Q2 2023 Adtalem Global Education Inc Earnings Call

[music].

Hello, and welcome to the I'd tell them Global education second quarter fiscal year 2023 earnings call. If anyone should comply our operator assistance. Please press star zero under the telephone keypad No question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded its now my pleasure to turn the call over to change regarding the job. Please go ahead.

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

<unk> 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 can one a risk factors.

And look at bolt on Form 10-K filed with the SEC and our other filings with the SEC any forward looking statement made by US is based only on information currently available to us and speaks only as of the date on which it was me we undertake no obligation to publicly update any forward looking statement whether original barbell.

That may be made from time to time, whether as a result of new information future developments or otherwise.

As required by law.

During today's call are common treatment refer to non-GAAP financial measures, which are intended to supplement though not substitute for our most direct comparable GAAP measures.

Press release, which contains the GAAP financial and other quantitative information to be discussed today as well as reconsolidation 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 exclude special items and are in comparison to the prior year period, unless otherwise stated.

Telephone and webcast replay of today's call are available for 30 days to access a replay please refer to today's press release.

We'll begin today's presentation with prepared remarks French defeo.

President and Chief Executive Officer, and Dan Here from Bob Phillips, 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 Shouldnt retail.

Good afternoon, everyone and thank you for taking time to join our second quarter fiscal year 2023 earnings call.

Our teams delivered another solid quarter.

Fiscal second quarter, we delivered revenue of $363 million in.

And adjusted earnings per share of $1.17.

Adjusted EBITDA margins of 25, 4%.

<unk> got 220 basis point improvement over the prior year.

These results demonstrate our commitment to serving our students and driving operational discipline across the organization.

Supporting long term profitable growth as we continue to position at Tallo is a leading provider of professional talent to the healthcare industry.

In the second quarter, we continued to maximize operational effectiveness across several institutions to a range of initiatives.

To enhance the student experience, we continue to deploy new capabilities focused on driving improved persistence.

We have introduced new affirmative registration tools to aid our students in the process of Curating the courses for the upcoming term.

Providing selections that can be tailored to their individual interest as well as other criteria.

This proactive approach also helps our teams prioritized students that might be at risk for not registering for the next term as.

As a result of these efforts, we're seeing a trend of improving <unk>.

<unk> rates across each of our institutions.

On the marketing side of the house, we continue to scale, our capabilities and branding paid media and web experience with the goal of further optimizing our marketing spend.

In addition, redacting and approach to deploying that spend that is better balanced across the top and bottom of the marketing funnel.

Allowing us to build brand equity, even as we drive improved enrollments.

These efforts are occurring in the context of a broad range of transformational initiatives aimed at accelerating performance across the critical value, creating activities to drive sustained profitable growth.

Moving onto our results by segment.

Our performance in the second quarter was largely supported by strength in Chamberlain and met Fad.

Partially offset by enrollment headwinds at Walden.

Importantly, the margin expansion, we delivered during the quarter was a direct result of our focused on cost discipline a.

Coupled with solid execution on capturing synergies and what remains of the Walden integration.

Yeah.

Looking at our segments total enrollment at Chamberlain and continued to show modest improvement during the quarter.

Supported by the success of campus based BSN programs.

Along with the growth of BSN online.

Qualified medical staff are now needed more than ever due to the national shortage.

This is evidenced by the recent strike we saw it in several New York City based hospitals.

As the leading U S nursing educator, we expect Chamberlain to continue to play a key role.

Filling these gaps and empowering students to make meaningful contributions to the profession.

We then met that well.

The second quarter. It was not an intake period for this segment, we continue to drive our efforts towards improving student enrollment and persistence rates.

Now turning to Walden.

Walden remains an important catalyst French hallums transformation.

We are making consistent progress in our integration efforts.

To fully realize the benefit of Walden unique capabilities breadth.

Breadth of programs and the attractive synergy opportunities the combination affords.

We remain confident in our ability to deliver improved performance and expect to see improving trends in the latter part of the year.

In the meantime, we continue to invest in strengthening the capabilities of our student facing teams across the segment.

While our primary focus has shifted from integration to growth.

Synergy capture remains on track.

We expect to deliver the anticipated $30 million of cost synergies in year two of the acquisition.

Our confidence in the near term prospects for Walden remain hot.

We expect the investment to deliver its intended results and just as importantly, we expect it to play a critical role in helping us realize our ambition of being a category of one in healthcare education.

Moving onto academic highlights.

Our commitment to expanding access to quality education, and driving superior outcomes for students remains at the core of what we do.

This is underscored by several achievements in the quarter.

We're pleased to note that Walden continues to rank first in granting research doctoral degrees in health Sciences Psychology, Social Sciences business.

Jason.

Other non science and engineering degrees.

At Chamberlain, we announced the launch of a home health specialty initiatives with funds from a $1 $2 million grant from the American Nurses Foundation.

As part of this initiative.

Chamberlain is developing an online didactic course for Houston, It's nursing programs in partnership with the country's leading homecare and medical staffing franchise bright start here.

This course will provide nursing students broader access to home health and other specialties, which are in critical need of staffing.

Yeah.

At Walden, we're quite excited about the belief and achieve scholarship program.

Which recently launched as a tool to enhanced persistence for students enrolling starting in February 2023 session.

The program rewards persistence through the student journey and underscores our commitment to empowering students and ensuring that they realized their academic and professional goals.

With that.

I'll address our guidance for the year.

We are reaffirming our fiscal 2023 guidance for revenue.

To be in the range of $1.38 billion to $145 billion.

And adjusted earnings per share of $3 95 to.

To $4 20 set.

For the balance of the year, we remain optimistic that the demand environment will continue to improve modestly.

Most critically we are confident that our strategic investments in brand and student experience coupled with our disciplined operational focus will support maximize value creation for our shareholders.

We are optimistic about the future and the foundation, we are building for the students we serve.

We're executing on a number of transformational initiatives that will position that talent to be a key player in the evolving healthcare industry.

These efforts are core to our recently launched growth with purpose program.

Which we're excited to tell you more about over the coming months.

With hundreds of thousands of medical professionals, having exited the space in recent years.

Along with growing demand for better working conditions.

We believe that the programs we provide to address critical shortages in healthcare talent are more important than ever.

Our initiatives are centered on supporting enrollment, while enhancing student outcomes and propelling our graduates tour gainful employment.

This is what drives their talents impact on our communities.

Central to our growth with purpose.

We remain enthusiastic about what lies ahead.

Now with that I'll turn the call over to Bob for a discussion of our financial results.

Yeah.

Thanks, Steve and Hello, everyone.

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

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

I'll begin with a summary of our financial performance starting with the topline.

Revenue in the second quarter decreased two 1% to $363.3 million compared with the prior year.

<unk> adjusted operating income for the quarter was $79 $5 million and adjusted EBITDA was $92 $1 million, an increase of 13, 2% and 7% respectively.

Adjusted EBITDA margin was 25, 4% or 220 basis points higher than the prior year.

This continued year over year margin expansion was driven primarily by operational efficiencies and the realization of cost synergies.

Adjusted net income for the quarter was $54 $2 million and adjusted earnings per share was $1 17, or 56% higher than the prior year.

Next I'll discuss financial highlights by segment.

The Chamberlain segment reported second quarter revenue of $141 $4 million up 1.6% when compared with the prior year.

Adjusted EBITDA was $37 $7 million, an increase of 17% from $32 $2 million in the prior year.

The 360 basis point expansion in adjusted EBITDA margins was primarily the result of value capture initiatives and lower labor costs.

Total student enrollment during the quarter decreased modestly by less than 1% compared with the prior year due to headwinds experienced and post licensure nursing, partially offset by continued improvement in enrollment and pre licensure programs.

Additionally improvement and overall persistence across the segment continues to progress as a direct result of our concentrated efforts on the student experience and persistence initiatives.

Yeah.

Turning to Walden.

Revenue in the second quarter was $131 $9 million down six 2% from $146 million in the prior year.

Adjusted EBITDA was 31 $6 million or 11, 5% lower year over year.

Total student enrollment decreased seven 8% year over year due to downward pressure in our post licensure nursing programs, which was partially offset by year over year improvement in overall student persistence.

And the met that segment revenue in the second quarter decreased one 6% compared with the prior year to $90 million, while adjusted EBITDA was $26 $3 million or 8% higher than the prior year, primarily driven by continued benefit from cost management and synergy.

Realization.

Now turning to cash flow balance sheet and capital structure.

Net cash provided by continuing operations year to date was $42 $3 million and capital expenditures totaled $9 $8 million.

As a result free cash flow year to date was $32 $5 million, an increase of $66.3 million compared with the prior year.

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

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

We repurchased $50 million of our term loan b, resulting in gross debt of $708 million and net leverage of one four times as of December 31 2022.

<unk> well within our targeted range.

We have now reduced our outstanding debt by 57% from the same time last year, a reduction of over $940 million.

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

Moving on to our outlook.

You had mentioned we are reaffirming our guidance revenue to be within the range of $1.38 billion to one point for a $5 billion and adjusted diluted earnings per share of $3 95 to $4 20.

We also remain on track to deliver $30 million of cost synergies during fiscal year 2023.

With respect to our guidance I would like to remind you that our guidance is for the full year only we do not provide specific quarterly guidance.

A operations can vary from quarter to quarter based on the timing of certain expenses, which are more variable in nature.

In Q3, we anticipate a higher level of expenses than in the current quarter as certain costs. Originally forecasted for Q2 will be recognized in subsequent quarters. This year.

As such while we are affirming our guidance range for the full year, we anticipate our mix of earnings by quarter will change due to the shift of certain expenses out of Q2 and into the second half of the year.

In closing I'm pleased with the results we delivered this quarter and look forward to driving further progress on our goal of leveraging both operational discipline and financial strength to position that talent for long term growth.

I'll now turn the call over to the operator for Q&A.

Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Press Star two if he'd like to move your question from the Q1 moment. Please while we pull for questions. Our first question today is coming from Jeff Mueller from Baird. Your line is that life.

Yes. Thank you what expenses got pushed back to Q3 and.

Yes.

What I'm wondering is was marketing expense pushed back and should we read anything into that in terms of the demand environment.

Taking longer to improve or not.

So to answer the question marketing was a big piece of that and no you shouldn't read into that what I would say is it was more around the branding campaign that we're launching and that is happening more January February timeframe. Originally anticipate it to be slightly earlier in the second quarter.

Yeah, Jeff what I would add to that is as you've heard us say.

We're rebalancing our investments across the top and the bottom of the funnel.

Making incrementally more.

Investment in brand.

Theres, just with production and some of the other things we're working on there have been timing shifts that moved that into the second half of the year.

Got it and then.

Maybe this is just me Miss modeling because you don't give this level of guidance, but chain.

Chamberlain and Walden revenue was.

Better than at least I was expecting.

Is that the persisting.

Gains are incur.

Increasing relative to the rates that you were seeing last quarter or couple of quarters ago.

Or are you starting to see any sort of improvement in new enrollment trends.

So.

Total enrollment improve sequentially.

At Chamberlain.

And also at Walden.

Persistence is a big piece of that and as you know we've been focused.

Quite a bit on driving improved persistence because a lot of that is within our control.

There is some.

New enrollment.

So that particularly at Chamberlain would you think about are.

Our pre licensure programs, both campus based BSN and BSN online.

But to be fair.

Persistence gains and persistence had been really.

<unk> for us and we're quite excited about that.

That's right.

And then just lastly, Matt that the year over year revenue.

It was worse this quarter it wasn't that didn't take period was there any shifting.

Timing of the academic calendar relative to last year or just any comment on med vet revenue.

No.

The intake cycle is the same as its been in prior years.

So we were obviously.

Focused on our upcoming enrollment cycle admit but but.

Enrollment sequentially admit but obviously.

Year over year has been.

A good story for us.

Hard to ensure that continues.

Yeah, I guess I'm asking less about can take I don't know if there's like a different number of academic days that fell into the fiscal quarter. This year versus last year that you're recognizing.

Revenue on I thought the year over year revenue trend was several points worse this quarter than it was last quarter and it wasn't clear to me why that would be the case.

Right. Okay, I know, what you're asking is the enrollments were up at the three 4% I believe that we have reported but the revenue was slightly down and that's really due to just we had a little bit higher scholarship cost this quarter.

Got it okay. Thank you.

Thank you next question today is coming from Jeff Silber from BMO capital markets. Your line is now live.

Thanks, So much wanted to go back to Chamberlain in your comments you talked about pre licensure enrollment going up post licensure enrollments still going down can we talk about the rate of change between the last quarter and the second quarter that you just reported or our pre licensure enrollments increasing at a.

Fast or slower rate in our post licensure enrollment decreasing at a faster start slow rate any color would be great.

Sure So as we've suggested before.

We're anticipating a sequence of recovery in enrollments across our program mix.

We said, we believe our post licensure nursing is is going to be.

The last of those elements to recover from an enrollment perspective because of some of the unique attributes of that prospective student population.

We have said that we expected recovery at the met segment first to be followed by pre licensure nursing among our large categories with post licensure nursing lagging behind so I think what you're seeing is that sequence play out in real time. So it's not so much that the post licensure nursing.

We're saying, it's just that sequentially, we're seeing pre licensure nursing enrollments come back before post licensure consistent with our expectations.

Okay. That's helpful. And then in terms of new enrollments were new enrollments up in the quarter for Chamberlain.

Well as you know, Jeff we don't we don't report new enrollments.

But obviously the total enrollment number is a mix of new enrollment and persistence.

Okay.

Alright.

Let me shift over to art for Walden.

You talked about the weakness and post licensure nursing again, the same kind of question is is it getting less worse or still kind of stable where it was beforehand.

So if you if you look at what we've reported from a total enrollment perspective at Walden, what you see is a.

I don't love to serve but a divorce thing of the trend there and as you know our Walden is all post licensure nursing.

So we're encouraged is that on a year over year basis that trend is improving.

And again I think that's consistent with the narrative.

We've taken a market.

About the timing of recovery across our large categories of products.

Alright, and then just sticking with Walden, sorry, just one more.

I know you don't give specific segment guidance I understand that but just from a theoretical perspective with all the synergies that that youre going to be gaining or you have been gaining could walden.

Walden margins expand on a year over year basis without actually seeing total enrollment growth or do we have to wait for total enrollment growth for that to happen.

I think importantly, the synergies are not just with the Walden segment. So when we're talking about that we're really talking about it across the entire organization. So we're seeing benefits from cost reductions and the synergies throughout Chamberlain, Matt that as well as well then all three the important thing to remember Jeff is that we use the wall.

And transaction as a catalyst along with the divestiture of the financial services segment to really integrate the remaining post secondary institutions, because their lifetime businesses and what Youre seeing obviously is the elimination of redundancies between Walden and Chamberlain and other institutions, but also the benefit.

It comes from running all of these like kind businesses on similar platforms. So part of it obviously is cost that comes out of Walden, but they're also of course, we can take out of the legacy <unk> institutions.

As we run a similar play because we've got similar business models in the portfolio.

Alright, great. Thanks, so much.

Thank you we've reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.

Yeah.

Well. Thank you everyone really appreciate the time and attention this evening.

Again.

A solid quarter for us we're excited about.

About the trends that we're seeing in the business. We're excited about our ability to expand margins and take advantage of some really attractive operating leverage and we look forward to.

Are you checking in with you a quarter from now thank you so much.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.