Q3 2024 Adtalem Global Education Inc Earnings Call

Operator: Greetings and welcome to the Adtalem Global Education third quarter fiscal year 2024 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, Vice President of Investor Relations. Thank you. You may begin.

Greetings and welcome to the I tell them Global education third quarter fiscal year 2024 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 not my pleasure to introduce your host Jonathan Spitzer, Vice President of Investor Relations. Thank you you may begin.

Jonathan Spitzer: Good afternoon, and welcome to our earnings call for the third quarter of fiscal year 2024 results. On the call with me today are Steve Beard, President and Chief Executive Officer of Adtalem Global Education, and Bob Phelan, Chief Financial Officer.

Jonathan Spitzer: Good afternoon, and welcome to our earnings call for the third quarter of fiscal year 2024 results.

Jonathan Spitzer: On the call with me today are Steve Beard, President and Chief Executive Officer of add some global education, and Bob Feeling Chief Financial Officer before I hand, the call over to Steve I was usually take you through the legal safe Harbor and cautionary declarations.

Jonathan Spitzer: Before I hand the call over to Steve, I will, as usual, take you through the legal, safe harbor, and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive, and valuatory 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 statements after this presentation, whether as a result of new information, future events, changes in assumptions, or otherwise.

Jonathan Spitzer: Certain statements and projections of future results made in this presentation constitute as forward looking statements.

Jonathan Spitzer: Based on current market competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary.

Jonathan Spitzer: Materially.

Jonathan Spitzer: We undertake no obligation to update publicly any forward looking statements. After this presentation, whether result of new information future events changes in assumptions or otherwise. Please see our latest Form 10-K Form 10-Q for a discussion of risk factors that relate to forward looking statements.

Jonathan Spitzer: Please see our latest Form 10-K and Form 10-Q for a discussion of risk factors that relate to forward-looking statements. In today's presentation, we use certain non-GAAP financial measures. Please refer to the appendix in the presentation materials available on our Investor Relations website for reconciliations to most directly comparable GAAP financial measures and related information. You will find a link to the webcast on our Investor Relations website at investors.adtalem.com. After this call, the presentation webcast will be archived on the website for 30 days. I will now hand you over to Steve.

Jonathan Spitzer: In today's presentation, we use certain non-GAAP financial measures refer you to the appendix in the presentation materials available on our Investor Relations website for reconciliations to most directly comparable GAAP financial measures and related information.

Jonathan Spitzer: On a link to the webcast on our Investor Relations website at investors thought that talent Dot com. After this call the presentation and webcast archived on the website for 30 days.

Jonathan Spitzer: I will now hand, you over to Steve.

Stephen W. Beard: Thanks, Jay. Good afternoon, everyone, and thank you for taking the time to join our third quarter Fiscal 2024 earnings call. We delivered another quarter of strong results with performance ahead of expectation. During the third quarter, total enrollment grew by 7.8%, yielding revenue of $413 million, up 11.8% versus the prior year. In the quarter, we also surpassed another performance milestone. We expanded our operating margin at the same time as we increased our year-over-year investments in the business. This performance generated $1.50 in adjusted earnings per share, up 32.7% versus last year.

Stephen W. Beard: Thanks, Jay and good afternoon, everyone and thank you for taking the time to join our third quarter fiscal 2024 earnings call.

Steve: We delivered another quarter of strong results with performance ahead of expectations.

Steve: During the third quarter total enrollment grew by seven 8% yielding revenue of $413 million.

Stephen W. Beard: 11, 8% versus the prior year.

Steve: In the quarter, we also surpassed another performance milestone.

Steve: We expanded our operating margin at the same time as we increased our year over year investments in the business.

Steve: This performance generated $1.50 and adjusted earnings per share up 32, 7% versus last year.

Stephen W. Beard: We're very proud of these results, and more importantly, we see them as another mile marker on our journey to establish Adtalem as a national leader in post-secondary higher education and a systemically important partner to U.S. healthcare. We take this journey at a time when the value proposition of higher education is under increasing scrutiny. For some, cost has become a barrier to entry.

Steve: We're very proud of these results and more importantly.

Steve: There's another mile marker on our journey to establish that column as a national leader in post secondary higher education, the systemically important partner to U S health care.

Stephen W. Beard: For many, there's growing concern about whether a college degree is a reliable path to a good job upon graduation, leading them to question the return on investment. Finally, the increasing availability of alternative forms of education, including online courses, certificate programs, and vocational programs, many of which offer greater flexibility and sometimes more attractive pricing, have also contributed to a re-evaluation of the relevance and effectiveness of traditional higher education. At the same time, workforce shortages in U.S. healthcare are a significant and pressing issue.

Steve: We take this journey at a time when the value proposition of higher education is under increasing scrutiny.

Steve: For some cost has become a barrier to entry.

Steve: For many there's growing concern about whether a college degree is a reliable path to a good job upon graduation, leading them to question the return on investment.

Steve: Finally, the increasing availability of alternative forms of education, including online courses certificate programs and vocational programs, many of which offering greater flexibility and sometimes more attractive pricing.

Steve: Have also contributed to a reevaluation of the relevance and effectiveness of traditional higher Ed.

Steve: At the same time, the workforce shortages in U S health care are significant impressing issue.

Stephen W. Beard: The demand for health care services continues to grow due to factors such as an aging population, increased access to health care coverage, and advancements in medical technology. However, the supply of health care professionals, including doctors, nurses, and other essential staff, has not kept pace with this increasing demand, threatening the sustainability of the existing patient care model. At Adtalem, we carefully monitor both of these dynamics.

Steve: The demand for healthcare services continues to grow due to factors such as an aging population.

Steve: Increased access to health care coverage and advancements in medical technology.

Steve: However, the supply of health care professionals, including doctors nurses and other essential staff has not kept pace with its increasing demand.

Steve: And then the sustainability of the existing patient care model.

Speaker Change: And I tell him we carefully monitor both of these dynamics, but as a backdrop. They served only to strengthen our commitment to our mission.

Stephen W. Beard: But as a backdrop, they serve only to strengthen our commitment to our mission, which is to expand access to high-quality and market-responsive academic programs for a community of learners long overlooked by traditional higher education and support those learners through an innovative, tech-enabled, and success-focused student experience through graduation and into their careers. And, just importantly, to do it with a deliberate and sorely needed emphasis on those roles and professions where our nation experiences healthcare workforce shortages most acutely.

Steve: Well just to expand access to high quality and market responsive academic programs for.

Stephen W. Beard: For a community of learners long overlooked by traditional higher education.

Steve: And support those lenders do innovative tech enabled and success focused student experience through graduation and into their careers.

Steve: And just as importantly to do it with a deliberate and sorely needed emphasis on those roles and professions, where our nation experiences health care workforce shortages most acutely.

Stephen W. Beard: This is our third consecutive quarter of total enrollment growth and our fifth consecutive quarter of revenue growth, and it's a testament to the success of our growth and purpose strategy, which seeks to accelerate the organic growth of our brands and businesses through transformational improvements and operational excellence. Our strategy calls for best-in-class execution across five value-creating levers of our operating model: Marketing, Enrollment, Persistence, Pricing, and Program. And suffice it to say we're encouraged by the progress we've made today.

Steve: This is our third consecutive quarter total enrollment growth and our fifth consecutive quarter of revenue growth.

Steve: It's a testament to the success of our grocery purpose strategy.

Stephen W. Beard: Which seeks to accelerate the organic growth of our brands and businesses through transformational improvements and operational excellence.

Steve: Our strategy calls for best in class execution across the five value, creating leverage of our operating model marketing enrollment persistence pricing and programs.

Speaker Change: If I had to say we're encouraged by the progress today.

Stephen W. Beard: Moreover, we're confident that these results will continue into the fourth quarter, and as a result, we're raising our Fiscal Year 2024 revenue guidance to be $1.56 billion to $1.58 billion. And our fiscal year 2024 adjusted EPS guidance to be $4.80 to $5. Now to results by segment.

Steve: Moreover, we're confident that these results will continue into the fourth quarter and as a result, we're raising our fiscal year 'twenty 'twenty four revenue guidance to be 1.56 billion to $1.58 billion.

Steve: Our fiscal year 2024, adjusted EPS guidance.

Steve: To be $4 80 to $5.

Steve: Now to the results by segment.

Stephen W. Beard: Chamberlain and Walden were the primary drivers of our strong performance in the third quarter, and we continue to see encouraging total enrollment trends in the medical and veterinary sectors. Chamberlain is the largest school of nursing in the country, and its leadership position in nursing is expanding. During the quarter, we surpassed our highest ever total enrollment of nearly 38,000 students. This growth in enrollment was broad-based and distributed across all of our programs and degree levels.

Steve: Children in Walden were the primary drivers of our strong performance in the third quarter.

Steve: And we continue to see encouraging total enrollment trends and the medical and veterinary segment.

Steve: Chamberlain is the largest school of nursing in the country and its leadership position and they're saying it's expanding.

Stephen W. Beard: During the quarter, we surpassed our highest ever total enrollment and nearly 38000 students.

Steve: This growth in enrollment was broad based and distributed across all of our programs and degree levels.

Stephen W. Beard: Chamberlain continues to be a leading voice and a leading choice for nursing students with this culture of care and its Social Determinants of Learning Framework, which drives academic success across learners from all backgrounds. Chamberlain is a recognized innovator in nursing education, and it expanded its practice-ready, specialty-focused offering through a partnership with the Emergency Nurse Association.

Stephen W. Beard: Chamberlain continues to be a leading voice illegal choice for nursing students with its culture of care.

Stephen W. Beard: And it's supposed to be determined some learning framework.

Stephen W. Beard: Five academic success across learners from all backgrounds.

Steve: Chamberlain is a recognized innovator in nursing education and.

Stephen W. Beard: And it expanded its practice ready specialty focused offering through our partnership with the emergency Nurses Association.

Stephen W. Beard: Across the practice-ready specialty focus tracks, we now have over 1,700 students, enabling them to gain familiarity with their chosen specialty area and be workforce ready on day one. BSN Online continues to offer flexibility to 1,700 students across 33 states, and we see a robust pipeline for growth in that program. By further expanding the online delivery capability of our pre-licensure program, we are able to bring nursing education to thousands of students who could not otherwise pursue it, and through our expansive clinical affiliations across the country, enable them to complete the practicum component of their education close to home.

Stephen W. Beard: Across the practice ready specialty focused tracks, we now have over 1700 students, enabling them to gain familiarity with their chosen specialty area and be workforce ready on day one.

Steve: [laughter] business online continues to offer flexibility to 1700 students across 33 states.

Steve: We see a robust pipeline for growth in that program.

Stephen W. Beard: By further expanding the online delivery capability of our pre licensure programs, we're able to bring nursing education to thousands of students who cannot otherwise pursue it.

Stephen W. Beard: And through our expansive political affiliations across the country enabled them to complete the practical component of their education close to home.

Stephen W. Beard: Yeah.

Stephen W. Beard: Turning to Walden.

Stephen W. Beard: The total enrollment grew by 8.4%, as Walden experienced some of the strongest new enrollment growth in its history. Our continued investments in the world and brand have grown market awareness with demand of double digits year over year for the fourth straight quarter. New student growth, when paired with the robust persistence gains we achieved in prior periods, has led to increased enrollment across programs and degree levels, with particularly strong growth in advanced nursing degrees, as well as social and behavioral science. Walden continues to offer flexibility to working adults who value part-time, self-paced, and competency-based programs, and our Believe and Achieve Scholarship sets Walden Park and rewards students for persisting through programs.

Stephen W. Beard: Total enrollment grew by eight 4% is Walden experienced some of the strongest new enrollment growth in its history.

Stephen W. Beard: Our continued investments in the Walden brand have grown market awareness with.

Stephen W. Beard: They made up double digits year over year, but the fourth straight quarter.

Stephen W. Beard: New student growth when paired with the robust persistence gains we achieved in prior periods has led to increased enrollment across programs and degree levels with particularly strong growth in advanced nursing degrees as well as social and behavioral science of degrees.

Stephen W. Beard: While there continues to offer flexibility to working adults, who valued park time self paced the competency based programs.

Stephen W. Beard: And I believe and achieve scholarships, let's walk in the park and reward students who persist through programs in some instances reducing tuition costs by as much as 25% is in particularly through the graduation.

Stephen W. Beard: In some instances, reducing tuition costs by as much as 25% as they matriculate through graduation. We now have over 23,000 students participating in Believe and Achieve. In our medical and veterinary segment, we welcome Scott Liles back to Adtalem to serve as president. Scott was most recently CEO of the Association of Certified Anti-Money Laundering Specialists, known as ACAM, which he successfully returned to growth prior to its divestment.

Steve: We now have over 23000 students participating in believing a cheap.

Stephen W. Beard: And our medical and veterinary segment, we welcome Scott lives back that tell him to serve as president.

Stephen W. Beard: Scott was most recently CEO of the association of certified anti money laundering specialists known as <unk>, which he successfully returned to growth prior to its divestiture.

Stephen W. Beard: Remediation efforts in MedVet continue to deliver encouraging results. Total enrollment trends improved sequentially, down just 4.5% year-over-year in the quarter. We continue to strengthen our enrollment processes, with early indications of success starting to show on the top of the funnel. Roche University School of Veterinary Medicine continues to operate at near capacity, and we also continue to invest in innovations that drive a differentiated and superior student experience. One example is our Clinical Return Home Program at Ross Med, which leverages the extensive network of Adtalem clinical partnerships to provide students early clarity on where they'll complete their clinical rotations and enable them to do so at hospitals close to their home. For the second straight year, AUC and RUSM achieved a combined 98% first-time residency match rate, placing more than 815 students and graduates into over 350 unique healthcare facilities spanning 44 states and territories.

Stephen W. Beard: Remediation efforts and that that continues to deliver encouraging results as total enrollment trends improved sequentially down just four 5% year over year in the quarter.

Stephen W. Beard: We continue to strengthen our enrollment processes.

Stephen W. Beard: With early indications of success starting to show on the top of the funnel.

Stephen W. Beard: Ross University School of Veterinary Medicine continues to operate at near capacity.

Stephen W. Beard: We also continued to invest in innovation to drive a differentiated and superior student experience.

Stephen W. Beard: One example is our clinical return home program at Ross Med.

Stephen W. Beard: Which leverages the extensive network of ACH album clinical partnerships to provide students early clarity on where they will complete their clinical rotations and enable them to do so at hospitals close to their homes.

Stephen W. Beard: For the second straight year, it used to be and are you with them.

Stephen W. Beard: Achieved a combined 98% first time residency match rate.

Stephen W. Beard: Placing more than 800 and to teach students and graduates into over 350 unique health care facilities spanning 44 states and territories.

Stephen W. Beard: Of these students, over 500 will enter primary care residencies poised to serve the more than 83 million Americans living in areas lacking adequate access to primary care. Our medical students are a key component in addressing the nation's gaps in health equity. 189 identify as Black, African American, or Hispanic, helping to diversify the pipeline of physicians in the U.S. healthcare system. As of 2021, black Americans made up 13% of the population, but only 6% of physicians, and Hispanics represented 19% of the population, but only 7% of physicians.

Stephen W. Beard: All of these students over 500 primary care residencies.

Stephen W. Beard: Sort of the more than 83 million Americans living in urban areas lacking adequate access to primary care.

Stephen W. Beard: Our medical students are a key component in addressing the nation's gaps and help equity.

Stephen W. Beard: Of the 815 students and graduates who participated and match day.

Stephen W. Beard: 189 identify as Black African American Hispanic.

Stephen W. Beard: Helping diversify the pipeline of physicians in the U S health care system.

Stephen W. Beard: At the 2021 Black Americans made up 13% of the population, but only 6% of physicians.

Stephen W. Beard: And its Phoenix represent 19% of the population, but only 7% of physicians.

Stephen W. Beard: The quality, reach, and impact of our medical schools is undeniable, with this diverse and civic-minded community of students and graduates making tangible contributions across some of the most prominent health systems in the U.S. To close, our growth and purpose strategy is delivering top and bottom line performance ahead of our expectations, and we expect that performance to continue through next quarter. As the country's largest health care educator, we're mindful of our critical role in addressing growing health care workforce shortages, and we're delighted to serve a student population poised to narrow health equity disparities across the country.

Stephen W. Beard: The quality reach and impact of our medical schools is undeniable with this diverse and civic minded community of students and graduates, making tangible contributions across some of the most prominent health systems in the U S.

Stephen W. Beard: To close.

Stephen W. Beard: Our global purpose strategy is delivering top and bottom line performance ahead of our expectations and.

Stephen W. Beard: And we expect that performance to continue through next quarter.

Stephen W. Beard: As the country's largest healthcare educator, we're mindful of our critical role in addressing growing health care workforce shortages and we're delighted to serve our student population poise to narrow health equity disparities across the country.

Stephen W. Beard: Over the last three years, our five institutions have graduated over 81,000 students, nearly 55,000 in nursing alone, with another 2300 in medicine and 3300 in social work. They have joined an existing network of over 300,000 Adtalem alumni working to bring positive change to the communities in which they live and work. What drives all of us at Adtalem is the knowledge that as our growth gains momentum, these positive outcomes multiply. And with that, I'll turn the call over to Bob for further discussion of our financial resources.

Stephen W. Beard: Over the last three years or five institutions had graduated over 81000 students.

Bob: 55000 in nursing alone.

Bob: With another 2300, and medicine, and 3300 and social work.

Bob: They joined an existing network of over 300000 that tell them alumni working to bring positive change to the communities in which they live and work.

Bob: What drives all of us at that talent and knowledge that as our growth gains momentum these positive outcomes multiply.

Stephen W. Beard: And with that I'll turn the call over to Bob for further discussion of our financial results.

Robert J. Phelan: Thank you, Steve. And hello, everyone. Our third quarter results reflect robust operating and financial performance. Growth with Purpose, our organic growth strategy, accelerated total enrollment growth and delivered enhanced profitability through a more efficient operating model while we optimally balanced the continued increase in the level of investments for future growth. I'll begin with a review of our financial results and key drivers for our performance in the third quarter. Later in my remarks, I will discuss capital deployment and our expectations for the remainder of fiscal 2024.

Bob: Thank you, Steve and Hello, everyone.

Robert J. Phelan: Our third quarter results reflect robust operating and financial performance.

Robert J. Phelan: Rosewood purpose, our organic growth strategy accelerated total enrollment growth and delivered enhanced profitability through a more efficient operating model, while we optimally balance the continued increase in the level of investments for future growth.

Robert J. Phelan: I'll begin with review of our financial results and key drivers for our performance in the third quarter.

Robert J. Phelan: Later in my remarks, I will discuss capital deployment and our expectations for the remainder of fiscal 2024.

Robert J. Phelan: Starting with the top line, revenue in the third quarter increased by 11.8% to $412.7 million, driven by an increase in all three segments and primarily from accelerated enrollment growth at Chamberlain and Walden. Consolidated adjusted EBITDA came in at $107.1 million, up 24.6% compared to the prior year due to profit growth in all three segments, led by Walden, resulting in an adjusted EBITDA margin of 25.9%, a 260 basis points increase from last year.

Robert J. Phelan: Starting with the topline revenue in the third quarter increased by 11, 8% to $412 $7 million driven by an increase in all three segments and primarily from accelerated enrollment growth at Chamberlain in Malden.

Robert J. Phelan: Consolidated adjusted EBITDA came in at $107 $1 million up 24, 6% compared to the prior year from profit growth in all three segments led by Walton, resulting in an adjusted EBITDA margin of 25, 9%, a 260 basis points increase.

Robert J. Phelan: Last year.

Robert J. Phelan: Adjusted operating income was $89.8 million, up 23% compared to the prior year as revenue growth and efficiencies generated operational leverage, which was partially offset by investments in strategic initiatives, higher employee benefit costs tied to our performance, and other costs. Adjusted net income for the quarter was $59.4 million, up 15.1% compared to last year, attributed to adjusted operating income growth, partially offset by a higher adjusted effective tax rate and higher year-over-

Robert J. Phelan: Adjusted operating income was $89 $8 million up 23% compared to the prior year as revenue growth and efficiencies generated operational leverage which was partially offset by investments in strategic initiatives.

Robert J. Phelan: Higher employee benefit costs tied to our performance and other costs.

Robert J. Phelan: Adjusted net income for the quarter was $59 4 million up 15, 1% compared to last year attributed to adjusted operating income growth, partially offset by higher adjusted effective tax rate and higher year over year interest expense.

Robert J. Phelan: As a reminder, the third quarter only had a partial quarter benefit from the $50 million term loan repayment, the 50 basis point savings from our term loan repricing, and the interest savings from the $76.2 million reduction in outstanding Department of Education letters of credit. Adjusted earnings per share was $1.50, or a 32.7% increase compared with the prior year, as we repurchased 1.8 million shares within the third quarter, resulting in a third quarter diluted shares outstanding of $39.6 million, or $6.2 million lower than last year. Next, I'll discuss the financial highlights by segment.

Robert J. Phelan: As a reminder, the third quarter only had a partial quarter benefit from the $50 million term loan repayment. The 50 basis points savings from our term loan repricing and the interest savings from the $76 $2 million reduction in outstanding Department of education letters of credit.

Robert J. Phelan: Adjusted earnings per share was $1 50, or 32, 7% increase compared with the prior year as we repurchased one 8 million shares within the third quarter.

Robert J. Phelan: <unk> in the third quarter diluted shares outstanding of $39 6 million or.

Robert J. Phelan: Or $6 2 million lower than last year.

Robert J. Phelan: Next I'll discuss financial highlights by segment.

Robert J. Phelan: Chamberlain reported third-quarter revenue of $170.3 million, an increase of 13.8% when compared with the prior year, driven primarily by growth in enrollment. Total student enrollment for the quarter increased 9% compared with the prior year, the fifth consecutive quarter of both pre-licensure and post-licensure nursing program total enrollment growth. Notably, our pre-licensure BSN online option is expanding rapidly to meet critical nursing shortages and grew total enrollment by over triple digits versus last year.

Robert J. Phelan: Chamberlain reported third quarter revenue of $173 million, an increase of 13, 8% when compared with the prior year driven primarily by growth in enrollments.

Robert J. Phelan: Total student enrollment for the quarter increased 9% compared with the prior year.

Robert J. Phelan: Our fifth consecutive quarter, both pre licensure and post licensure nursing program total enrollment growth.

Robert J. Phelan: Notably our pre licensure BSN online option is expanding rapidly to meet critical nursing shortages and grew total enrollment by over triple digits versus last year.

Robert J. Phelan: Okay.

Robert J. Phelan: Adjusted EBITDA increased by 12.3% to $50.5 million. However, adjusted EBITDA margin, 29.6%, was 40 basis points lower than the prior year as our underlying operational leverage was more than offset by investments in marketing, student support services, and other expenses. We continue to believe that our student-facing investments, aimed at expanding our reach and creating a more seamless experience, are enhancing our differentiation and market leading position. Our third quarter total enrollment grew from new demand and increased persistence, which showcased the early return on investment.

Robert J. Phelan: Adjusted EBITDA increased by 12, 3% to $55 million.

Robert J. Phelan: We continue to believe that our student facing investments aimed at expanding our reach and creating more seamless experience are enhancing our differentiation and market leading position.

Robert J. Phelan: Our third quarter total enrollment grew from new demand and the increased persistence, which showcased the early return on investment.

Robert J. Phelan: These investments are intended to continue delivering positive returns through increased future demand, persistence, and academic outcomes. Burning the Wall, Revenue during the quarter was $150.6 million, an increase of 13.3% when compared with the prior year, driven primarily by enrollment growth. Total student enrollment accelerated in the quarter, up 8.4% compared to the prior year, from robust enrollment across degree levels, notably in undergraduate, and continued high persistence.

Robert J. Phelan: Growth was led by our social and behavioral health and nursing programs; adjusted EBITDA increased by 28.9% to $35.9 million. Adjusted EBITDA margin expanded by 290 basis points versus the prior year to 23.8% as our transformation and operational efficiencies leverage was partially offset by an increased level of investments and new student support in the quarter commensurate with the strong growth in enrollment. Our strong operational and financial performance affords us the ability to continue to invest for future growth at Walden.

Robert J. Phelan: Growth was led by our social and behavioral health and nursing programs.

Robert J. Phelan: Adjusted EBITDA increased by 28, 9% to $35 $9 million.

Robert J. Phelan: For the medical and veterinary segment, revenue in the third quarter increased 6.1% to $91.7 million. However, total student enrollment decreased 4.5% compared with the prior year, primarily from our medical schools, as their veterinary school continues to operate at its capacity.

Robert J. Phelan: And our veterinary school continues to operate near capacity.

Robert J. Phelan: We are seeing early returns and indications to return the segment to total enrollment growth as we execute on our remediation plan. Our year-over-year enrollment trend sequentially improved by 300 basis points from the last reported MedVet student enrollment cycle, and suggested EBITDA increased by 30.3% to $27 million. Adjusted EBITDA margin expanded by 540 basis points versus the prior year to 29.4% from revenue growth and a renewed operational focus, while shifting to cash flow in the balance sheet.

Robert J. Phelan: We continue to bolster our financial strength through robust operating cash generation. Fiscal year-to-date 9-month free cash flow was $195 million, a $64 million increase versus last year, inclusive of a $33 million year-over-year increase in capital investment. Strong operational performance and working capital improvements were partially offset by these additional planned capital investments in student-facing technologies and our physical expansion. Our top priority remains to reinvest in our institutions as we aim to achieve optimal capacity and deliver student outcomes.

Robert J. Phelan: We will thoughtfully reduce long-term financial obligations to strengthen our balance sheet and maximize flexibility while we also continue a balanced approach to capital allocation. Also of note, our outstanding letters of credit were reduced by $76.1 million during the third quarter as one of our letters of credit expired on January 31st and was not required to be renewed. As of March 31st, 2024, we now have $241.9 million of letters of credit outstanding.

Robert J. Phelan: Turning to our guidance for fiscal year 2024, as performance accelerates through our growth with purpose strategy, we are raising our revenue guidance to be in the range of $1.56 billion to $1.58 billion, representing high single-digit year-over-year growth. We are also raising our adjusted earnings per share guidance to be in the range of $4.80 to $5 for mid to high teens 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.

Robert J. Phelan: Let me provide additional context in relation to our fiscal 2024 outlook. Third quarter revenue came in ahead of our expectations. We continue to anticipate sustaining a higher level of revenue year-over-year growth for the fourth quarter, with a reminder that our third quarter is seasonably higher than the fourth quarter. We still plan to continue to make incremental growth investments in marketing and technology in the fourth quarter. Taken together with our sustained level of revenue, we still anticipate generating operational leverage in the fourth quarter and remaining on track to achieve our stated goal of achieving full year adjusted EBITDA margin profiles to be consistent with last year at approximately 24 percent.

Robert J. Phelan: Included within our raised fiscal 24 guidance are the recent capital allocation action, Specifically, our lowered term loan debalance and repricing, as well as the lowered associated interest expense from the reduction of our outstanding letters of credit. Finally, we expect our fourth quarter adjusted effective tax rate to be a more normalized rate of slightly over 20 percent. In conclusion, our results demonstrate our ability to deliver short-term performance while investing to achieve our long-term growth targets to create sustainable returns for our owners.

Robert J. Phelan: I'm excited about the opportunities and the momentum our team is generating as we stay focused on finishing the year strong and laying the foundation for fiscal year 25. With that, I will now turn the call over to the operator for Q&A.

Operator: And ladies and gentlemen, we'll now conduct the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 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 start key. One moment, please, while we pull for questions. And our first question comes from Jeff Silber with BMO Capital Markets. Please state your question.

Ryan: Hey, thanks a lot. This is Ryan on behalf of Jeff. Just with all the headlines surrounding all the FAFSA delays, I was curious how you're thinking about that in light of your fall enrollment season. Thanks.

Ryan: That in light of your fall enrollment season.

Stephen W. Beard: Thanks for the question. As you might imagine, we're monitoring those developments closely, both at the national level and specific to our institutions. As we sit here today, we have not uncovered any potential risks to our upcoming enrollment cycles, but again, our teams are staying close to our students, and we're ready to mitigate any challenges should they arise. But at the moment, there are no headwinds coming out of that dynamic.

Speaker Change: Thanks for the question as you might imagine we're monitoring those developments closely.

Stephen W. Beard: The national level and specific to our institutions as we sit here today, we've not uncovered any potential risks to our.

Stephen W. Beard: Upcoming enrollment cycles, but again, our teams are staying close to our students.

Stephen W. Beard: And we're ready to mitigate any challenges should they arise but at the moment.

Stephen W. Beard: No headwinds coming out of that dynamic.

Ryan: Got it. And I was just curious, looking at your FY25 guidance, can you give a refresher if you still feel good about the four to six percent for next year, or are you feeling incrementally better since you provided that guidance last June?

Speaker Change: Got it and I was just curious I'm looking at your FY 'twenty guidance.

Ryan: Can you give a refresher if you still feel good about the 4% to 6% for next year, you're feeling incrementally better since you provided that guidance in last June.

Stephen W. Beard: Yeah, I would say right now that the guidance we put out on investor day for fiscal 25 is a good proxy. At this point, we will be coming back as we finish up the quarter, the fourth quarter, that is, and get into fiscal 25. And we'll have more specific guidance at that point. But I do think it's a good proxy at this point.

Stephen W. Beard: Yeah.

Stephen W. Beard: Got it. And then the last one for me, it just seems like every intake period, the med schools seem to be getting a little bit less and less. I was just curious if you have any estimation of when we will start to see some growth there, either from a new enrollment perspective or the total enrollment. Yeah, we remain encouraged.

Stephen W. Beard: It just seems like every intake period, the med schools seem to be getting a little bit less worse.

Stephen W. Beard: I was just curious if you have any estimation of when we start to see some growth there either from a new enrollment perspective or the total enrollment.

Stephen W. Beard: Yeah, we remain encouraged that the remediation efforts we put in place a couple quarters ago are working as we anticipated. So we have it that we expect total enrollment at the segment to improve sequentially over time with the opportunity to go positive total enrollment year over year at some point early in our fiscal 25. That's still our expectation, and that's still what we're working on.

Speaker Change: Yeah, we we remain encouraged that.

Stephen W. Beard: The remediation efforts, we put in place a couple of quarters ago.

Stephen W. Beard: <unk> are working as we anticipated so are.

Stephen W. Beard: We've got it that we expect total enrollment at the segment to improve sequentially over time with the opportunity to go positive total enrollment year over year at some point early in our fiscal 'twenty, that's still our expectation.

Stephen W. Beard: And that's still what we're working towards.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Thank you.

Stephen W. Beard: Yeah.

Operator: Our next question comes from Stephen Pollack with Robert W. Beard. Please state your question.

Stephen W. Beard: Our next question comes from Steven Pollack with Robert W. Baird. Please state your question.

Jeffrey P. Meuler: Yeah, thank you, Stephen, Paul, Albert, Jeff, Meuler. I'm obviously glad the operating leverage in the business is coming through, but any additional color you can provide on maybe how you're thinking about the, you know, reinvestment back in the business versus letting the operational leverage float on the bottom line, sort of any additional color on how you're thinking about that balance.

Stephen W. Beard: Yeah, obviously, we believe, given the current course and speed, and the initiatives that we have in place related to our growth with purpose strategy, that the most accretive use of cash is investing and driving the organic growth of the business. Beyond that, obviously, our philosophy around capital allocation focuses on managing down debt, and returning capital to shareholders to share in the purchase. But obviously, the highest priority is to ensure that the momentum that we enjoy now is momentum that we continue to enjoy over the near term and, hopefully, over the long term.

Stephen W. Beard: So we started this fiscal year telling you that we were going to keep margins flat year over year in relation to some of the investments we were making with purpose. But if you go back to the guide we gave at Investor Day over a multi-year cycle, we do expect to continue to expand margins going forward. Bob can jump in with any additional specificity.

Robert J. Phelan: No, I think that's great, Steve. The only thing I would say is that we had talked about before that in the back half of this year we would see margin expansion. So that's what you're seeing come through in the third quarter. And we expect that in the fourth quarter, getting back to Steve's point of roughly an EBITDA level of 24% for the full year. And then we do anticipate, as we said on investor day, expanding margins as we get into fiscal 25 and 26.

Jeffrey P. Meuler: And obviously, the enrollment trends are better in Chamberlain and Walden. But maybe if you could kind of break down the magnitude of the pieces, I guess, between sort of brand building and the marketing efforts of the growth purpose, as well as kind of a more stable nursing home and market, easier comps. I guess, ultimately, how do you think about the stability of the growth rate going forward or the sustainability of growth rates going forward?

Stephen W. Beard: As we've discussed in prior cycles, where it starts with us is really taking advantage of the opportunities to improve persistence across the portfolio. And at Walden and at Chamberlain, we're enjoying some of the best persistence rates we've had in years. When you add in the new enrollment growth, you get the kind of total enrollment trend that we've seen over the last few quarters and that we expect will continue through the balance of this year and into next year.

Stephen W. Beard: Yeah, so it's weird.

Stephen W. Beard: On a year-over-year basis, you get some more difficult comps as we get into fiscal 25, but on an absolute sequential basis, we believe there are still opportunities to continue to grow enrollment at both Chamberlain and Walden and in the Med-Vet segment, particularly at the medical school. We've still got, we think, attractive capacity to do that within our existing framework, and when we think about some of our online programs like BSN Online at Chamberlain and the portfolio programs we have at Walden, we've really got lots of headroom to continue to take full advantage of everything we've done to raise awareness around our brands and programs and attract more students.

Stephen W. Beard: Within our existing framework and when we think about some of our online programs like BSN online at Chamberlain and the portfolio of programs we have at Walden.

Stephen W. Beard: We really got lots of headroom to continue to take full advantage of everything we've done to raise awareness around our brands and programs and attract more students into them.

Stephen W. Beard: Yeah.

Stephen W. Beard: Mhm.

Operator: Our next question comes from Alex Paris with Barrington Research. Please state your question.

Stephen W. Beard: Yeah.

Stephen W. Beard: Our next question comes from Alex Paris, with Barrington Research. Please state your question.

Alexander Peter Paris: Hi guys, thanks for taking my questions and congratulations on the outperformance and the guidance raised. Thank you, just dive into the segments a little bit. A couple of follow-up questions at Chamberlain, you know, impressive acceleration and year over year growth you kind of called out. BSN Online, pre-licensure BSN programs, growth in several graduate programs, I'm assuming. And then how's that stubborn RN to BSN program going?

Alexander Peter Paris: Hi, guys. Thanks for taking my questions and congratulations on the outperformance in the guidance raise.

Speaker Change: Thank you.

Alexander Peter Paris: Just diving into the segments, a little bit a couple of follow up questions at Chamberlain impressive acceleration in year over year growth.

Alexander Peter Paris: You kind of called out.

Alexander Peter Paris: S N online pre licensure BSN programs.

Alexander Peter Paris: Growths in several graduate programs I'm assuming.

Alexander Peter Paris: And then.

Alexander Peter Paris: How is that stubborn RN to BSN program going.

Alexander Peter Paris: Yeah.

Stephen W. Beard: Well, it's going quite well, actually. The thing to remember about R&BSN is that it is a market offering that is flat to down, depending on how you measure it. But we continue to take share in R&BSN because of the strong reputation Chamberlain enjoys and also Walden in R&BSN. So, relative to the overall market dynamics for that offering, we continue to do quite well across both institutions.

Speaker Change: Well, it's going quite well actually I mean, we.

Stephen W. Beard: The thing to remember about RN to BSN.

Stephen W. Beard: Is that it is a.

Stephen W. Beard: In market.

Stephen W. Beard: Spring that.

Stephen W. Beard: He is flat to down depending on how you measure it but we continue to take share on the B S N b.

Stephen W. Beard: Because of the strong reputation Chamberlain enjoys and also Walden in order to be a sense, though.

Stephen W. Beard: Relative to the overall market dynamics for that offering we continue to do quite well across both institutions.

Stephen W. Beard: Good to hear. I realized that was sort of the last to come back, I would think, given COVID. Demands on working nurses and so on.

Speaker Change: Good to hear I realize that was sort of the kind of the last to come back I would think given the COVID-19.

Stephen W. Beard: Demands on working nurses and so on.

Stephen W. Beard: That's right; post-licensure nursing was the last component to come back post-COVID.

Stephen W. Beard: That's right.

Stephen W. Beard: Like I said in their statements and the last component to come back post Covid.

Stephen W. Beard: And you're up in both IREN and TBSN in both institutions? You said you're taking share, but are you taking share by declining less or increasing?

Stephen W. Beard: And and you're up in both Iran to B S. N. In both both institutions. You said you are taking share but are you taking share by declining less or increasing.

Stephen W. Beard: We're up at both institutions.

Stephen W. Beard: We're up we're up at both institutions.

Alexander Peter Paris: Great. And then a quick one or two on MedVet, starting with the medical schools. Again, sequential improvement, the rate of decline is diminishing. We're expecting increased enrollment in fiscal 2025 within medical schools. How is that going to happen? What are your focus areas? I think you have talked in the past about increasing international students, increasing your affiliation with HSBCs and HSIs, just hoping to get a little bit more color on initiatives within medical school.

Stephen W. Beard: Great.

Stephen W. Beard: And then a quick one or two in our med that starting with the medical schools again sequential improve the rate of decline is diminishing and we're expecting increased.

Alexander Peter Paris: Increased enrollment in fiscal 2020 five within the medical schools.

Alexander Peter Paris: How is that going to happen what are your focus areas. I think you in the past I've talked about increasing international students increasing your affiliation with HSBC and Hsi's, just hoping to get a little bit more color on initiatives within medical schools.

Stephen W. Beard: Yes, to go back a couple of quarters, Alex, we've been very clear that the decline in enrollment in medical schools was not the reflection of a specific market dynamic applicable to medical education; it really was an execution challenge on our end, which is why the remediation efforts we've discussed are really about people in process on our end, how we better execute against the market opportunity we have both at the top of the funnel and, most importantly, at the bottom of That's what the remediation efforts are focused on.

Speaker Change: Yes, It should go back a couple of quarters Alex.

Alexander Peter Paris: D D.

Stephen W. Beard: Declining enrollments at the medical schools, we've been very clear was not a reflection of a specific market dynamic applicable to medical education. It really was an execution challenge on our end, which is why the remediation efforts. We discussed are really about people and process on all around how we better execute against the market opportunity. We had both at the top of the funnel, but most importantly.

Stephen W. Beard: At the bottom of the funnel when its time to actually convert those students into enrollees.

Stephen W. Beard: That's what the remediation efforts are focused on we believe that if we if we.

Stephen W. Beard: We believe that if we successfully implement those initiatives and maintain them over time, the market opportunity is still sufficiently attractive for us to grow enrollments over time at both medical schools. Even though medical school and medical education are incrementally more competitive because of DO schools and things happening in the lower 48, the additional competition in that space has not kept up with demand, and there are still many, many more applicants for medical schools than there are seats.

Stephen W. Beard: Successfully implement those initiatives and maintain them over time the market opportunity is still sufficiently attractive for us to grow enrollments overtime at both medical schools, even though medical school and medical education is incrementally more competitive because of D O schools and things happening in the lower 48.

Stephen W. Beard: The additional competition in that space has not kept up with demand and there are still many many more applicants per medical schools than there are seats and that creates an incredibly attractive opportunity for our schools, which had been doing this for over 40 years of fantastic brands and reputations with students and offer a differentiated experience on island. So we still think we can win.

Stephen W. Beard: And that creates an incredibly attractive opportunity for our schools, which have been doing this for over 40 years, have fantastic brands and reputations with students, and offer a differentiated experience on the island. So we still think we can win. In medical education, it's just down to us to execute, and that's what you're seeing flow through our results of operations over the last few quarters.

Stephen W. Beard: And medical education, it's just down to us to execute and that's what you're seeing flow through our results of operations over the last few quarters.

Speaker Change: Great. Thank you and then last question on the veterinary school continuing to operate at or near capacity.

Alexander Peter Paris: Great, thank you. And then the last question on the veterinary school, continuing to operate at or near capacity. In terms of the Department of Education and Gainful Employment Regulation, whether that takes effect on time or not, given lawsuits and so on, that was an area that came to be neglected when they wrote the rule. They gave some relief to medical schools and so on, but they didn't specifically mention veterinary schools. And I know you were working on that. Anything to share there, any update on your efforts with the Department of Education? And what are your options if they don't give you that relief, which they should?

Alexander Peter Paris: And in terms of department of education, and in and regulate and gainful employment regulation, whether that takes effect on time or not you know given lawsuits and so on.

Alexander Peter Paris: That was an area that.

Alexander Peter Paris: Seem to be neglected when they wrote the rule and they gave some relief to medical schools and so on but they didn't specifically mention that schools and I know you were working on that anything to share there any update on <unk>.

Alexander Peter Paris: Your efforts with the department of Education, and and and what are your options. If they don't give that relief, which they should.

Stephen W. Beard: What I can say is that we remain engaged with the department about extending a longer measurement period to DVM programs, not unlike what's available for medical programs and other mental health and behavioral sciences programs. It seems to be a very analogous, logical move to make.

Speaker Change: Well, what I can say is that we remain engaged with the department about.

Stephen W. Beard: Extending.

Stephen W. Beard: A longer measurement period, two DBM programs not unlike what's available for medical programs and other mental health and behavioral sciences programs and it seems to be a very analogous logical move to make.

Stephen W. Beard: And we've gotten what we believe is a constructive reception from the department in those discussions. So we are still going that path because we think it's a viable path and it's one that makes sense. And other DVM programs, I think, agree with us there. Beyond that, if for some reason we were not able to get that exception, and if for some reason the rule as currently drafted survived all the various challenges it's facing from a litigation perspective, we have thought about a number of different strategies we could pursue to ensure that the country's largest DBM program, and, arguably, because of its scale, the most important DBM program So, I won't get into specifics based on a hypothetical, but we feel very confident about the ongoing viability of that program, and we're pursuing multiple paths to ensure that. That's great.

Stephen W. Beard: And we've gotten what we believe is a constructive reception from the department and those discussions so we we're still working that.

Stephen W. Beard: Path, because we think it's a it's a viable path and it's one that makes sense and other DBM programs I think agree with us there.

Stephen W. Beard: Beyond that if.

Stephen W. Beard: If for some reason we were not able to get that exception in that for some reason the rule. As currently drafted survived all of the various challenges it's facing from a litigation perspective, we.

Stephen W. Beard: Thought about a number of different strategies, we could pursue to ensure that the country's largest EDM program and and arguably because of its scale. The most important DBM program in the country continues to operate in a way that serves.

Stephen W. Beard: The increasing demand for companion pet veterinarians in the United States, So I won't get into specifics based on a hypothetical but we feel very confident about the ongoing viability of that program and we're pursuing multiple paths to ensure that happens.

Alexander Peter Paris: That's great. I appreciate that extra color, and I'm rooting for you guys. I'll get back into the queue.

Speaker Change: That's great I appreciate that extra color color and I'm rooting for you guys.

Speaker Change: I'll get back into the queue.

Speaker Change: Thank you.

Stephen W. Beard: Thank you. There are no further questions at this time. I'll hand the floor back to Steve Beard for closing comments.

Alexander Peter Paris: Thank you there are no further questions at this time I'll hand, the floor back to Steve Beard for closing comments.

Stephen W. Beard: Yeah, as I mentioned in our prepared remarks, we had a fantastic match day, and that's exactly the kind of strong academic outcome that has a second-order effect that benefits all of us who leverage U.S. healthcare, and we're proud to be a part of that at Adtalem. So I just want to congratulate all of our colleagues across our two medical schools and, more importantly, all of our fantastic students who are ready to go off to the residencies of their choice and begin the next chapter of their journey to become practicing physicians. Thanks for your time this afternoon, and we look forward to catching up next quarter.

Stephen W. Beard: Yeah as I mentioned in our prepared remarks, we had a fantastic match day and that's exactly the kind of strong academic outcome.

Stephen W. Beard: That has a second order effect.

Stephen W. Beard: That benefits all of us who loved that U S health care that we're proud to be a part of that that talent. So I just want to congratulate all of our colleagues across our two medical schools and more importantly, all of our fantastic students who were ready to go off to the rest of it sees their choice and begin the next chapter of their journey to become practicing physicians I think so.

Stephen W. Beard: The time this afternoon, and we look forward to catching up next quarter.

Operator: Thank you. This concludes today's conference. All parties may disconnect. Have a good day.