with our partners and our enrollment continues to grow we see this as an opportunity to deliver more clinical revenue over the long term, while ensuring our students get quality clinical <unk>.
And then in a timely manner.
For the January semester on medical and veterinary schools and a portion of their students successfully returning to campus to continue their educational journey, while other students remain online and we began calendar year 2021.
That being said, we are monitoring and risk of the potential impact of the nationwide search and COVID-19 on clinical and we entered the third quarter. We view this risk is manageable and temporary and we continue to benefit from robust relationships from geographically diverse clinical partners. This enables us to shift a portion of the clinical us from one location to another.
In addition, we provide students with and increasing speed of primary and elective clinical option.
Yeah.
Ross that continues to see increased demand for its programs as a result of its growing brand recognition the steady consumer demand from veterinarians and and increased interest from students and animal health issues, including the role they play and human infectious disease.
We are continuing to focus on increasing diversity access and inclusion and medicine through the partnerships with HBC, you and HSI undergraduate institutions.
Since the beginning of 2018, we have enrolled over 580 graduates of HBC, you HSI undergraduate programs and our medical schools additional.
Additionally, we have entered into partnerships with 10, and HBC us and HSI and our and active conversation with others to accelerate this effort as well as build stronger undergraduate advisor relationships, we have combined our assets across med and vet and formed a new field marketing organization.
And University partnership team, we are already seeing improved results and inquiries as a result.
Yeah.
In addition, we recently announced a partnership with minorities and agriculture, and natural resources and related sciences to further our commitment to increase diversity and the veterinary profession and strengthen the pipeline of highly qualified diverse students pursuing and education and veterinary medicine.
As a result of these initiatives and our ongoing focus on execution and agility and meeting students needs. During the pandemic I'm very encouraged by the promising enrollment trends across our medical and veterinary schools and expect this momentum to continue through the second half of fiscal year 2021.
Sure.
And our financial services segment, we continue to enhance our offerings and strengthen our talent and infrastructure and expand our capabilities to position. This segment Hello auction growth.
As a reminder, accounts last two acquisitions at Cannes, and LCL and have achieved 23% and 22% revenue CAGR since acquisition, respectively, and we are confident both businesses are ideally positioned to capture demand to enable further growth and their respective market.
And of course learnings position us to go to provider and the mortgage industry has allowed us to capitalize on favorable market conditions differentiating ocean OCR from competitors through a combination of offerings capabilities and scale.
The man from pre licensure and exam prep had been quite strong and our institutional partners have been able to rely on ocs robust offerings to support new hires licensed mortgage professionals are required and continuing education education credits to maintain their credentials and our teams have performed exceptionally well and capturing that demand.
And that's what we're continuing to reinvest and the business to both capture increasing consumer CPM CPA test prep demand and to leverage Deckers brands and the continuing education sector.
During the quarter, we saw 20% revenue growth and continuing education with strong market response, and all segments due to our expanded content and webinar offerings.
And strongly encouraged by the traction, we're gaining and this space and backup brings and expertise to address and important important need for professionals and employer partners.
CPA test prep continues to see a short term shift from B to b to B to C sales and response to the pandemic as professionals and the financial services industry seek certifications on their own offsetting declines from corporate hiring freezes and importantly, even with these dynamics, we are adding new institutional relationships, which we expect to bolster our cash.
Print revenue later in the year.
And we look ahead, we are excited about enhancements, we are making to our certified management accountant accountants, offering which is one of the fastest growing accounts and credentials and the world. Our team will bring a better experience to the CMA exam prep and we are already receiving positive feedback from potential customers.
Yeah.
Hey, James remains the leader and a rapidly growing anti money laundering, and financial crime certification market, which is critical as global Commerce continues its shift online and we intend to continue expanding our offerings to meet the diverse needs within the global market, including driving growth and the anti financial crime space.
In early December we announced the launch of our new anti money laundering compliance certification program for Fintech firms and partnership with Fin Trail a firm focused on managing exposure to financial crime risks. We're also seeing tremendous growth with our other new certifications, including sanctions and and the new short course offerings, including know your customer and transaction.
And is monitoring.
Following the success of our virtual Las Vegas Conference in September we're continuing to hold other virtual conferences, including on Caribbean Conference, which took place in early December and had nearly 450 participants.
Going forward, we plan to use the hybrid conference model to expand participation I, including attendees that arent able or willing to travel and this will provide an alternative model that can supplement future growth on in person conferences.
Yeah.
With regards to the regulatory environment, we are well positioned to support the biden and administrations priorities, including health care equity.
Access to education, particularly in health care and for the diverse and under represented and communities and championing the fight against financial crime and the bond and administration has made clear and it seek solutions to these problems facing our nation and as Hal is addressing all of these challenges and making a measurable social impact.
And talented medical school and graduate more black physicians and any other school and the United States and a higher percentage of our students 41% versus 21% per U S medical schools practice and underserved rural and urban communities. When they are needed and most specifically almost 70% of graduate from AUC and Ross Med.
Who matched and 2020 and just primary care residency programs versus 47% of graduates from U S medical schools and aggregate.
With regard to other buys administration priorities are on.
Ontario student commitments reviewed by a third party for the past four years demonstrating line on this proposed regulations, including our commitment to 80 515 or below from federal funded including VA and military military benefits I'm.
Among our title for institutions to percentage of combined revenue coming from title for funds and 71%.
Recent data published by the Department of Education show that for fiscal year, 2017, and talented institutions had a combined three year cohort default rate of three 1%, which is well below the combined rate for private for profit four year school of 12, 9% and if half the rate of private not for profit schools of six 3%.
Further endorsement that our progress on degree us provide a return on investment that employers are willing to fund for their employees, our students and that our graduates are obtaining employment and paying back their loans to the U S taxpayer.
Our leadership team is laser focused on operational execution as evidenced by our commitment to grow EPS, 28% to 32% on revenue growth, 5% to 7%. This fiscal year. Despite the challenges brought about by the global pandemic.
And we achieve further scale and competitive differentiation and health care and financial services education through the acquisition of Walden University and organic growth across the portfolio, we are well positioned to deliver and near term and long term growth and profitability for our shareholders and we continue to execute our workforce solutions provider strategy.
Yeah.
Yeah.
Before turning over to Mike I also want to mention our recent recent shareholder engagement you likely have seen the letters issued by engine capital and Hawk Ridge partners members of and talented board of directors and management have met with and then and Hawk Ridge on numerous occasions and late 2020 and older.
This year, we will continue our dialogue with them and give careful consideration disabuse us fourth and that led us to the board and several of their suggestions are already being implemented as we have had a clear focus on operational efficiency and streamlining the portfolio for some time.
And I can assure you that as fellow and count on.
And as we take our stewardship stewardship of your investments extremely seriously.
With that I will now turn the call over to Mike to discuss our financial highlights and greater detail.
Thank you Lisa and Hello, everyone.
Moving off of on momentum from the first quarter and despite continued headwinds from COVID-19, we reported strong results for the second quarter of fiscal year 2021, with revenue, increasing six 4% to $283 1 million and diluted earnings per share from continuing operations excluding <unk>.
Actual items growing 35, 1% to 77.
Our prior strategic decision to invest and marketing combined with our continued operational execution and expanded offerings across both verticals drove our continued strong performance and we.
And I mentioned, we saw ongoing strength and new and total student enrollments.
Operating income and margin also benefited from continued cost efficiency initiatives focused on driving further cost reduction through centralized operations and reducing spend through supply management.
Continuing to drive increased productivity and our DNA through our technology and our centers of excellence by combining our purchasing across a column institutions.
And these productivity improvements are a significant contributor to margin expansion during the first half of this fiscal year.
Cost of educational services decreased 3% to $126 $8 million and the second quarter of fiscal year 2021.
And with the prior year.
This decrease was primarily driven by lower bad debt expense.
Student services and administrative expense was $103 $7 million and the second quarter, a seven 3% increase when compared with the prior year. We believe our student support is and will be a competitive differentiator and allows us to provide access to diverse student populations.
We continue to thoughtfully step up investment and marketing and student recruitment and sales development to support future enrollment growth that our health care institutions and revenue growth within financial services and <unk>.
All of us multiple vectors to drive future revenue growth, including capturing strong demand for medical and health care professionals, capturing the strong demand and the mortgage market and on of course learning and continuing to innovate on its product offerings.
Moving growth and beckers, continuing education business, and providing a broad range of options for <unk> offerings to certify and train employees of our customers against fraud and anti money laundering.
Our investments are focused on leaning into these vectors of growth.
Consolidated operating income excluding special items increased 24, 4% to $52 $6 million and the second quarter of fiscal year 2021, driven by increased revenue at Chamberlain.
And of course learning decreased bad debt and efforts to increase efficiency.
Yes.
This was partially offset by increased advertising and marketing expense to support future growth.
Net income from continuing operations, excluding special items was $45 million compared with $30 9 million.
And the prior year and diluted earnings per share from continuing operations, excluding special items was <unk> 77.
<unk> 257, and a 35, 1% year over year increase.
Now turning to our segment results for the quarter and.
Medical and healthcare revenue for the vertical was $234 4 million, a six 5% increase compared with the prior year.
The increase was primarily driven by Chamberlain and achieving all time highs and both new and total enrollments and the September and November enrollment sessions.
This was partially offset by lower housing revenue at the medical and veterinary schools do campus closures associated with COVID-19, and lower medical school clinical revenue.
Revenue at Chamberlain, and the second quarter increased 13, 2% compared with the prior year period, New and total student enrollment for the school increased eight 1% and 10, 2%, respectively and then November session.
And only a few campus has started new students and November new start growth was driven by Chamberlain three nurse practitioner programs two of which launched in July of 2020.
Revenue for the medical and veterinary schools and the second quarter decreased two 4% compared with the prior year driven by lower Medical school housing revenue due to the campus closures and lower medical school clinical revenue associated with COVID-19, we view these headwinds as transitory and expect that as depend on.
Nick Eases, we will resume growth and medical and veterinary school revenue.
Okay.
Medical and healthcare segment operating income excluding special items for the second quarter was $51 $3 million on 23, 3% increase this increase was driven by strong enrollment trends over the past year for Chamberlain and on.
Operational efficiencies that have been a major focus area across our medical and healthcare institutions.
Yeah.
Turning now to our financial services segment second quarter revenue was $48 7 million.
And increase of five 9% compared with the prior year driven by revenue growth from on a course learning and Becker.
Growth at our enforce learn and continues to be driven by leveraging its leadership position and a favorable and mortgage market as on force learn and continues to be the vendor of choice for pre licensure exam preparation and the continuing professional education needs.
Yeah.
Becker revenue growth was largely due to attract and corporate and PVC customers for CPA offerings, and an increased number of corporate customers purchasing continuing education program offerings.
And we education grew 20% year over year and as Lisa mentioned, we are very excited about the long term prospects of this rapidly expanding growth category.
Hey, Cam revenue was roughly flat for the quarter as COVID-19 restrictions caused the loss of approximately $1 million of conference revenue and Q2 due to the Las Vegas five conference revenue being replaced with a virtual conference.
Over the last 18 months, we've added four new certifications to address a broader range of customer needs, which provides an opportunity to propel future growth.
Excluding special items operating income and the financial services segment, and the second quarter increased 37, 2% to $7 $8 million the.
The increase and segment operating income was primarily driven by strong revenue growth and off course warning.
Turning now to our balance sheet, we closed the second quarter with cash and cash equivalents of $449 $3 million and outstanding bank borrowings of $292 $5 million.
And we repurchased one 5 million shares and the second quarter for a total of $45 million and as a result, we had 56 million shares outstanding as of December 31, 2020.
And we stated on our previous earnings call, we anticipate repurchasing up to $100 million of share during fiscal year 2021.
Turning to cash flow and the second quarter net cash provided by continuing operations was roughly flat, which was a significant improvement over the prior year period. This was due to both favorable trends and our year over year operating results as well as timing of receipt of $36 million of title.
For funds and December that we would normally receive in January.
Our capital expenditures for the quarter totaled $9 $7 million.
As a result free cash flow used on the second quarter was $9 1 million compared with free cash flow use of $67 $6 million and the prior year period.
We define free cash flow as cash provided by continuing operations less capital expenditures.
Strong free cash flow is a hallmark of that talent operating model. The company has generated $211 million of free cash flow on a trailing 12 month basis through December 31, 2020 and.
And about $175 million when adjusting for timing of title for funds received in December that would typically be received in January.
As we move forward and tallow and expect significant free cash flow growth and the coming years to provide more context, we would expect that talent standalone free cash flow to grow in line with earnings and a low double digit rate.
All in post integration.
And would expect add talent to generate over $300 million of free cash flow on an annual basis.
And any reasonable multiple this implies significant value creation for equity holders also this free cash flow generation supports our commitment to delever the balance sheet to below two times net leverage within 24 months of the close of the acquisition.
Moving on to our outlook for the full year fiscal <unk> for the full fiscal year 2021 due to our strong execution. We are raising our earnings guidance. We continue to US we continue to anticipate revenue this fiscal year to increase 5% to 7% and we now expect diluted earnings per share from <unk>.
On the operations, excluding special items to grow 28% to 32% inclusive of our share repurchases.
As we look to the remainder of the year, we continue to see momentum across our institutions and businesses how.
However, as we enter the third quarter, we are seeing some modest incremental COVID-19 related headwinds that are impacting both revenue and expense, which we believe are mostly transitory.
And in addition, we are continuing to step up long term investments to support student enrollments and growth and financial services collectively we expect this will temper third quarter results.
With this we would expect the absolute level of revenue in Q3 to be roughly flat with Q2 and absolute earnings per share to be sequentially lower than Q2 and represent the low point for EPS This fiscal year.
As we move from Q3 to Q4, we expect to benefit from our underlying growth to more than offset these incremental headwinds and expect Q4 to be sequentially stronger than Q3.
Beyond this fiscal year, we remain confident our standalone business will meet our mid single digit revenue growth and low double digit earnings growth targets. Additionally, we are excited about the future synergy savings and the earnings trajectory that Walden and we'll add with that I will now turn the call over to the operator for Q&A.
Thank you.
Ladies and gentlemen at this time, we will be conducting our question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and our question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Jeff Mueller with Baird. Please state your question.
Yes, Thank you and good afternoon.
Just maybe a little bit more color on that last statement that you just made on the COVID-19.
COVID-19 headwinds impacting revenue.
Is it clinical availability is it just ongoing campus and utilization below a typical level like what specifically are the headlines.
Sure and let me just highlight I would describe those as <unk>.
Moderate incremental headwinds and.
And essentially what I'd say is we're moving from Q2 to Q3.
We did see.
Some some some slightly lower supply in terms of clinical us as we move from Q2 and a Q3 that's the primary.
The difference and the other thing is as were bringing campuses.
Students are returning to campuses, we are starting to incur some slightly higher cost associated with having the campuses be ready for COVID-19 safety, So think about things like signage and PPE and cleaning supplies and so those two are creating some.
Headwinds some moderate headwinds as we move from Q2 into Q3.
Okay, and then you've always given us operational metrics related to educational outcomes and you gave them again today for all of the and tell them institutions.
And Ali pass rates and collect best rates et cetera.
And you give us any similar quality metric.
For Walden and I guess is a is there a plan to improve the.
And the outcomes to the extent to which they are not at your current standards and just any playbooks that you have or anything that you did at Chamberlain and over time would be helpful perspective.
Yeah, Jeff This is Lisa thanks for the question as you know we do focus on academic outcomes on the Chamberlain side, obviously, the best comparison.
And with and Clarks et cetera, and then we also look at the cohort default rate because really that's helping us determine what our partners want and need and whether students at the end of the day of getting placed and for those degrees that don't have the earthquakes or or you us on alere or something like that and.
And as it relates to the medical school and so let me let me start with the cohort default rate because I think that is a help on and I would say that both of these areas. We see us very very good and the current wild and very strong, but also places where we have opportunity again, just as a level set and context, 85%.
On the degrees in Walton, our graduate master's and doctoral level.
And then 15% on the undergrad and 5% of those are nursing. So when we think about the overall cohort default rates for Walden is around six 8%, but it's been in the mid sixes for four years.
This is not a recent thing and it compares quite well on bulk to not for profit four year cohort default rates are at six 5% and then also if you look at some of their online only competitors Southern New Hampshire University as an example, 12, 5% Phoenix and 11% and then University of Maryland, and they're global.
Which is there on the online only at six 1%. So we see them in line with their peers in terms of placement I forget, but again compared to the Chamberlain or I should say overall and how long that three 1%, we certainly will look to persistence and.
And placement and to.
Increasing their employer partnerships and strength there we know that while that does have that now and obviously that's kind of for us right around 75 per cent ourselves. So 25 per cent of that is private plane on hey, unemployment employer partners, but we see that as an area of opportunity.
We don't just cover and clocks, and then sort of S&P licensure etcetera are wildly on our published by wells and we do know that all of their and clicks pathway. This past 2019 to date as an example, or 2019, 80% or higher and all of the tracks and then an average 85% ourselves on.
And <unk>, sorry pass rate on the S&P and through 2018.
But I Wouldnt as a reminder to say that in comparison Chamberlain now has an average 2020 year to date, we're very proud obviously of 91, 2%, which is versus the national average of 99%, but to remind us to Chamberlain and went from 81, 5% average in 2015.
91% on overnight and 91% year to date and 2020, so we see that as a place where at Chamberlain and really has best practices. We know that we put that in place both for our current and then our new campuses.
And that has consistently scored a much much higher so we're excited about that but I would just reiterate we see the academic outcomes at world and be as being very very strong currently.
Okay, and then I heard you on your independent.
And inquiry, but on the Doj inquiry, just any update on where that stands and I think part of it's about clinical site placements. So just how comfortable are you with their clinical site.
And the placement practices or is that something that needs to be improved on post acquisition.
Yes, sure I will I will start with that and as and let Steve jump in on the actual inquiry and.
So yeah, we are very comfortable with Walgreens practices day use and that attract to facilitate but very deep faculty and hospital relationships and we know because some of those are similar or the siem and to the relationships and have it with hospitals that Chamberlain has somewhat are different which is why we're excited about the complementary nature.
And of that but they do have a very hands on student support for that preceptor selection and journey and they have extensive guys and they have faculty and much like Chamberlain debt that will help guide us students through that process to find a preceptor and final clinical on placement and should now 'twenty.
And to 25% of the total students there are enough Emerson tracks.
And it's imperative right that they find clinical and then.
And are able to get their clinical experience and and we see through both the enrollment growth as well and the overall cohort default rate on that these folks are getting placed as day as they graduate many with hospital providers and and pre sectors and clinical and that they worked with during their education and so we are comfortable.
And with Walden, HFC, CCN and are comfortable with Walgreens placement on the clinical side.
Yeah, what I would add on the inquiry itself is that we feel.
Good as we can under the circumstances and I'll step you through why that is.
And just in light of some of the recent commentary on this let me let me level set on the playing field here.
As Youll recall this is all resulting from.
The department of Justice.
Meeting and inquiry to Lori and based on third party allegations that it may have made some certain risks and misrepresentations about its master and nursing program.
And in response to that.
And the folks at laureate retains sidley Austin to conduct a review of the matter.
And just before the end of last calendar year, Sidley, and Lori and went into the department of Justice and presented the findings of that review.
And that finding found no.
Evidence to support the allegations of misrepresentation to students and students were creditors and now the parties are waiting obviously to the department of Justice to come back and and provide a perspective on what they think about the findings that were presented to them by laureate and.
As you know in the context of negotiating the purchase agreement, we negotiated broad access rates on our Q.
Q2, Walden and we've taken advantage of those access rates and the time, we have between sign and close to undertake our own investigation into the matter and we completed substantial work in that regard. We're by no means done, but we have done considerable work and thus far we've not discovered any evidence that would corroborate or support the al.
<unk>.
The initial a department of Justice inquiry.
Ed I.
And I can't predict for you with certainty where the Doj will land nor can I tell you that we won't find something and what remains of our work.
But thus far based on the investment of time and effort on our part on Laurie It's part we feel good.
We have not yet found anything that would suggest that these third party claims.
And merit.
And yes, and one thing to be on outcomes, because I know there's been discussion around graduation rates are and what those are certainly on the undergraduate level and I want to be very clear that first of all a lot of those click sales.
Our full time first time students, which excludes the various students that Walter and served and in fact Chamberlain serves I just want to be clear that the world and is serving us very vulnerable student population here and it's part of this massive education and retooling effort that this country and in fact with IV administration.
Has explicitly stated we need to do and the digital economy, and we feel like we're well positioned to help with that so if you flip chip from University of Brussels on M. I T or Harvard you wouldn't be in this category, but three quarters as these students work fulltime Chamberlain and wild and would fall into that.
That accounts category their parents with children at home you know only 50% are first generation student accounts.
Generation College graduates and many come from diverse communities. So that is why we're focused that's why to buy the administration is focused on access and equity and and education and health care. So we are really excited about the ability to be able to serve the student population as well as drive them then through a career.
Our path with the greater extent of graduate master's and doctoral degrees that we want and we will get US a result.
On transaction.
Helpful perspective, Thank you Paul.
Thank you.
Our next question comes from Jeff Silber with BMO capital markets. Please state your question.
So much wanted.
Wanted to shift that more towards your operations first.
And you know all the investments you've done and marketing and they've really provided some some benefits, but you know some of the metrics. We're tracking inc. A REIT costs have really been going up over that the pandemic period, especially lately.
Just wondering are you seeing that and you expect that to continue and could that maybe temper some of the margin expansion expansion you're projecting.
Yeah. So this is Mike right off of your life and I'll take that.
So what I would say us in terms of inquiry cost I think you can't look and inquiry cost and isolation will you have to look at us when you're.
We're spending money on market and whether you are bidding on a key word are spending money on a display AD you have to look at the incremental lifetime value relative to the cost of acquisition and so what I would tell us over the last 18 months.
There's been a significant increase in and book the analytics supporting that so we are able to get a pretty granular level.
And we're able to assess things like the value of key words, and what the cost us and so we're able to invest very very and very very targeted ways that have very very good returns and the other thing I would just keep in mind I mean, if you think about at our medical schools. I mean, those those are students that have significant lifetime value. If you think of.
About those of Joy Chamberlain those are students that have significant lifetime value and then if you think about within our other businesses within financial services, we're supporting growing businesses that have tremendous opportunity Becker and the continuing education side.
As a market that's multi hundred million dollar market.
And our position is still relatively small, but we have great brand permission to win 8-K M's, we've launched four new search and certifications within the last 18 months, we're supporting those certifications because we think they're going to provide.
They're really good for our customers, but they also provide great growth vectors for us as well similarly on on course learning. So I think we can't look at adjusted and isolation and so on.
At the end of the day, we think we're increasing will be will it gives us the opportunity to increase enrollment and increased the number of customers and areas of our business that are high gross margin that are likely that that is likely to drop down to operating margin. So I do not expect that.
As a result and margin compression.
Okay. That's really helpful. If I could shift back to Walter and first of all thank you for providing that separate debt with me.
Increased amount of data and Walt and I think it helps answer or at least a lot of the questions. We've been getting but of course, when you put out more information and it just brings more questions. So I had a couple of questions that I just wanted to ask you hopefully you can answer them or we can do this offline.
You talk about 88% of Walden, and EBITDA being from I think health care and behavioral science and the possible to get that number just for nursing and then on the cohort default rate. Please so you've provided a lot of good information, but you also provided some of the CD Rs or.
Your nursing programs, which were actually lower than Walden overall, excuse me Walton's nursing programs.
Is it possible to get the data for C D hours per walton's non nursing programs. Thanks, so much.
Yeah. So let me start with day, 88% on the EBIT down and just walk through that a little bit and again there is I guess my side on the supplemental deck and helpful to that and but the way. We view. It is it is this the clearly the college and that's.
Oh, excuse me and health Sciences include nursing, which is about 30% of the overall Walden, but from our perspective the degrees, particularly I remember this is 85% graduate from us.
The all four of these colleges and degrees and the social and behavioral sciences are extremely valuable to us and in great demand, particularly from employers and the requirements that they are putting on that are being put on them as they think about their staffing now as well as post pandemic.
Within that college, and social and behavioral sciences, which industry our orders on a nationwide. The inquiries were up end of last year around 63% certainly Walden is seeing this inquiry and enrollment increase that includes the masters and social work, which which as you know we launched more recently and.
Chamberlain, but still very very small range you'd have to get through and caps and and increasing those and we intend to do that but much more a much greater size are currently in a wild and matches the public health and includes the health care policy nurse educator et cetera.
And if you also look at other graduate programs within.
The education and management and technology, we got a lot of questions and Treaty Chew on you know that.
And that is not core and that is not that is not part of us so the.
Well then that is quote the be productive part of while day.
But as we look at cyber crime and data science again at the graduate level or we look at principal.
Masters and doctoral degrees in principal Ronnie and those are things that the market is demanding a property you know.
Multiple geographic regions and this gives us scale. It gives us a great degree of ability to solve broader problems for hospital systems and it drives a lot of the EBITDA, including obviously, the nursing piece, but the but the graduate and nature of this program.
Mix is what makes us valuable as a complementary set of degrees for us for at home and global.
And sorry, the second part of your question was the Ctr so.
Definitely as we look at the published Ctr rate, we know that it's going to be lower on the nursing side does not publish that but we have a good sense of where we have placements and Oh, where we where we have opportunity.
And <unk> to continue to get those and those programs are in a in a place where those default rates are decreasing and so even with and even with it and I tell them right on 3% cohort default rate is lower on the medical school side as you know and in fact on medical schools are significantly lower and you have and medical school and so that we and so we know.
We have the opportunity to do that.
Alright, great and I'll get back in the queue. Thanks, so much.
Sure.
Thank you and just a reminder to ask a question at this time please.
Star one on your telephone keypad to remove yourself from the queue Press star followed by the number too.
Our next question comes from Greg <unk> with Sidoti. Please state your question.
Yes, hi, thanks for taking my question.
And Bruce can you kind of help us better understand as the goal here is to be a corporate solutions provider.
Why I guess strategically its important from.
And from the customer standpoint to have sort of a big focus with graduate nursing because it seems to me like you're sitting on with Chamberlain and a very good asset low cohort default rates.
Below the title for and good outcomes and the sense that.
And theres going to be a kantar.
Continued demand over the next couple of years are likely for nursing why why do you need graduate and.
And that's part of the corporate solutions.
Yeah, Great question, and let me first start by saying, we also a lot and love, our undergrad and nurses Apple, but pre licensure BSN as well as our RN to BSN programs are the reason that I raised the graduate piece is again going back to the EBITDA over 60% of the EBITDA and Walton is in the social and that helps us.
<unk> space and so that is a place where our employees are trying to do a couple of things, they're trying to acquire talent and nursing shortage and such.
Health care professional shortage and Germany is our entire at this point, but then they're also trying to retain that that talent and and stopped churn rate because theres a lot of competition out there for nurses with BSN and Theres a lot of places that nurses can go.
Two to expand their career offerings and so they're trying to solve for us talent acquisition.
Net and retention issue and then at the same time, they're trying to solve for what I was caused us social determinants of health and so and.
And a big broad picture sense be the risk is being shifted from from payers from insurance companies to actual hospital and health care providers, who are now be upheld that they are responsible for return visits to the hospital, they're responsible for community help they're responsible for making sure that people are taking.
And their medication and that takes a much higher degree of of employees who are.
Well versed and are trained and in social work and social health and mental health and some of those things that did not have them either and.
As big of a place or in fact any place within these hospital systems. They now have to really think about that and think about public health more generally not just as a result of the.
The pandemic, but that has accelerated this need on the on the behavioral sciences, a piece of the of the health care system on Dunkin'.
And all of that is absolutely correct, but we'd be remiss and also if we didn't point out the fact that and nursing in particular these graduate degrees come with better paying us.
More career advancement better hours, and more autonomy and sort of the opportunity set for nurses. So.
As we think about our current our center of gravity and on the graduate nursing and being able to offer within the same family of institutions and to the same center and employer partners that opportunity for advancement for nurses and extremely attractive option for us.
Okay got it and then just one more I understand there's a lot of transitory moving parts.
On the medical side at Ross, but can you just kind of remind us I mean in terms of peak to trough you had a low and coming cohort I guess, a while back due to us.
Some hurricane issues and whatnot when does that kind of cycle out and when can you get kind of back to us.
Potentially more a near peak occupancy capacity I should say maybe.
Yeah enrollment yeah, absolutely well, we would say, we're well on our way and we see good momentum going into the back half of the fiscal year and as a reminder, the January calendar 2019 classes, the first class and Barbados for after them relocation from a dumb and.
And so.
If you look at the sort of information cycle, our sales cycle. If you will for physicians and so the first click to two.
Enrolling and medical schools about after a year about 300 days and so we had a period, where we werent able and we couldnt market, where the school and because we didn't have a physical location and we have moved through that cycle and I think it's apparent in our past September enrollments and we're seeing that move.
Income continue into this calendar year and.
If I could just add a couple of things there and the last quarter, where we reported enrollments new new enrollments and bad debt were up five five per cent and total of 4.3, and we also articulated that.
Ross Med, specifically, new enrollments were up and the high single digits AUC had double digit growth and.
Polices point.
We feel really good with the trends we're seeing in inquiries.
As we move forward and and I would just say for the longer sort of term look back on <unk>.
Certainly our our peak was sort of 2015 with the highest enrollment, but if you look at the September of 2016 as an example, prior to the higher Hurricanes.
The Ross med enrollment that year versus this year, it's 20% higher than it was in 2016 in September of 'twenty and 'twenty and that was just at the beginning of us coming back to peak. So we're excited about that continued traction.
Got it that's helpful. Thanks, a lot.
Our next question comes from Alex Paris, with Barrington Research. Please state your question.
Hi, guys I just had a last question.
Sure go to after all of those are excellent questions and answers.
The last quarter and in prior quarters, you quantified the impact of Covid on revenue did you do that for second quarter and if not would you.
Yeah, we did about $7 million impact on revenue and a similar impact on operating income.
For the second quarter on.
And then and your and your guidance.
And your.
Qualitative comments with regard to the third quarter, you said that there are some emerging potential incremental but modest headwinds from Covid would you think that the impact on Q3 would be greater than Q2 from COVID-19.
But I would expect it to be modestly incrementally higher and the third quarter as compared to the second quarter.
Okay.
Okay.
And in the supplemental deck that you provided today for the Walton acquisition you talked about the.
Adjusted EPS accretion and I don't recall seeing that and the last day is that new.
And do you intend on releasing that sort of information post close of the acquisition and are we going to move through and adjusted EPS sort of.
And focus.
Yeah, we will so we have adjusted EPS and laugh.
And we've previously on September 11th when we provided the initial materials.
We provided EPS and the primary difference between the two was purchase accounting. So we wanted to provide a key.
Clean view for investors, so they could see the impact without.
Necessarily some of the noise that's created by purchase accounting.
And we'll assess what our goal will be to be as transparent as possible as to future trends and us.
And we'll make sure our disclosures reflect that.
Okay. That's great very helpful. Thank you and congratulations.
Thank you. Thank you.
No no further questions at this time I'll turn it back to them or marine reset to close thank you.
Thank you and thank you all for joining our call. This afternoon as always if you have any questions. Please reach out to me. Thank you for joining.
Thank you. This concludes today's call all parties may disconnect have a great day.