Q4 2023 Adtalem Global Education Inc Earnings Call
Greetings and welcome to the tell them Global education fourth quarter fiscal year 2023 earnings call. At this time, all participants are in a listen only mode.
A brief 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.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Jay Spitzer, Vice President of Investor Relations. Thank you Sir you may begin.
Good afternoon, ladies and gentlemen, and welcome to our earnings call for fourth quarter and fiscal year 2023 results.
On the call with me today are Steve Byrd, President and Chief Executive Officer of Ashland's, Global Education, and Bob failing Chief Financial Officer.
Before I hand, you over to Steve I wasn't usual I'll take you through the legal safe Harbor and cautionary declarations.
Statements and projections.
Resolved maintenance presentation constitute as forward looking statements are based on current market competitive and regulatory expectations.
Subject to risks and uncertainties that could cause actual results to vary materially.
We undertake no obligation to update publicly any forward looking statement. After this presentation, whether as a new information future events changes in assumptions or otherwise. Please see our latest Form 10-K Form 10-Q for latest discussion of risk factors as it relates to forward looking statements.
In today's presentation, we use certain non-GAAP financial measures and we refer you to the panic in the presentation materials available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information, you'll find a link to the webcast on our Investor Relations website at Investor Day, I would tell him dotcom.
After this call the presentation and webcast will be archived on the website for 30 days.
I'll now hand, you over to Steve.
Thanks Jay.
Good afternoon, everyone and thank you for taking the time to join our fourth quarter and fiscal year 2023 earnings conference call.
Fiscal year 2023 was another pivotal year for <unk> as we achieved a number of significant milestones.
For starters, we completed the integration of Walden, and our legacy institutions into a complementary portfolio of light kind institutions, all with the center of gravity in health care.
We centralized our marketing and student experience capabilities into centers of excellence, where we can align and deploy best practices enterprise wide and realize economies of scale and our efforts to enhance the student journey.
We achieved our two year $60 million cost synergy program.
Creating significant efficiencies.
And a more profitable operating model.
We expanded adjusted EBITDA margin to approximately 24% for fiscal year 2023.
Which is an increase of 200 basis points compared to fiscal year 2021.
We've identified opportunities to invest for future growth.
Generally durable operating leverage.
Position ourselves to sustainably grow student enrollment in.
Improved persistence.
And further expand our margin profile.
Finally, we formally launched our growth with purpose strategy with book, which focuses on improving in accelerating our performance across the critical value creating activities of the business while.
While continuing to expand access for aspiring students and delivering high quality academic outcomes.
We're still early in that journey, but gross with purpose is already building total enrollment momentum.
U S health care, it's struggling with a massive talent that's deficit that threatens the quality of care and Exasperates helped equities in communities across the country.
We believe that we've uniquely repositioned at tell him to serve as a scaled solution in addressing these challenges.
Ah postsecondary programs our rigorous.
Responsive to the workforce needs of the health care industry.
And serve to expand access to attractive careers through the delivery of high quality academic outcomes for over 75000 students and probably 25000 diverse students that we graduated in 2023.
Our graduates are serving in communities across the country, both urban and rural and doing so in some of the best known and highly regarded health systems in the country.
It's no secret that opportunities for spire inclinations are exclusive and scarce.
At at Tallo, we addressed the correct and growing provider shortages at scale to an inclusive and access focused model that we believe is unrivaled today.
With respect to our results. We ended fiscal year 2023 ahead of our most recent expectations and surpass the goals that we established at the outset of the year.
Full year revenue of $1.45 billion was up 5% for the year.
Total enrollment trends have consistently improved throughout the year.
Adjusted earnings per share ended the year at $4.21.
Increasing 35% year over year as our transformation and operational initiatives are generating their intended positive returns.
Over the course of the year, we generated $169 million of free cash flow.
And returned $140 million to our owners through share repurchases.
Our balance sheet continues to remain strong closing the year with $274 million in cash on hand, and net leverage of one three times.
As I mentioned earlier, we launched our growth with purpose strategy.
Which is designed to expand access and deliver enhance student outcomes through optimizing five pillars of value creation.
Marketing and.
Enrollment.
Retention.
Pricing and programs.
In the fourth quarter and throughout the year, we refined our marketing strategy to deliver good results through the application of data driven insights.
Afresh brand campaigns, and a more balanced approach to investments across the marketing funnel.
We're generating increased brand awareness <unk>.
Connecting with potential students at a deeper and more meaningful level.
And importantly, educating thousands about our flexible programs that meet students, where when and how they learn best.
The team is creating opportunities for our institutions to grow as inbound demand grew quarter to quarter with key programs such as our RN to BSN program.
Our standard BSN program, and a couch loan programs, leading the way.
Increased demand has translated to double digit year over year inquiry growth with all of our institutions achieving positive year over year inquiry growth in the fourth quarter.
That's part of the effort to sustainably grow enrollments, we remain committed to enhancing the student experience.
Our enrollment teams have focused on streamlining and crystallizing, our engagement with prospective and existing students alike.
In 2020, three we launched our proactive affirmative registration process.
Which engaged over 18000 students.
Simplifying the process to a roller classes for the upcoming terrible.
In addition to our self service digital assistant tool for students we've addressed over 750000 Chamberlain and Walden student increase since January in real time, and with a success rate of over 90%.
These automated tools provide answers 24 by seven affording our student facing advisors more bandwidth and more and more opportunity to focus on engaging and personalized high touch conversations with current and prospective students alike.
Chamberlain University.
It's expanding access both physically and online in markets with some of the highest nursing shortages.
For example.
In Atlanta, the demand for access to our curriculum is outpacing capacity at our existing campus.
This September well welcome our first cohort of students at our new hybrid campus in Stockbridge, Georgia.
At scale, the Stockbridge campus will be able to accommodate up to 600 students <unk>.
Including 200 evening and weekend students.
Collectively these two locations will train up to 2000 students positively impacting Georgia nursing shortage.
And as we've noted previously Chamberlain's campus footprint keeps us at the forefront of providing maximum flexibility for students with online hybrid and campus based pathways.
We also continue to be pleased with progress at Walden.
Our investment in brand and our shift in marketing mix have created momentum in new student growth, which is up over double digits in the fourth quarter on a year over year basis.
And just as importantly, this growth was led by our nursing and social and behavioral sciences programs.
In addition, we're particularly proud of the gains Walden continues to achieve in student persistence, which was up again in the fourth quarter Mauro.
Moreover, the.
The higher learning Commission in July renewed Washington National Accreditation for a 10 year period.
Give me some bad debt.
The Ross University School of Veterinary Medicine continues to operate near capacity with high persistence and matriculation.
Inbound inquiry for both of our medical schools, the Ross University School of Medicine, and the American University of the Caribbean School of Medicine remained high and up year over year in the fourth quarter.
However.
Total enrollments for the quarter were lower year over year, driven by a combination of factors <unk>.
Including a large graduating cohort.
Sizeable cohort and lead to prepare for step one U S. M a league.
And a challenging may intake cycle that fell short of our expectations.
We're obviously proud of the fact that we graduated a greater number of medical professionals this quarter compared to last year.
And that we were able to permit our students to persist in our programs through the pandemic.
But to be sure we have identified the conversion challenges contributing to the may intakes shortfall and are already executing on our remediation plans.
I'm confident in the efficacy of those plants and expect total enrollment trends at net debt to improve by the back half of 'twenty 'twenty four.
Returning to total enrollment growth as we exit the year.
Temporary challenges notwithstanding the value proposition of our medical schools remain strong.
Focus on access.
High quality academic outcomes, including a five year cumulative step one U S. Emily pass rate of 89% from 2018 to 2022.
As well as a 98% first time residency attainment rate for 2022 and 2023.
Has tremendous appeal, we're aspiring physicians.
This value proposition combined with our current focus on operational excellence gives me confidence in the long term growth prospects of our medical programs.
In the quarter, we bolstered our in house adaptive learning capabilities by entering into a perpetual license agreement with <unk> technologies.
Eat apt as an adaptive learning platform that leverages proprietary data to enable students to learn at their own pace in the classroom and beyond.
The software creates reinforcement learning loops and continually updates with real time assessments to improve the mastery of content.
Focusing on positive individualized student outcomes.
We've been testing and Iterating. This adaptive learning tool that Chamberlain with over 13000 nursing students and we're really encouraged by the results.
This is another unique differentiator driving personalized success as our students prepare for the N class exam.
In addition, we've already identified a number of additional use cases for adaptive learning tools to be applied across our institutions.
On pricing optimization strategy is working.
At Walden believe and achieve scholarship program has been well received by students outpacing our expectations as it incentivizes and rewards matriculation of student success.
This is a great example of a win win innovation of the kinds being developed at Walden. It.
Lowering the cost of net tuition.
Naturally incentivising student matriculation to graduation, and driving the realization of the lifetime value of enrollment.
And finally, our fifth strategic pillar programs.
Walden competency based Hippo program.
A 35% growth in new enrollments during the fourth quarter as a result of our new simplified strategy to strengthen the program positioning and launching a data driven marketing campaign.
Over at Chamberlain specialty focused tracks continued to generate significant interest.
With our M. S N psychiatric mental health nurse practitioner program now enrolling over 1700 students since launching two years ago.
We're also excited to bring to market, our home health and kidney care practice ready specialty focused models, which are being developed in partnership with leading providers like bright star care and Davita.
With that let me now provide some color on our outlook for fiscal 'twenty for that builds on the guide we provided during our Investor day back in June .
We're raising the low end up our guidance range for adjusted EPS and now anticipate adjusted earnings to be $4 20 to.
To $4.40, while maintaining a revenue range of $1.46 billion to $1.52 billion.
Fiscal 'twenty 'twenty four is off to an encouraging start.
Driven by momentum in new enrollment and ongoing improvement in student persistence.
Taken together our strong foundation.
Integrated operating model and growth with purpose strategy.
Striking the optimal balance between investing to accelerate near term performance.
And expanding profitability in the long term.
I'm confident in our ability to return to total enrollment growth, while maintaining our industry leading margin profile during fiscal year 2024.
In closing.
I truly believe that the best way to positively impact the future of health care is to provide more people the opportunity to change it.
We're uniquely positioned to help elevate standards of care.
That's compassionate and culturally confident.
By changing the face of those who deliver that care.
As a mission driven organization, we remain committed to advancing health equity and delivering the burst.
Really qualified health care clinicians at scale.
To that end I wanted to take the nearly 10000 colleagues, who continue to make Atoll Gmbh a force for good.
It showed exemplary leadership passion and willingness to go above and beyond which uphold our commitment to our students and delivers positive outcomes.
I'll now hand, the call over to Bob to take you through the fiscal year 2023 fourth quarter and fiscal year 'twenty 'twenty four outlook in greater detail.
Yeah.
Thanks, Steve and Hello, everyone, our fourth quarter and full year results reflect our commitment to drive superior student outcomes, while delivering financial results.
The momentum from our strategic initiatives continues to result in fiscal year top and bottom line growth as well as robust cash generation.
I'll start with a review of our financial results and key drivers for our performance in the fourth quarter and for the full year.
Later in my remarks, I will discuss our expectations and assumptions for fiscal year 2024.
Starting with the topline revenue in the fourth quarter increased by one 1% to $364 $6 million driven by growth at Chamberlain and Walden, partially offset by med vet.
For the full year revenue was 1.4 of $5 billion up 5%.
The year over year revenue growth was driven primarily by the timing of the Walton acquisition as fiscal year 2023 at approximately one month of non comparable contribution.
As well as revenue growth at Chamberlain in Med vet.
Direct result of the momentum from our growth with purpose initiatives.
During the quarter consolidated adjusted operating income was $69 $9 million and adjusted EBITDA was $83 $3 million.
This compares with $89 6 million and $104 7 million respectively. During the prior year adjusted.
Adjusted EBITDA margin was 22, 8%.
For the full year consolidated adjusted operating income was $287 $6 million, an increase of seven 5% versus the prior year, resulting in an operating margin of 19, 8% an increase of 40 basis points year over year.
Adjusted EBITDA for the full year was $343 $4 million, an increase of four 5% compared with the prior year.
We continued to achieve a high adjusted EBITDA margin with the rate at 23, 7%, while continuing to make strategic investments for sustainable long term growth.
I'm also happy to report that we successfully achieved our target of delivering $30 million in cost synergies, thus, realizing our target of $60 million in synergies by the completion of the second anniversary of the wall of an acquisition.
Adjusted net income for the quarter was $45 $3 million and adjusted earnings per share was $1 three.
For the full year adjusted net income increased by 26% to $192 $2 million, resulting in adjusted earnings per share of $4.21 or a 35% increase compared with the prior year.
As adjusted operating income growth lower adjusted interest expense and diluted shares outstanding was partially offset by a higher adjusted effective tax rate.
Next I'll discuss financial highlights by segment.
Chamberlain reported fourth quarter revenue of $144 $5 million, an increase of 3% when compared with the prior year.
Driven by growth in enrollments in fee revenue.
Total student enrollment during the quarter increased one 2% compared with the prior year due to growth in pre licensure and post licensure nursing programs as well as higher persistence across the segment.
Adjusted EBITDA decreased by 14, 1% to $41 $1 million or underwrite underlying operational leverage was more than offset.
By the incremental investments in our marketing brand campaign and other expenses.
Turning to Walden revenue in the fourth quarter was $138 million in.
An increase of 0.7% when compared with the prior year drew.
Driven by growth in nursing, and social and behavioral health programs new student enrollment.
And our continued optimization of our net tuition pricing model.
Total student enrollment during the quarter decreased four 8% compared with the prior year.
Primarily attributable to declines in non health care programs, partially offset by higher persistence across the segment.
Walgreens total enrollment was negatively impacted by two 4% as a result of an operational initiatives to eliminate certain off cycle start dates as we previously discussed last quarter.
Adjusted EBITDA decreased nine 4% to $35 $3 million as segment operational efficiencies were offset by investments in marketing and brand campaigns.
And the medical and veterinary segment revenue in the fourth quarter decreased one 5% to $82 $1 million.
Lower medical enrollments, which were largely offset by pricing favorability.
Total student enrollment decreased eight 2% compared with the prior year.
Primarily due to lower than expected may starts at the medical schools.
Our veterinary school continues to operate near capacity.
Adjusted EBITDA decreased by 37, 1% to $14 $7 million as we experienced lower revenue made investments in our brand campaigns for three institutions and incurred higher cross across the other expense categories.
As Steve mentioned in his remarks, we are already executing on remediation plans to improve enrollment and our medical schools and anticipate total enrollment trends to improve by the back half of 2020 for returning to total enrollment growth exiting the year.
We also remain focused on cost discipline and expect to maintain attractive margins in our medical and veterinary segment.
Shifting gears to cash flow and balance sheet.
During the year, we continued to drive significant improvements in free cash flow, which was $169 million for fiscal 2023, representing a 27% increase year over year, primarily due to improved operating results and lower interest expense.
We executed against our disciplined capital allocation philosophy during fiscal year 2023, investing in organic growth, while reducing debt and returning capital to our shareholders.
More specifically we paid down.
Hundred and $50 million of our term loan b in the first half of fiscal year 2023, resulting in gross debt of $708 million at the end of fiscal 2023.
This resulted in a one three times net leverage ratio at year end.
We also repurchased three 2 million shares during the year.
$127 million returned to shareholders against our board authorized $300 million authorization with $13 million to close out the prior 2022 accelerated share repurchase program.
Actions that we believe have increased long term intrinsic value for the benefit of our owners.
Turning to our fiscal year 2020 for guidance.
Over the past two years, we've consistently delivered on commitments to our stakeholders.
And continue to operate with greater efficiency, which has positioned us well for the future.
As Steve mentioned earlier, we are reaffirming our revenue guidance to be in the range of $1.46 billion to $1.52 billion.
Representing low to mid single digit growth.
We are raising the low end of our adjusted earnings per share by five to be in the range of $4 20.
The $4 40.
In addition, we expect to continue to generate strong cash flow, which will enable share repurchases and balance sheet flexibility.
The phasing of our results during fiscal 'twenty four is worth noting.
As Steve mentioned in his remarks, we are forecasting total new enrollment trends to continue to improve throughout the year.
In turn we anticipate revenue to follow this trend with a greater acceleration to occur in the back half of the year.
Further we are currently in a period of incremental growth investments as we deploy our growth with purpose strategy and take advantage of the opportunities that we see in the marketplace today, which is causing a short term reduction to our adjusted EBITDA margin profile.
As we stated at our Investor day.
We anticipate to maintain our high level of profitability and margin profile for the full year.
But with higher investment levels earlier in the year and the.
Celebrated revenue growth in the back half of the year.
Our investments are already generating their intended returns and will build throughout the year.
To conclude.
I'm confident in our ability to grow as a purpose driven organization.
Creating tremendous shareholder value.
We have a clear path forward that we believe will yield benefits for all our stakeholders for years to come.
With that I will now turn the call over to the operator for Q&A.
Thank you.
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Okay.
Yeah.
And our first question comes from Jeff Mueller with Baird. Please state your question.
Yes. Thank you good afternoon so.
For the med schools.
Heard you that the inquiries are good can you just be any more.
Click on what where the execution problems and.
What are the remediation plan.
Yeah.
Yes.
We were careful to point out we don't believe there's a macro demand challenge in the medical schools, we had a confluence of three different dynamics that sort of hit a solid launch we had a weaker than anticipated intake cycle in may.
Also had.
Larger graduating cohort this year and in addition, we've got.
Larger than typical cohort of students that are.
Preparing for step fundamentally when you take those together that's what resulted in the decline in total enrollment to medical schools.
We believe.
Congratulation pieces, it's not a problem in fact, it's something we're quite proud of.
We are working aggressively to get them through step one ml and believe that won't be a problem either and with respect to the new enrollment piece of this this is really.
Focused on challenges that we had in the mid funnel and then the lower funnel largely related to really converting.
Increased applicant to enrollment so we've actually got a new law.
Leader of enrollment.
Who joined US not long ago, we feel really good about some of the remediation steps. She has put in place and as we said on the prepared remarks, we expect that total enrollment trend to improve.
By the time, we exit the year, because we think the new enrollment opportunity is there in the marketplace obviously.
<unk> dynamic as a onetime event.
And we are really really good at getting folks.
Ready for step, an MLA and onto their clinical rotations. So.
It really is.
It really is.
Jeff.
Looking to get better at.
What we're doing in the lower end of the funnel once folks are in the system as applicants or what's books are in the system with inquiries and ensuring that we capture all of that in a more timely fashion.
Before folks decide to go into a different direction, but we are on top of it.
Okay and then.
I don't know Bob or Steve can you just help us with expected segment growth rates, you kind of gave us that it's going to take some time to get that back to total enrollment.
I picked up at the Investor day that well then it's a good news story and it looks like it's an even better good new story based on these results then that I sense at that time. So just anything you can say in terms of like expected segment growth, especially for Walden, which looks like it's trending particularly well.
Yeah, we're feeling really good about the momentum at Walden and just as importantly, we're really quite excited about where that momentum is happening inside of what we're.
We're seeing the most growth in the nursing programs as well as in the behavioral health programs and as you know that was a central feature of the thesis behind the acquisition.
Chamberlain.
Obviously it is.
Well positioned to take advantage of a normalized demand environment given its scale and.
And we're seeing really really great traction in our various b S N modalities both hybrid.
Line and on campus and just as importantly, we continue to take share in our in the BS and even though that as a category is not a growth area for nursing broadly defined.
Okay, just one more on on Chamberlain.
E.
Total enrollment growth at Chamberlain.
Celebrated I know it was just a little bit, but it decelerated a little into an easier comp and it feels like the.
The new enrollment in commentary there has been better for a couple of quarters now so just any explanation or any timing factors as to why there was a little deceleration in Chamberlain total enrollment.
Okay.
Largely graduation, driven.
Okay.
But yeah it was really.
Good problem to have but a larger then.
The typical graduation.
<unk>.
Huge BSN cohort that came through this year.
But again.
Nothing that we believe is going to decelerate. The overall total enrollment momentum for Chamberlain across the full fiscal year.
Okay. Thank you.
Of course.
Thank you and our next question comes from Jeff Silber with BMO capital markets. Please state your question.
Thank you so much.
You mentioned some of the investments that you're going to be doing this year can you remind us where these investments are are they specific to any one of the different segments.
And what the.
The pace of investing will be over the course of the fiscal year.
Thanks to the investments <unk> made in consistent with the growth with purpose strategy that we laid out at Investor day.
They are investments that cut across five categories of value, creating activity marketing enrollment retention pricing and new programs.
Terms of the pacing of those investments.
Bob keep me honest here, but we expect.
Those investments will be heavier in the first half of the fiscal year, particularly those that relate to marketing it.
Then it will be in the back half of the year, but these are investments that we also have a high degree of confidence we will drive organic revenue growth over the course of the fiscal year.
Oh.
Okay. My next question is just regarding enrollment trends, both from new and total enrollments if theres any color.
If you can provide any color in terms of how the fiscal year had started wanted to see what kind of momentum you have going into this year.
Yeah as you know, we don't break out new enrollment, but what I can tell you qualitatively Jeff is dead.
Lots of the gains we have seen in the back half of last fiscal year coming into this fiscal year was really driven by.
Got some fantastic improvements and persistence rates across all of the institutions, but particularly at Walden.
And now we are beginning to see.
Similar dynamic in new enrollment and that that's really the combination that we're looking for.
Driving improvements in persistence, where we get the lifetime value of our students and our students get the benefit of their investment by matriculating through the graduation, and bringing new students in a in a normalized environment that drives up that new enrollment number so while we don't we don't break it out sequentially.
Starting with persistence and now we're seeing the tailwind to new enrollment at Chamberlain and at Walden.
Alright, if I could just sneak in one more I know you raised the lower end of your adjusted EPS guidance for the current fiscal year was there anything specifically driving that I'm just curious what happened since investor day, if theres anything thats changed thanks.
I think we're I think we're just feeling really good about what we're seeing by way of market signals around new enrollment.
We also think we've got even more headroom to improve persistence and so we're just we're just more confident.
Coming into the new fiscal year.
We also as you know, we we think we're pretty good at managing the cost line across the business and investing thoughtfully.
So we thought it made sense to tighten the range.
Because we're feeling good about where we are.
Okay fair enough. Thanks, so much.
Thank you.
No further questions at this time I would like to turn the floor back over to Steve Beard for closing remarks.
It's a matter of closing I just want to thank all of our colleagues at at talent for all of the hard work in fiscal 'twenty three.
We're super excited about what we have on tap for fiscal 'twenty four.
The growth with purpose strategy kicks off here in earnest and we're excited.
Our teams are excited to really magnified the impact we're making for students across all of our programs and institution. So.
My sincere gratitude to all the great colleagues here that talent.
Okay.
Thank you and this concludes today's call all parties may disconnect have a good day.