Q1 2024 Adtalem Global Education Inc Earnings Call

Greetings and welcome to the I tell them Global education first quarter fiscal year 'twenty 'twenty four 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 Jonathan Spitzer VP of IR.

Thank you Jonathan you may begin.

Good afternoon, ladies and gentlemen, and welcome to our earnings call for our first quarter 2024 results.

On the call with me today are Steve Beard, President and Chief Executive Officer, Atlanta, Global Education, and Bob Vreeland, Chief Financial Officer beforehand.

Before I hand, you over to Steve I was usual take you through the legal safe Harbor and cautionary declaration.

Certain statements and projections of future results made in this presentation constitute as forward looking statements are based on current.

Our current market competitive and regulatory expectations and are 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 result of new information future events changes in assumptions or otherwise.

Please see our latest Form 10-K, and Form 10-Q for a discussion of risk factors as it relates to forward looking statements in today's presentation, we'll use certain non-GAAP financial measures.

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 will find a link to the webcast on our Investor Relations website at investors <unk> agile on Dot com after.

After this call the presentation, a webcast will be archived on the website for 30 days.

I'll now hand, you all parts of Steve.

Good afternoon, everyone and thank you for taking the time to join our first quarter fiscal year 2024 earnings call.

We delivered a strong quarter as our quote.

Two purpose strategy, a three year initiative focused on driving organic revenue growth.

I still look at top and bottom line results ahead of our expectations.

It is also return to total enrollment growth, while continuing to deliver outstanding student outcomes.

In the first quarter of fiscal 2024.

Revenue was $369 million up 4% versus prior year.

And adjusted earnings per share with 93 cents.

3% versus prior year.

Accelerating performance across our five operational pillars marketing enrollment retention pricing and programs.

It's just the opportunity to capitalize on our market leading scale.

The market response and health care about this.

Our emphasis on enhancing the student experience and investing in innovative and differentiated capabilities is showing up in our quality measures are academic outcomes and improved persistence rates.

As a result of Chow.

Even graduate to highly acquirable and attractive in demand professions, and far less likely to default on their student loans compared to their counterparts at post secondary institutions private public.

Core profit of light.

Our brand campaigns that launched last fiscal year, delivering incremental spend efficiencies and organic increase this quarter.

As we optimize our use of data driven tools and methods.

Our successful execution has resulted in double digit inquiry growth year over year all of our institutions.

In addition to optimizing our marketing capabilities, we're simplifying and streamlining student application experience and make it missions as user friendly as possible.

These efforts have driven encouraging results with increased year over year application conversion rates.

Moving on to results by segment.

Across our five institutions, we're striking an optimal balance between investing to accelerate near term performance and expanding profitability over the long term.

And the Med vet segment.

Ross University School of Veterinary Medicine continues to operate near capacity.

As for our medical schools, we diagnosed the conversion challenges are and they're executing remediation efforts to return those institutions to grow.

Based on early indications, we expect total enrollment trends to improve over the remainder of the fiscal year.

Chamberlain brand recognition.

<unk> with its ability to scale in demand programs and innovative specialized nursing curriculum.

Continues to position it as the leading school of nursing in the U S.

Our campus based pre licensure Bachelor of Science in Nursing degree program continues to resonate.

With over 12500 students enrolled.

The recently launched B S N online option achieved year over year triple digit growth and as swiftly approaching 1000 students.

The next generation Implex exam is now being administered pre licensure students.

And we are leveraging proprietary adaptive learning technology to prepare our BSN students for the exam.

Additionally, our practice ready specialty focused model.

With our social determines deep learning framework.

It's creating an unparalleled offering and they're seeing education.

Practice ready specialty focus has provided specialized training, it's more than 1000 BSN students.

A proprietary learning model that better prepare students for the specialty work they will take all within U S health care.

We've expanded this program to all twenty-three Chamberlain campuses broadening access course students.

While addressing areas of acute theres some shortages.

[noise] Walden.

We've made significant progress toward regaining our leadership position in online education.

Our brand investments and shifts in marketing mix continue to show momentum and new student growth.

Which is up double digits year over year for the second straight quarter.

This successful execution has resulted in elevated demand at Walden led by our health care programs, specifically, social and behavioral sciences and nursing.

We continue to invest in expanding those programs, which we believe positions us for long term growth.

Thanks in part to enhanced data driven marketing capabilities.

Walden competency based tempo program grew new enrollments by 50% year over year.

Also of note Walden, 69th commencement conferred more than 6500 doctoral masters and bachelors degrees.

From all 50 states and for more than 40 countries.

Nearly 35% at those degrees were proposed licensure nursing programs.

We're especially proud to say that more than half of the graduate you reported their race identified as being from underrepresented minority groups.

Ross Vet continues to operate near capacity addressing the critical need for veterinarians in the U S.

And through our growth with purpose strategy, we're executing a new initiatives designed to further scale our program to meet the needs of the animal health community in the U S.

At our medical schools, we've identified opportunities for improving performance and executing on remediation plans, including the restructuring of our enrollment and academic support teams to enhance the student journey.

Starting in October to meet the needs of our medical students. We commenced a 10 week Capstone program designed to improve their preparedness for the step one U S. N lovely exam, which then allows them to progress onto court clinical's.

We're confident that the actions we're taking at the medical schools will improve total enrollment trends over the course of this fiscal year.

As I said at the outset, our growths of purpose strategy is driving top and bottom line performance ahead of expectations.

And we remain confident that these trends will accelerate over the course of the year.

Accordingly, we are raising our fiscal 2020 for guidance.

We now expect revenue to be in the range of $1.47 billion to $1.53 billion.

And adjusted EPS to be in the range of $4 25 to $4.45.

We remain optimistic about our future and the foundation, we built for the students we serve.

<unk> is well positioned for success as the leading health care educator.

And Ah systemically important component of U S health care.

The successful execution of our growth that purpose initiatives drive enrollment enhance student outcomes and propels our graduates towards rewarding careers.

And this is what drives our talents impact on our communities and we remain enthusiastic about what lies ahead.

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

Thanks, Steve and Hello, everyone.

Our first quarter results reflect strong demand for our programs and our continued focus and enhance student outcomes.

I'll begin with a review of 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 balance of fiscal 'twenty 'twenty four.

Starting with the topline revenue in the first quarter increased by four 1% to $368 $8 million driven by growth at Chamberlain and Walden, partially offset by med vet.

As our enterprise wide growth with purpose strategy accelerates.

Consolidated adjusted operating income was $63 $3 million compared with $66 $8 million in the prior year.

Adjusted EBITDA came in at $85 million, a decrease of three 8% compared with the prior year.

Resulting in adjusted EBITDA margin of 21, 8% or 180 basis points lower than prior year.

As growth in revenue and operational efficiencies were offset by strategic investments in growth with purpose initiatives and other cost.

Adjusted net income for the quarter was $39 $4 million, 5.3% lower compared to last year.

Adjusted earnings per share with 93 cents.

Or a 3.3% increase compared with prior year.

Diluted shares outstanding were $4 2 million lower compared to last year, resulting in first quarter diluted shares outstanding of $42 2 million.

Next I'll discuss financial highlights by segment.

Chamberlain reported first quarter revenue of $142 $6 million, an increase of five 3% when compared with the prior year driven by growth in enrollments.

Total student enrollment during the quarter increased five 2% compared with the prior year as a result of continued growth and pre licensure and post licensure nursing programs as well as high persistence across the segment.

Adjusted EBITDA decreased by six 5%.

$31.5 million as our underlying operational leverage but more than offset primarily by investments in student support services to enhance student outcomes and other expenses.

We believe these investments will continue to deliver positive returns through higher future persistence rates and academic outcomes.

Turning to Walden.

Revenue during the quarter was $141.6 million, an increase of eight 2% when compared with the prior year driven primarily by total students enrollment growth and the optimization of our tuition pricing model.

Total student enrollment returned to growth this quarter, a 0.5% compared with the prior year as strong demand for our social and behavioral health and nursing programs continued to gain traction in addition to high persistence across the segment.

Adjusted EBITDA increased 21%.

$35 $1 million as transformation and operational efficiencies are generating its intended leverage as we grow revenue.

For the medical and veterinary segment revenue in the first quarter decreased three 8% to $84.6 million.

Total student enrollment decreased seven 5% compared with the prior year due to lower starts at the medical schools, partially offset by the veterinary school, which continues to operate near capacity.

We are focused on our medical schools remediation plans to improve enrollment in our medical schools over the course of the fiscal year.

Adjusted EBITDA decreased by 11.9% to $19.1 million due to lower revenue, partially offset by operational improvements as we execute on our medical schools remediation plans.

Shifting to cash flow and the balance sheet.

Our business continues to generate robust operating cash flow.

Free cash flow during the quarter was $76 million, which was slightly lower year over year, driven primarily by higher capex spend of $15 million during the quarter.

Which is part of our growth with purpose strategy intended to improve student outcomes.

Reflecting our disciplined capital allocation philosophy, we maintain net leverage of one three times adjusted EBITDA.

$708 million in long term debt.

Further we returned $92 million in capital to our shareholders by repurchasing $2 2 million shares under our board authorized share buyback program during the first quarter.

Over approximately the last 18 months, we've repurchased roughly 10 million shares or approximately 20% of our shares outstanding.

We believe these investments drive long term intrinsic value for our shareholders.

Turning to our guidance for fiscal 'twenty 'twenty four.

As we accelerate performance through our growth with purpose strategy.

We're raising our revenue guidance to be in the range of 1.47 billion to $1.53 billion, representing low to mid single digit year over year growth.

We're also raising our adjusted earnings per share guidance to be in the range of $4 25 to $4.45 also reflecting low to mid single digit growth.

We anticipate continuing to generate strong cash flow bolstering, our balance sheet strength and providing us the ability to execute on our capital allocation philosophy.

Let me provide additional context in relation to our fiscal 2024 outlook.

We're forecasting total enrollment trends to continue to improve throughout the year building on the higher first quarter total enrollment growth and.

And in turn we still anticipate revenue to follow this trend with greater acceleration to occur in the back half of the year.

As it relates to the phasing of our earnings during fiscal 'twenty 'twenty four we continue to make incremental growth investments earlier in the year Andy.

And they're anticipating a second quarter see a slightly higher investment level in the first quarter.

This does result in a short term reduction to our adjusted EBITDA margin profile, specifically in the second quarter, but we anticipate growing our margin profile in the second half of the year as revenue growth accelerates generating leverage.

Resulting in a full year adjusted EBITDA margin profile of approximately 24% consistent with prior year and what we shared at our June 2023 Investor Day.

Included within our raised fiscal 'twenty for guidance is the cost of an incremental $158 million letter of credit that will be placed in early November in accordance with request by the department of education.

This new letter credit will result in an annualized interest expense of approximately $6 million and will be placed through our availability on our existing revolver.

This has no material impact to our strategic plan, nor does it impact our strong financial position highlighted by our low net leverage and our healthy profitability levels and cash flow generation.

In conclusion.

Our results demonstrate our ability to deliver short term results, while sustainably investing in the long term growth targets that we provided at our June 2023 Investor day.

I'm excited about the opportunities and the momentum our team is generating as a purpose driven organization.

Creating substantial value for our students and our shareholders.

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

Thank you we will now be conducting a question and answer session.

Like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Okay.

Okay.

Thank you.

First question comes from the line of Jeff Miller with Baird. Please proceed with your question.

Yeah. Thank you good afternoon.

I apologize if I missed it did you give chamberlain new enrollment or can you give some sense of how that's trended.

We did not we are we've referred to.

Specific programs.

In the prepared remarks, but we did not give new enrollment at Chamberlain.

Okay, well I'll ask maybe a little bit differently because.

You just had a 4% revenue growth quarter. You said you expect Chamberlain in Walden progress to continue to accelerate those are largest.

Segments, and there was a comment I think about like Mad continuing to improve over the balance of the year and I know you raised your guidance, but.

The guidance has 1% growth at the low end three 5% growth at the midpoint. Both of those are lower than your Q1 growth. So I'm not I guess I'm not understanding what you're signaling because youre talking about you had a great quarter, you're talking about things further improving and accelerating.

But I don't really see it in the guidance so I'm not sure what the disconnect is.

Sure. So let me let me try to address that for you, but what I would say is that we had very good first quarter feel good about where we're going in.

In terms of the improvement that we think will be getting over the balance of the year, but it is the first quarter. So we are really early in the year and wanted to see a little bit longer trend before we take any numbers up further than what we did in the guidance at this point the only other thing I would say is that when.

Do you get into the back half of the year your comps are a little bit more difficult than what you had in the first quarter as well. So that's another piece of what answers into that.

Okay, and then I think there are some changes to gainful employment since your last quarter and it looks like some of them are.

Beneficial to the.

Some of the programs that you operate so can you just address that for the audience.

Yes, I think there were two significant changes in the final rule that we view is net positive for us.

Is that.

Included.

Transitional period that allows.

Programs to decrease tuition adjust cost scholarship students in a way that has an impact on the overall debt to earnings calculation. So that that's helpful.

Just as importantly, they.

They have provided a longer measurement period for certain types of programs and these included medical programs and mental health programs, which is helpful to Chamberlain so.

As we think about the role we've got opportunities to make adjustments to ensure.

That program's clear the hurdle for gainful employment.

We are also actively seeking to have our veterinary medicine program included in those programs that have even longer measurement period, because their profiles are very similar to.

The programs. It is included in that exception so.

A better outcome than we feared with gainful employment.

And obviously, we've got a bit of time.

Before that that goes into effect the rule doesn't go into effect until 2024, and the first measurement period isn't until 2025. So we feel good about where we are vis a b G.

Okay Perfect and then just last one for me just can you address.

The metrics are the drivers of the increasing letter of credit with.

The department of education, or what what you need to do what I've come to you need to have.

To kind of alleviate that that letter of credit.

Okay.

So the as you know.

<unk> itself is it sort of bespoke calculation by the department of education one of the.

New launches of the calculation is that.

We look at financial responsibility you get credit for some assets are not brothers one of the assets that gets excluded or what category of asset that gets excluded from the calculation our intangible assets like goodwill, we obviously hung a bunch of goodwill on the balance sheet as part of the Walden acquisition that drives down the score that.

That was not unexpected and the request for the additional letter of credit was not unexpected and we managed our credit facility in a way that would permit us to accommodate its request, but that hasn't been said.

We actually think that with the existing letter of credit plus the new letter of credit.

We've got a section that is.

It's almost 20% of our total disbursements.

We're actually working with them to see if theres, a way to bring that quite a bit down a bit because there isn't any real risk.

20 of our institutions.

We're very financially healthy organization.

None of our institutions are at risk of closure.

Strong balance sheet. So we think the folks at the rule.

Yeah.

They produced this outcome, we we actually think.

There's a good argument to be had for.

Lighter credits requirement it Ed.

Score itself.

Bob give you the specifics, but basically we would earn our way out of.

The score in the score go up over time on the basis of.

Our earnings because the calculation is done annually on the basis of our audited financial statements, but that's not something that would happen immediately that's something that would happen over time, but I think the deemed important takeaway is that we are we are.

Organize financially such that we can accommodate this request from Ed and we think we have good arguments for why.

The ask here is probably larger than what it needs to be comfortable about the financial responsibility of our institutions and programs.

Yeah.

Okay. Thank you.

Sure.

Yeah.

Thank you. Our next question comes from the line of Jeff Silber with BMO capital markets. Please proceed with your question.

Hi, Thank you just Ryan on for Jeff on the guidance revisions.

The higher outlook include any more incremental investment and the growth with purpose initiative from what you had said last quarter I was just thinking that given some of the operating leverage in the business. He adjusted EPS impact on the revenue raised would be a little bit higher.

Okay.

Yeah, let me address that as it could.

The first thing I would say is that yes, it's a good point that you're raising.

And what I would say is that first off the <unk>.

The improvement that we saw in the first quarter.

Yes, really there is a little bit of a shift in terms of what we had in terms of the growth purpose expenses going into the second quarter. So a little bit of that is a shift in timing with the expenses. We also anticipate we were going to have a little bit higher expenses in the first place in the second quarter.

So we have that as well the other thing I was going to mention is that while the EPS would've increased from the additional revenue you also have a decrease coming from the additional interest expense on a letter of credit.

He was just talking about that we've had to put in so that letter of credit and is just.

Going to be about $158 million, a little bit under 4% rate and so that's going to cost us about $4 million. This.

This year and $6 million on an annualized basis. So.

That's a part of what you would need to factor in as well.

Yeah.

Got it and then.

Just any updated thoughts sorry, if I missed this on the pacing of the investments throughout the year.

Is it still second half weighted.

Would you consider giving us any sequential persistence or other.

ROI metrics on some of the spend there in future quarters.

So what I would mention is that as I am.

Yeah.

Got it. Thank you and then just the last question.

Let me do you have any color you could give on some of the pricing I noticed in the queue.

That you are taking pricing up quite a bit in some of the med schools and the revenue per student at Walden. It looks like it went up a bit on that.

I think you mentioned the optimization of the student pricing.

Yeah look I think the important thing to start keep in mind is.

Well, we have taken pricing up in some areas of the business.

We've also taken pricing down in other parts of the business too.

Sure we're competitive in certain programs were.

We were maybe a bit higher than we needed to be but with respect to Walden in particular, I'll, let Bob speak to the dynamics there because it goes beyond pricing.

The thing I would say, there's a couple of other things happening with Walden. So.

Obviously with the enrollments being up are what they are and then the revenue increase or that there's a gap there. It's a combination of things. So it's not just pricing. There's also a average credit loads are up so the average credit hours or credit loads.

Our students are carrying as a little bit higher as well and that's part of what also drives then the revenue per student to be higher. In addition, we do have a little bit lower discounts as well.

We were pretty high last year in the first quarter on discounts and a little bit lower on that as well. This year. So there's definitely a couple of factors that are at work aside from just pricing on the Walden inside.

Okay.

Great. Thank you so much.

Thank you.

Thank you.

There are no further questions at this time I would like to turn the floor.

Steve Beard for closing comments.

Thank you I just wanted to take a moment to thank all of our colleagues across that talent.

Very strong start to the year very optimistic about what lies ahead.

In particular I want to call out our colleagues at Walden, they've gone positive total enrollment year over year that is no small accomplishment.

We are bullish on that brand in that institution.

We're excited for them to.

To find ourselves where we are today. So my thanks to all of our colleagues special shout out to our team at Walden and we look forward to speaking with you next quarter.

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

You for your participation.

Okay.

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