Q1 2023 Adtalem Global Education Inc Earnings Call

[music].

Greetings and welcome to the first quarter fiscal year 2023 earnings call, but I would tell them global education.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

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As a reminder, this conference is being recorded it.

It is now my pleasure to introduce your host Chandrika sneak them senior director of 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.

The private Securities Litigation Reform Act of 1995 with respect to the future performance and financial condition of the column global education that involve risks and uncertainties.

Actual results may differ materially from those projected or implied by these forward looking statements potential risks uncertainties and other factors that could cause results to differ are described more fully and I don't want a risk factor of our most recent annual reports on the Form 10-K filed with the SEC and other filings with the SEC.

Any forward looking statements made by US is based only on the information currently available to us.

Only as of the date on which it was made we undertake no obligation to publicly update any forward looking statement, whether it but they don't worry about that may be made from time to time, whether as a result of new information future developments or otherwise except as required by law.

During today's call our commentary food routes, which are non-GAAP financial measures, which are intended to supplement do not believe our Q4, our most direct comparable GAAP measures. Our press release, which contains the GAAP financial and other quantitative information to be discussed today as well as the reconciliation of GAAP to non-GAAP measures is available on our own.

That site.

Please note that all financial results and comparisons made during today's call are on continuing operations basis exclude 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 days to access the replay please refer to today's press release.

We will begin today's presentation with prepared remarks from Steve Dear President.

President and Chief Executive Officer, and then hear from Bob Whelan Senior Vice President and Chief Financial Officer. Following their prepared remarks, we will have a question and answer session and with that I'll now turn the call over to Steve.

Thank you Shane Draco.

Good afternoon, everyone and thank you for taking the time to join our first quarter 2023 earnings call today.

As I reflect on the earnings call from a year ago. At this time, we were embarking on a journey to reposition ourselves.

National leader in post secondary education.

A leading provider of professional talent to the health care industry.

As I speak to you today, we've made great progress on that journey.

Today at Palomar is made up of high quality institutions with market, leading brands led by experienced management and supported by best in class team.

For the fiscal first quarter, we delivered revenue of $355 million and adjusted earnings per share of <unk> 88 cents.

Adjusted EBITDA margins of 23%, reflecting a 560 basis point improvement over the prior year.

Despite the pandemic related headwinds facing our sector, we delivered first quarter results largely in line with our expectations.

These outcomes are a testament to the resilience of our colleagues and their ability to deliver operational improvements in a dynamic and challenging environment.

I'm, particularly impressed by the team's execution and divesting our non core assets and successfully integrating Walden.

These efforts created opportunities for significant margin expansion.

Thoughtful approach to capital allocation focused on debt repayment and share repurchase.

And while it may be some time until we enjoy a fully normalized demand environment, our results reflected determination to deliver on our objectives.

As we move into year two of the Walden integration I'm encouraged by the continued momentum we enjoy it.

Walden is proving to be a catalyst for integration and synergy capture across the enterprise.

Although enrollment, particularly and post licensure nursing were negatively affected by headwinds related to the pandemic we do.

To see some improvement in year over year enrollment trends in the second half of our fiscal year.

With the opportunity to grow revenue in a more efficient model and with improved operating leverage.

I remain pleased with our progress in driving improved operational effectiveness across the enterprise.

Leveraging the foundation that was laid over the past year.

We continue to grow into our new operating model.

It is designed to maximize operational efficiencies and strengthen our competitive differentiators.

On the student experience, but our efforts are centered on improving persistence.

We're expanding our use of student engagement data to deliver timely and personalized pops.

The students based on indicators, we track and then share with our faculty and student advisors.

Early returns on these initiatives have been encouraging.

And marketing were making good progress and sharing and implementing best practices across all of our segments.

And we're building scalable capabilities and branding paid media database marketing and our web experience, which we believe will further optimize our marketing spend.

And finally as we complete it we approached the completion of our integration and our synergy capture work, we've begun to shift our focus to a series of transformational initiatives as part of our growth with purpose program.

To accelerate our performance across critical value, creating activities, enabling us to realize the full potential of our portfolio of assets.

And while we're still in the early stages of this effort. We are confident that the results will prove compelling.

Taken together.

We believe these efforts position us well with a more favorable demand environment returns.

We believe a return to sustainable topline growth combined with a more profitable operating model and prudent capital allocation is a winning formula for all of our stakeholders.

Shifting gears to academic highlights.

I'm extremely proud of the work the team has done to further our mission of expanding access to high quality education.

During the quarter, our two medical schools American University of the Caribbean and Ross University School of Medicine.

Partnering with the Southern California University in Health Sciences to enhance educational pathways for sputtering positions.

Yeah.

In addition.

Ross University School of Medicine collaborated with the historically Black Bethune Cookman University.

Creating pathways for students from minority backgrounds to fill critical physician shortages.

And finally Chamberlain University announced the transition agreement to help recently displaced nursing students I'm strapped for universities to continue their education and achieve their professional ambitions.

One of the benefits of our unique scale and national reach that we can support these displacement nursing students and in doing so empower them to help fill critical workforce gaps and make meaningful contributions to the profession.

The U S Department of Education recently released data on cohort default rates, which is a key indicator of program efficacy for higher education institutions.

A talented institutions came in well below the four profit and overall national averages for default rates, which.

Which is representative of the quality of our programs and the employability of graduates.

I'm also pleased to share a few of the outstanding accolades received by our faculty.

Dr. Augusta for railroads, a member of the Walton faculty was awarded a full bright scholarship.

Considered to be one of the most widely recognized and prestigious scholarships in the world.

The Dean of the Ross University School of Veterinary Medicine, Sean Callan as well.

It was selected as a fellow of the Royal College of Veterinary surgeons for his outstanding contribution to the profession and clinical practice.

Dr. Callen and was one of eight such fellows recognized for his work to advance education and scholarship.

Ross University School of Veterinary Medicine Department head of clinical Sciences, Hilary French was appointed to the International Council for Veterinary assessment Board of directors, which administers examination in over 60 countries.

Dr. French's prestigious appointment honest her commitment to ensuring students have the necessary skills to successfully practice veterinary medicine.

These accolades are a testament to the strength of our faculty and their commitment to our students.

As you've heard me say before we believe that our scale and health care focus uniquely position <unk> to play a significant role in expanding access to higher quality academic programs advancing health equity and addressing critical workforce shortages in underserved communities.

And on that note I'm.

I'm happy to share that we recently released our 2022 sustainability report.

The report includes our first comprehensive materiality assessment to clearly define our ESG priorities.

Which support and reinforce our values and we will continue to guide us as we advance our ESG ESG agenda over the coming years.

And now moving to our outlook for the balance of 2023.

With respect to enrollment it remains a challenging time for the higher education industry overall.

Which is operating in a macro environment marked by high inflation and a tight labor market.

As we previously indicated post licensure nursing enrollments have been particularly challenged.

That population of prospective students recovers from the high pressured demands of the pandemic.

Nonetheless.

We continue to refine our recruitment and retention strategies and are closely monitoring market signals affecting demand.

A few modestly encouraging indicators include the fall 2022 preliminary enrollment data published by the National student Clearinghouse.

Which indicated a reduction in the rate of decline of enrollments compared to 2021.

In addition, we are seeing improving trends in online search for nursing programs.

After over a year of declines, which we think is indicative of improving market dynamics.

Finally, we continue to see year over year improvement in persistence across all of our segments.

In light of these indicators, we are still cautiously optimistic that the demand environment will improve in the latter half of fiscal 'twenty, three which would enable us to leverage the benefits of the investments we're making now.

And those investments are across the full range of enrollment and student support activities.

On that basis, we reaffirm our fiscal 2023 guidance for revenue.

To be within the range of $1.38 billion to $1 $45 billion.

And adjusted earnings per share of $3 95.

To $4 25.

Bob will provide some additional context on our guide in his remarks.

In the meantime, we continue to be excited about what lies ahead for at talent.

And with that I'll turn it over to Bob for a discussion of our financial results.

Thanks, Steve.

Today, I'll review, our financial results and key drivers for our performance in the first quarter.

Later in my remarks, I will discuss our expectations and assumptions for the fiscal year 2023.

Let's begin with the summary of our financial performance starting with the topline.

Revenue in the first quarter increased 23% compared with the prior year to $354 $6 million driven by the acquisition of Walton.

As a reminder, Walgreens was only owned by a tell them for a part of the first quarter during fiscal 2022.

Implemented in the back half of fiscal 2022.

Total student enrollments during the quarter decreased 4% compared with the prior year, which was primarily attributable to headwinds from the pandemic, particularly in our post licensure nursing programs, leading to fewer new starts.

The headwinds experienced and post licensure nursing were partially offset by continued improvement in enrollment in pre licensure programs.

Additionally, persistence across most of our programs continued to improve as a direct result of our sharpened focus on the student experience.

Turning to Walden Rhem.

Revenue in the first quarter was $139 million compared with $68 6 million in the prior year.

As I mentioned in my remarks earlier.

<unk> was only owned by add talent for a part of the year the first quarter during fiscal 2022.

Adjusted EBITDA was $27 9 million.

Or 108% higher than the prior year, driven largely by the impact of owning Walden for the full quarter in FY 'twenty three.

Total student enrollment decreased nine 2% compared with the prior year due to pandemic related headwinds in our post licensure nursing programs and declines in the management and technology programs, which was partially offset by year over year improvement in overall student persistence.

Overall, we continue to believe that demand for nurses will outpace supply over the longer term indicative of growth opportunities for us.

In the Med vet segment, we continued to deliver improvements in operational performance and financial results.

Revenue in the first quarter increased four 1% compared with the prior year to $88 $3 million, while adjusted EBITDA was $21 9 million.

Our 9% higher than the prior year, primarily driven by the increase in revenue.

Total student enrollment increased three 4% compared with the prior year.

Which was primarily attributable to growth in new student enrollments and higher persistence and all our programs.

Given the continued abatement of travel restrictions related to the pandemic and progress we have made in enhancing our enrollment and student support capabilities. We continue to expect a favorable environment for enrollment in this segment.

Now, let's turn our focus to cash flow balance sheet and capital structure.

Net cash provided by continuing operations was $91 5 million and capital expenditures totaled $5 5 million as a result free cash flow was $86 million, an increase of $63 $2 million compared with the prior year.

As a reminder, we define free cash flow as cash provided by continuing operations less capital expenditures.

During the quarter, we continued to progress on our financial strategy by deploying capital to strengthen the balance sheet.

We repurchased $100 million of our term loan b and $1 million of our outstanding notes, resulting in gross debt of $758 million and net leverage of one two times as of September 30.

We have now reduced our outstanding debt by 54% from the same time last year.

We intend to continue to strengthen our balance sheet and deploy capital to maximize returns for our shareholders. While we also focus on reinvesting in organic growth opportunities for our businesses.

Moving on to our outlook.

We are reaffirming our guidance of revenue to be within the range of $1 38 billion to 145 billion.

And adjusted diluted earnings per share of $3 95 to $4 20.

I'd like to remind you about the calendar <unk> of our expected financial results in fiscal 2023 were in enrollments are expected to improve in the latter half of the year as we anticipate pandemic related headwinds will begin to abate.

Additionally, our initiatives and investments related to the new student enrollment and persistence.

Beginning in the first half of the year and ramping up in the second quarter will gain traction throughout the year.

Therefore, we continue to expect both revenue and adjusted EPS to improve to a greater degree in the second half of fiscal 2023.

And our second quarter financial results to be relatively consistent with our first quarter.

We also continue to expect to deliver $30 million of additional cost synergies during fiscal year 'twenty three.

Over the last few quarters.

We've demonstrated our ability to consistently deliver improved financial results, while also enhancing our balance sheet, despite the challenging business environment.

We continue to make progress on our strategic goal to drive sustainable operational and financial improvements, which position us well for the future.

With that I will now turn the call over to the operator for Q&A.

Thank you we will now conduct a question answer session. If you would like to ask a question. Please press star one on your telephone keypad.

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For participants using speaker equipment, it may be necessary to pick up your handset before question to start Keith once again Thats star one at this time, one moment, while we poll for our first question.

Our first question comes from Jeff Mueller with Baird. Please proceed.

Hi, Thank you, it's Steven a follow up on for Jeff.

I wanted to dig into the second half improvement and post licensure enrollments.

I appreciate the color you guys gave I'm just wondering I guess, if you can give us some more detail I guess, how do some of the metrics youre seeing compare to 2019 or sort of pre pandemic.

And then are you seeing the green shoots in applications are right now with the pillows early side.

These are the key so we were seeing.

Improvements in overall search the category broadly.

We are seeing.

Modest improvements in inquiries as well that has yet to translate into meaningful.

In applications, but we anticipate that to accrue.

Of course in the back half of the year.

Post licensure included license or obviously.

Where we believe it will.

Reimbursable sooner, we're seeing good development in both applications and the royalties on that product as we said before we expect both vessels with a lag.

But we do expect that to come back in a meaningful way.

Exposure to that part of the market is actually a source of strength.

Okay. When you talk about the second half improvement or are you talking about <unk>.

Total enrollments or and I know you stopped giving new enrollments, but is that what you're referring to.

We obviously don't report.

New enrollment, but we're expecting improvement.

Excellent.

Over the course of the fiscal year, obviously, accomplishable enrollment persistence, which we're already enjoying early.

Okay great.

And then I.

The margin improvement year over year was pretty good so I'm, just hoping to get some more.

Detail I got from the individual drivers.

The synergies some of the marketing best practices operational equipment, you just talked about.

Maybe you guys can help sort of breakdown.

Which are contributing more to the margin improvement and I guess.

Any more detail there great.

Yeah. So first of all kind of goes to the synergy capture related to the <unk> integration as you know.

Indicated.

A target of $60 million of run rate cost synergies over the first two years.

Ownership of Walden.

Previously reported we realize that in.

Volume and we're confident that we will realize the second tranche at actual routine.

The driver.

The other thing that we highlighted is that because we're now operating affiliate buy side businesses. We've got synergies that go across the portfolio. We're taking advantages of ways that we can share resources.

Slide five businesses in a way that wasn't a much more efficient models, whether it's centralized marketing whether its everything were doing decentralizing customer.

Customer experience efforts, we're able to get economies of scale.

We have a sensor that allow us to get.

Even better profitability out of the business and Thats a doable profitability.

Just again, unlike the <unk>.

Climate rotation of our business, where we're supporting.

Back to a different operating models with niche services other businesses.

Now able to be much more efficient with five degree granting institutions all at the center of gravity in health care. So as it is.

The direct cost synergies related to <unk>.

<unk> rolled into that integration as well as our ability to support the broad portfolio on silver platforms.

So a much more efficient way.

I appreciate the color.

Thank you our next our next question comes from Jeff Silber with BMO capital markets. Please proceed.

Hey, Good afternoon. This is Ryan on for Jeff just another expense question was there any cost shifting from the first quarter into later quarters of the year.

Yes, there was a little bit of cost shifting.

From the first quarter into the second so what I would tell you is that we're making some investments.

Towards the admissions and enrollment side of things that we did not have in the first quarter and then in addition, there may be slight uptick as well in the marketing investments that we'd be making also.

Got it and then.

Yes.

I just had a question on the med and veterinary is should we kind of assume that the current growth.

We will continue or is that still in recovery mode Recouping some of the some market share.

So it was always our expectation that that segment.

Cover from an enrollment.

Perspective first.

Because of the nature of the headwinds there, which were largely driven by the dislocations with COVID-19 inability to get people back to ironwood and personal instruction.

First of all related in that segment, probably has the least encumbered path ahead. So we're really encouraged by the uptick in enrollment and it's something that we expect to continue modestly throughout the rest of the fiscal year.

Understood. Thank you.

Thank you at this time I would like to turn the call back over to management for closing comments.

Yes.

Again, I would like to just thank all of our colleagues across the board with a talented sticking shows.

Sure.

Encouraged by what we're saving the market and we're really proud of the work that everyone's still to position us to take real advantage of what we hope is a normalized demand environment. So thank you for your time and attention and most importantly data all the hard work of all of our our favorable colleagues across our upgraded.

Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.