Q1 2025 Adtalem Global Education Inc Earnings Call
Speaker Change: Greetings and welcome to ATTALUM's Global Education First Quarter, fiscal year 2025 earnings call.
Speaker Change: At this time, all participants are in a listen only mode. A 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. Please note that this conference is being recorded.
Speaker Change: I will now turn the conference over to your host, Jay Spitzer, Vice President of an investor relations. Thank you, you may begin.
Jay Spitzer: Good afternoon and welcome to our earnings call for the first core fiscal year 2025 results. On the call for me today, our Steve Beard, President and Chief Executive Officer of AdTom Global Education, and Bob Phelan Chief Financial Officer.
Jay Spitzer: For a hand you over to Steve, I will use your take-it-the-lead on safe harbor and cautionary declarations.
Steve Beard: Certain statements and projections, a future result may in his presentation, constitute his forward-looking statements that are based on current market, competitive and regulatory expectations.
Steve Beard: and are subject to risk uncertainties that could cause actual results to vary materially. We undertake no obligation to update publicly any further statement after this presentation, whether it's the new information, future events, changes of the assumption or otherwise.
Steve Beard: Police earliest form 10k, form 10k, for discussion of risk factors at the relate to forlicking statements.
Steve Beard: and Chase presentation. We used certain non-gap financial measures refer you to the panics of the presentation material. We available on our Investor Relations website for reconciliation to the most directly comparable Gap financial measures in related information.
Steve Beard: You'll find a link to the webcast on our Investor Relations website at investors.addtalent.com. After this call, the presentation webcast will be archived on the website for 30 days. I will now hand you over to Steve. Thanks, Jay. Good afternoon, everyone, and thank you for joining our first quarter fiscal year 2025 earnings call.
Steve Beard: We've commenced year two of our three-year growth with purpose strategy, which is driving strong momentum through a programmatic focus on operational excellence.
Steve Beard: This focus has enabled us to generate substantial value for all of our stakeholders and deliver financial results that exceed expectations.
Steve Beard: Our revenue for the quarter reached $417 million, reflecting a 13% increase compared to last year.
Steve Beard: while our adjusted EBITDA margin expanded by 140 basis points.
Steve Beard: leading to an impressive 39% jump in adjusted earnings per share to $1.29.
Steve Beard: Notably, total enrollment has improved for the 10th consecutive quarter, up 11.2% year-over-year, bringing our total enrollment to over 90,000 students.
Steve Beard: Our revitalized learning platform resonates well with our students and our innovative curriculum enhances the student experience, positioning us at the forefront of healthcare education.
Steve Beard: Our agile operating model allows us to allocate resources efficiently and increase investments where we anticipate the most attractive returns.
Steve Beard: This model enables us to more quickly meet the growing and involving demands of U.S. health care with the goal of further differentiating ourselves as the preferred partner for health care providers nationwide.
Speaker Change: Recently I had the privilege of speaking alongside Dr. Ngozi Ezeke, President and CEO of Sinai Chicago. Sinai serves as a safety net health system for 1.5 million diverse individuals, many residing in under-resourced communities.
Speaker Change: Sinai aligns well with our mission to train day one, practice ready physicians equipped to deliver compassionate care.
Speaker Change: Through our partnership with Sinai Chicago, over 1,000 diverse, aspiring medical students from Ross and AUC have participated in clinical rotations or residency programs, strengthening those students' commitment to, and aptitude for, battling health inequities.
Speaker Change: Numerous partnerships with other STEAM systems across the country highlight our reach and impact.
Speaker Change: resulting in over 22,500 medical school alumni making meaningful contributions often in critical leadership roles. Of course this impact is further magnified by the outsized contributions of the nursing and behavioral health graduates of Chamberlain and Walden.
Speaker Change: who, working side-by-side with our physicians, elevate the quality of care for vulnerable populations across the country.
Speaker Change: Chamberlain University, a premier national nursing school, is enhancing its national footprint through a diverse array of nursing programs.
Speaker Change: Total enrollment increased 11.7% as Chamberlain surpassed its highest ever total enrollment for the second consecutive year.
Speaker Change: Notably, our BSN Online option is now available in 36 states.
Speaker Change: with over 2,000 students enrolled just four years post-launch. Our new Stockbridge campus in Atlanta is exceeding expectations.
Speaker Change: achieving over 350 BSN students since opening last September. This growth demonstrates Chamberlain's commitment to leading the way in addressing chronic nursing shortages.
Speaker Change: We're also excited to announce a new partnership with the Oncology Nursing Society to expand our practice-ready, specialty-focused program to meet the increasing demand for specialized training in oncology.
Speaker Change: Turning to Walden, our market strategy with a focus on flexible distance learning for the working adult and our commitment to operational excellence continue to drive robust enrollment.
Speaker Change: which has grown 12.2% year-over-year, surpassing pre-pandemic levels.
Speaker Change: Our investments in cutting-edge technology attract students while enhancing retention. Walden remains a national leader in nursing, with over 16,000 nursing students currently enrolled, predominantly in the critical master's nurse practitioner program.
Speaker Change: Furthermore, enrollment in social and behavioral sciences exceeds pre- pandemic levels, reflecting strong interest in psychology, social work, and counseling.
Speaker Change: We continue to make strides in innovating the student experience through the implementation of AI capabilities.
Speaker Change: Last year, Chamberlain, leveraging Walden's AI learnings, launched its first AI tutor, NurseAlly, which has received positive student feedback, leading to its rollout in additional programs.
Speaker Change: Moreover, our recent collaboration with Hippocratic AI will develop groundbreaking curricula for training health care professionals in the use of AI technologies and care delivery, including the introduction of the first-ever AI certification for our students.
Speaker Change: In our medical and veterinary segment, we see positive signs of improvement with RossVet operating at near capacity and ranked third among 40 institutions in the competitive veterinary internship and residency matching program.
Speaker Change: Ross Med and AUC continue to demonstrate a strong value proposition and initiatives like the Clinical Return Home Program are differentiating our offerings.
Speaker Change: Remediation plans at our two medical schools continue to progress as expected.
Speaker Change: and with strong and durable demand for medical education in the United States, we remain optimistic about future enrollment trends at both institutions.
Speaker Change: Fiscal year 2025 is off to a strong start and we expect our growth with purpose strategy to deliver further growth in both revenue and profitability.
Speaker Change: With this positive momentum, we're raising our fiscal year 2025 guidance to project revenue between $1.69 billion
Speaker Change: and 1.73 billion dollars and adjusted earnings per share of $5.75 to $5.95.
Speaker Change: Now I'll hand the call over to Bob for a more expansive discussion of our operational and financial results.
Bob Phelan: Thank you, Steve, and hello, everyone. Our first quarter results reflect our ability to deliver accelerated performance while investing to create sustainable long-term value.
Bob Phelan: As Steve shared earlier, we've entered the second year of our three-year Growth with Purpose strategy, improving enrollment trends and delivering enhanced leverage through our disciplined operational performance.
Bob Phelan: 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 remainder of fiscal year 2025.
Bob Phelan: Starting with the top line, revenue in the first quarter increased by 13.2% to $417.4 million, driven by all three segments.
Bob Phelan: In particular, through accelerated enrollment growth at Walden and Chamberlain, as growth with purpose initiatives enhanced our trajectory.
Bob Phelan: Consolidated Adjusted EBITDA came in at $96.7 million, up 20.1% compared to the prior year from profit growth in all three segments.
Bob Phelan: led by Walden and Chamberlain.
Bob Phelan: resulting in an adjusted EBITDA margin of 23.2%, a 140 basis point increase from last year. Adjusted operating income was $75.8 million, up 19.8% compared to the prior year, as revenue growth and efficiencies generated operational leverage.
Bob Phelan: which was partially offset by investments in strategic initiatives, higher employee benefit costs tied to our performance, and other costs.
Bob Phelan: Adjusted net income for the quarter was $50.5 million, up 28.3% compared to last year, attributed to adjusted operating income growth and lower interest expense as a result of our actions to reduce outstanding debt and lower our borrowing costs.
Bob Phelan: Adjusted earnings per share was $1.29, or a 38.7% increase compared with the prior year.
Bob Phelan: We repurchased 462,000 shares within the quarter, resulting in a first quarter diluted shares outstanding of $39.1 million, or $3.1 million lower than last year. Next I'll discuss the first quarter financial highlights by segment.
Bob Phelan: Chamberlain reported first quarter revenue of $167.9 million, an increase of 17.8% when compared with the prior year, driven primarily by growth in enrollments.
Bob Phelan: Total student enrollment during the quarter increased 11.7% compared to the prior year.
Bob Phelan: a seventh consecutive quarter of both pre-licensure and post-licensure nursing program growth. Adjusted EBITDA increased by 17.2% to $37 million for the quarter.
Bob Phelan: Our marketing investments have accelerated Chamberlain's reach and market-leading position for our full breadth of nursing programs and modalities.
Bob Phelan: We are capitalizing on our differentiated, more seamless student experience. Our investments are intended to continue to deliver positive returns through increased future demand, continued strong persistence, and positive academic outcomes.
Bob Phelan: Turning to Walden, first quarter revenue of $161.5 million, an increase of 14.1% versus the prior year, was driven by strong growth in enrollments.
Bob Phelan: Total student enrollment accelerated in the quarter, up 12.2% compared to the prior year, from robust enrollment growth, particularly in the master's and undergrad and continued high persistence rates.
Bob Phelan: Within our healthcare programs, the strong growth was led by social and behavioral health and nursing, with our non-healthcare programs also growing in the quarter. Adjusted EBITDA increased by 35.9% to $47.8 million.
Bob Phelan: adjusted EBITDA margin expanded by 480 basis points versus the prior year to 29.6 percent
Bob Phelan: As our transformation and efficiencies generate operational leverage, which is being balanced with a sustainable level of long-term focused growth investments and additional student support commensurate with the high levels of new enrollment.
Speaker Change: For the medical and veterinary segment, revenue in the first quarter increased 3.9% to $88 million.
Speaker Change: The total enrollment growth trend sequentially improved.
Speaker Change: decreasing 0.7 percent compared with the prior year as our plans remain on track at the medical schools and Rossvet continues to operate near capacity.
Speaker Change: Adjusted EBITDA increased by 0.7% to $19.2 million.
Speaker Change: Adjusted EBITDA margin was 70 basis points lower versus the prior year at 21.8%.
Speaker Change: We remain focused on operating our institutions with a cost structure generally in line with our current total enrollment level, while making investments to leverage the existing capacity at our medical schools to address the current and growing U.S. physician shortages.
Speaker Change: Shifting the cash flow and the balance sheet, we continue to enhance our financial strength through robust cash generation and disciplined capital deployment.
Speaker Change: For the first three months of fiscal year 2025, free cash flow was $79 million.
Speaker Change: On a trailing 12-month basis, free cash flow is $243 million.
Speaker Change: of $85 million versus the prior period, inclusive of an $18 million increase in capital expenditures. Strong operational performance was partially offset by planned capital investments to expand our reach and impact.
Speaker Change: and a low-adjusted EBITDA net leverage of 1.0 times. On August 21st, we repriced our $253 million term loan B, reducing the interest rate by 75 basis points.
Speaker Change: which was in addition to the prior 50 basis point reduction we achieved previously in January.
Speaker Change: We also repurchased 462,000 shares during the quarter, continuing to execute on our existing share repurchase authorization.
Speaker Change: Our top priority remains to reinvest into our institutions as we aim to achieve optimal capacity and continue to deliver positive student outcomes. We will thoughtfully strengthen our balance sheet while we continue our balanced approach to capital allocation.
Speaker Change: We started the second year of our three-year growth with purpose strategy with strong results ahead of our original expectations.
Speaker Change: We continue to create sustainable enrollment momentum off a higher total enrollment base.
Speaker Change: In turn, we are raising our fiscal year 2025 guidance as we continue to execute and accelerate our performance.
Speaker Change: Our revenue guidance is now in the range of $1.69 billion to $1.73 billion, approximately 6.5% to 9% growth year over year.
Speaker Change: with adjusted earnings per share of $5.75 to $5.95, approximately 14.5% to 18.5% growth year over year.
Speaker Change: as we capture the current healthcare education market demands.
Speaker Change: expanding our reach through inclusive access to education. As planned, we invested more into marketing during the first quarter versus last year. However, our dynamic marketing approach delivered spend efficiencies while enterprise inquiries remained strong.
Speaker Change: And as a result, we shifted some of our planned marketing out of the first quarter and into the remainder of the year. We still anticipate a higher level of revenue growth during the first half of the year compared with the second half, with first quarter revenue momentum persisting into the second quarter.
Speaker Change: We are continuing to plan for revenue and underlying operational leverage to grow faster than the level of year-over-year investments, resulting in approximately 100 basis points of adjusted EBITDA margin expansion.
Speaker Change: Included within our guidance are the capital allocation to date and finally we anticipate a normalized adjusted effective tax rate of approximately 23 percent for the fiscal year.
Speaker Change: It has been a strong start to the year, and we're more optimistic than ever about our growth with purpose strategy, our ability to create long-term value, and to generate high returns for all stakeholders.
Speaker Change: And with that, I'll now turn the call over to the operator for Q&A.
Speaker Change: Thank you. And at this time, we'll conduct our question and answer session.
Speaker Change: 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.
Speaker Change: 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 star keys. One moment please while we pull for questions.
Speaker Change: And our first question comes from Jeff Silber with BMO Capital Markets. Please state your question.
Jeff Silber: Thanks so much. I wanted to start with Chamberlain. The growth, you know, acceleration there was really impressive. Can we get a little bit more color exactly what's going on there and how sustainable you think that is?
Speaker Change: Yeah, thanks for the question, Jeff. So we're enjoying what we think are really positive trends in new enrollment, and that's particularly true.
Speaker Change: in the Post-Licensure R&BSN category.
Speaker Change: And that's on top of what has proven to be increasingly strong persistence.
Speaker Change: While the R&BSN category is one that itself isn't growing, we continue to take share there and so on that basis you know we think that trend is one that is sustainable for the foreseeable future.
Speaker Change: In addition, the post-slicinger degrees and the doctoral degrees continue to have strong demand in the marketplace. So we think across the program set, particularly in nursing at Chamberlain, there's still lots of room to run there to grow enrollments.
Speaker Change: All right, great. And then your comments about shifting some marketing expense from the first quarter through the rest of the year, is that across the three major verticals and also is that going to be kind of spread evenly throughout the rest of the year or will we see most of that in the second quarter?
Speaker Change: Yeah, I'll start and let Bob jump in. So, it's not across the board. We allocate marketing resource dynamically based on where we think we have the most attractive opportunities.
Speaker Change: on a institution and occasionally on a program basis. So it's not across the board and it's not spread rateably.
Speaker Change: But Bob, feel free to jump in with any additional color. Sure. The added thing I would say is that the cost really was primarily moved to Q2. There's a little bit to the balance of the back half of the year, but mostly a Q2 shift.
Jeff Silber: All right, I'll just try to sneak one more in. I'm sorry, going back to Chamberlain again. You know, revenue growth was really strong. Margins were somewhat sladdish, despite the fact that maybe some marketing may have been shifted into the second quarter. Is there other investments going on there? Any reason why you didn't really see more operating leverage there?
Speaker Change: Yeah, the thing I would say is, despite the fact that we did move some marketing into the second quarter from what we had planned, we still had increased that marketing year over year for Chamberlain as well as for the overall company. So again, we did shift some, but that was based on what we originally planned. Year over year, we did have an increase in marketing in Chamberlain, but what we're doing there is really a mixed shift of also doing branding as well as performance marketing. So it's really an investment in the balance of the year as well as into fiscal year 26 as well.
Speaker Change: Yeah, and in addition to those marketing shifts, there's also some additional incremental investment in student support at Chamberlain Which we think is just important for maintaining the persistence rates that we enjoy
Speaker Change: Thank you so much. I'll jump back in the queue.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Alex Paris with Barrington Research. Please state your question.
Alex Paris: Hi guys, thanks for taking my question, congrats on the beaten race.
Alex Paris: I know you still expect to leverage the increase in revenues for the full year with a hundred basis points of improvement, but why increase it at this time?
Speaker Change: Yeah, so Alex, there are a couple ways to think about the marketing spend. So on the one hand, there's performance marketing, which typically drives returns in period.
Speaker Change: But as you know, we take a balanced approach to investing both in performance marketing at the bottom of the funnel and brand marketing at the top of the funnel.
Speaker Change: Five institutions, we're now into very individualized.
Speaker Change: programmatic approaches to brand across those programs. So there's a mix of investments that we expect to pay off in the future as well as those that are driven to drive return in period. So that's really the mix.
Speaker Change: We're investing to win today, but at the same time investing to win tomorrow So you shouldn't think about every incremental investment in marketing as being tied to some near-term objective
Speaker Change: Gotcha, that makes sense. I appreciate that. With that said, your guidance, your increased guidance for the full year at the midpoint calls for roughly 8% revenue growth year-over-year. Do you expect advertising dollars to exceed that on a year-over-year basis or will those marketing costs be leveraged this year?
Speaker Change: No, the marketing costs will be leveraged. And I would point you back to last year as well, just as a point of reference. Our marketing spend increased about 4%, despite the fact that we had the revenue increase of 9%. So, we expect that efficiency to continue into this year.
Speaker Change: Okay, thank you. And then a follow-on question the same. You know, kind of going back to Investor Day 2023, I know those numbers are stale by now, particularly with the guidance that you just gave for fiscal 2025, but...
Speaker Change: At that point, you said 4-6% revenue growth for fiscal 2025. We're at 8% as we sit right now. And then you said for fiscal 2026, revenue growth of 5-8%. Do you plan on revising those long-term targets, at least the 2026 targets?
Speaker Change: at this point.
Speaker Change: Well, you know, we'll give guidance for 26 in the ordinary course and at our next Investor Day we'll get multi-year targets.
Speaker Change: Great. That's very helpful for me right now. Thank you. I'll get back into the queue.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Stephen Pollack with Beard. Please state your question.
Stephen Pollack: Yeah, thank you. I just want to clarify, is the full year guidance range solely flowing through a one first quarter beat or is there an improved outlook to the balance of the year as well?
Stephen Pollack: Thank you.
Speaker Change: So there is an improved outlook for the balance of the year when it comes to revenue in particular, but when it comes to the EPS there is some shift from the first quarter into the balance of the year based on what we had talked about with some of the expenses in particular the marketing.
Speaker Change: And then, I guess, you know, from a revenue perspective, what are sort of the risk factors that that that that that that that that that that that that that that that that that that that that that that
Speaker Change: would put you to the low end of your guidance range.
Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: I don't know that I'd describe them as risk factors. Obviously, we're enjoying great momentum.
Speaker Change: across new enrollment in Chamberlain and Walden. We are progressing well.
Speaker Change: relative to our remediation efforts in the MedVet segment.
Speaker Change: So I don't view it as a risk. I think there's upside potential, you know, as we go through the year and we think about, you know, how to take best advantage of market opportunities in particular programs with additional push in marketing. But I wouldn't describe it as a risk. I mean, we think we've got strong momentum with the opportunity for some real upside and we hope to realize that.
Speaker Change: All right. Appreciate it.
Speaker Change: Thank you.