Q2 2025 Adtalem Global Education Inc Earnings Call
© transcript Emily Beynon
Speaker Change: Greetings and welcome to the AddTalum Global Education second quarter 2025 earnings call.
Speaker Change: At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: Please note this conference is being recorded. I will now turn the conference over to your host Jay Spitzer, Vice President of Investment Relations. Thank you. You may begin.
Speaker Change: Good afternoon, and welcome to our earnings call for the second quarter fiscal year 2025 results. On the call with me today are Steve Beard, Chairman and Chief Executive Officer of Addtown Global Education, and Bob Phelan, Chief Financial Officer.
Speaker Change: Before I hand you over to Steve, I will as usual take you through legal, safe harbor, and cautionary declarations.
Speaker Change: Certain statements and projections of future results made in this presentation constitute as forward-looking statements
Speaker Change: that are based on 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 obligations to update publicly any forward-looking statement after this presentation by the result of new information, future events, changes in assumptions, or otherwise.
Speaker Change: Please see our latest Form 10-K, Form 10-Q for discussion of risk factors as it relates to forward-looking statements. In today's presentation, we use certain non-GAAP financial measures. We refer you to the pendings of the presentation materials available on our Investor Relations website for reconciliations for the most directly comparable GAAP financial measures and related information.
Speaker Change: You will find a link to the webcast on our investor relations website at investors.talent.com. After this call, the presentation webcast will be archived on the website for 30 days. I will now hand you over to Steve.
Steve Beard: Thank you, and good afternoon, everyone. Today, I'm excited to share how Atalem is transforming healthcare education in America and delivering exceptional results in the process.
Steve Beard: The healthcare workforce crisis remains one of our nation's most urgent challenges. Through our family of institutions, we're meeting this challenge head-on by preparing the next generation of clinicians who will serve communities across the country.
Steve Beard: Our second quarter results validate that our strategy isn't just working, it's accelerating. Revenue grew by 14% to $448 million.
Steve Beard: Total enrollment was up 11.6% year-over-year, improving for the 11th consecutive quarter. We now serve over 91,000 students and our adjusted EBITDA margin expanded by 440 basis points, driving a 47% increase in adjusted earnings per share to $1.81 per share.
These aren't just numbers, they represent real impact.
Steve Beard: Every percentage point of growth means more nurses, doctors, social workers, and mental health professionals entering communities where they're desperately needed. And we're achieving this growth while maintaining our unwavering commitment to inclusive access, academic quality, and student success.
Steve Beard: Let me share some concrete examples of how we're innovating to expand our impact.
Steve Beard: Chamberlain University, the country's largest nursing school, is up 11.5 percent to another record level of total enrollment.
Steve Beard: Our BSN online program offered in 36 states now has 44 clinical hub locations in metropolitan areas with a goal of more than 65 hubs by the end of our fiscal year 2026.
Steve Beard: bringing the clinical experience closer to our students and making quality education more accessible. And if you add our 23 physical campus locations, we're offering nursing programs to qualified students across 43 states.
Steve Beard: Walden University continues to thrive with enrollment up 13.2 percent. Our new Get the W campaign is resonating. Since launch in early December we're seeing encouraging student engagement.
Steve Beard: We're also expanding access through innovative offerings like our Believe and Achieve Scholarship, which provides financial clarity and rewards persistence, as well as our new Graduation Award for undergraduate students who complete their degrees, also underscoring our support for student success.
Steve Beard: In mental health, where nearly half of Americans live in workforce shortage areas, our impact is particularly striking.
Steve Beard: Chamberlain and Walden together graduated more psychiatric mental health nurse practitioners in 2023 than all other top 20 programs combined. And today we have over 9,600 aspiring mental health nurse practitioners in our programs.
Steve Beard: In our medical and veterinary segment, the second quarter isn't an enrollment period, but we're seeing encouraging signs that our initiatives are working, with January new enrollment demand up year over year.
Steve Beard: Our clinical return home offering with our hospital partners and our USMLE student prep efforts are showing positive results positioning us for enrollment growth in the near term.
Steve Beard: We're also leading the integration of AI in healthcare education. Our partnership with Hippocratic AI is already producing clinicians skilled in practical AI applications.
Steve Beard: and two of our Chamberlain leaders, Dr. Karen Cox and Dr. Casey Spitzer, are pioneering AI tools for diabetes care and infant safety that can make a real difference in patient care.
Steve Beard: To accelerate our digital transformation and AI integration efforts, I'm pleased to announce that Michael Betts, President of Walden University, will now also serve as Atalem's Chief Digital Officer.
Steve Beard: Michael brings exactly the strategic vision and the execution experience we need as we enter this next phase of innovation in higher education.
Steve Beard: Given our strong performance, we're raising our fiscal 2025 guidance. We now expect revenue between 1.73 billion dollars and 1.76 billion dollars with adjusted earnings per share of six dollars and ten cents to six dollars and thirty cents.
Steve Beard: Let me be clear about what drives these results. Our growth with purpose strategy is fundamentally an operational excellence framework, and it guides everything we do. At its core, it's about rigorous execution, high integrity, continuous process improvement, and disciplined resource allocation.
Steve Beard: This operational rigor enables us to expand access to quality education while maintaining excellence in student outcomes.
Steve Beard: It's how we're efficiently addressing critical workforce shortages while delivering value to our shareholders and most important It's how we're systematically scaling our impact to change more lives those of our students and the millions of patients They'll serve throughout their careers
Steve Beard: Every day I see Atalem's potential to change the face of healthcare. We have the scale, the innovation, and most importantly the mission-driven team to make it happen.
Steve Beard: As we look ahead, we'll continue to invest in growth while delivering the returns our shareholders expect. And with that, I'll turn it over to Bob for a deeper dive into our financial results.
Bob Phelan: Thank you, Steve, and hello, everyone. Our second quarter results showcase the financial returns that our growth with purpose strategy yields.
Bob Phelan: Consistent execution of our organic growth strategy has unlocked robust returns in cash generation, providing us the ability to balance investing in our business for sustainable growth, strengthening our balance sheet, and returning cash to our owners.
Bob Phelan: I'll begin with the review of our financial results and key drivers for our performance in the second quarter. Later in my remarks, I will discuss our expectations and assumptions for the remainder of fiscal year 2025.
Bob Phelan: Starting with the top line, revenue in the second quarter increased by 13.9 percent to four hundred and forty seven point seven million dollars driven by all three segments in particular through enrollment growth at Chamberlain and Walden as our strategic initiatives enhanced our trajectory.
Bob Phelan: Consolidated Adjusted EBITDA came in at 125 million dollars, up 35.1% compared to the prior year, from profit growth in all three segments led by Walden and Chamberlain, resulting in an Adjusted EBITDA margin of 27.9%.
a 440 basis point increase from last year.
Bob Phelan: Adjusted operating income was $101.4 million, up 34.2% compared to the prior year, as revenue growth and efficiencies generated operational leverage, which was partially offset by investments in our strategic initiatives.
Bob Phelan: Adjusted net income for the quarter was $69.4 million, up 38.1% compared to last year.
Bob Phelan: Attributed to adjusted operating income growth and lower interest expense resulting from our actions to reduce outstanding debt and lower our borrowing costs, partially offset by a higher provision for income taxes.
Bob Phelan: Adjusted earnings per share was $1.81, or a 47.2% increase compared with the prior year.
Bob Phelan: We repurchased 471,000 shares of our common stock within the quarter, resulting in a second quarter diluted shares outstanding of 38.4 million, or 2.4 million lower than last year.
Bob Phelan: Next, I'll discuss the second quarter financial highlights by segment. Chamberlain reported second quarter revenue of $181 million, an increase of 17.9 percent when compared with the prior year, driven primarily by strong growth in enrollments.
Bob Phelan: Total student enrollment during the quarter increased eleven and a half percent compared to the prior year. The eighth consecutive quarter of both pre-licensure and post-licensure nursing program growth.
Bob Phelan: This quarter, our marketing investment Chamberlain was flat year over year, which has resulted in fluctuations in our quarterly year over year adjusted EBITDA margin profile.
Bob Phelan: We have the flexibility to continue to be opportunistic when deploying capital to generate attractive returns and at times, there will be quarterly fluctuations in margin rates as a result, turning to Walden.
Speaker Change: Second quarter revenue of $171.3 million, an increase of 16.7% versus the prior year was driven by strong growth in enrollments.
Speaker Change: Total student enrollment accelerated in the quarter up 13.2% compared to the prior year from robust enrollment growth, particularly in our masters and undergrad degrees and continued high persistence rates.
Speaker Change: Within our health care programs. The growth was led by social and behavioral health and nursing with our non health care programs also growing in the quarter.
Speaker Change: Adjusted EBITDA increased by 50.2% to $52.1 million adjusted.
Speaker Change: Adjusted EBITDA margin expanded by 680 basis points versus the prior year to 30.4%.
Speaker Change: As our operational excellence generates efficiencies and leverage creep.
Speaker Change: Creating a healthy contribution margin that out pieces long term focused student facing investments and additional students support commensurate with the high levels of new enrollment.
Speaker Change: Okay.
Speaker Change: For the medical and veterinary segment revenue in the second quarter increased 2.8% to $95.4 million.
Speaker Change: As Steve mentioned, there is no change in the student enrollment for the second quarter compared to the first quarter.
Speaker Change: Adjusted EBITDA increased by 1.3% to $26.7 million adjust.
Speaker Change: Adjusted EBITDA margin was 40 basis points lower versus the prior year at 28%.
Speaker Change: We remain focused on operating our institutions with a cost structure generally inline with our current total enrollment level, while making long term growth investments to leverage the existing capacity at our medical schools.
Speaker Change: We believe that we're well positioned to capture on a prospective medical school student demand represented by the high student application to available seat ratio.
Speaker Change: And Ross vet continues to operate near capacity.
Speaker Change: Across all institutions, we remain focused on creating a seamless student experience.
Speaker Change: From our prospective students first visit to our institutions website navigating the application process assisting them as they map out their education pathway, all the way through to becoming a member of our approximately 350000 strong alumni community.
Speaker Change: Now shifting to cash flow and balance sheet, we continue to enhance our financial strength through robust cash generation and disciplined capital deployment.
Speaker Change: On a trailing 12 month basis free cash flow was $232 million from strong operational performance, while continuing organic investments to expand our reach in health care impact.
Speaker Change: <unk> by our commitment to enhance student outcomes.
Speaker Change: Our balance sheet remains healthy ending the second quarter with $194 million in cash and a low adjusted EBITDA and net leverage of 1.1 times.
Speaker Change: We repurchased 471000 shares during the quarter at approximately $80 a share.
Speaker Change: Continuing to execute on our existing share repurchase authorization, which has $140 million remaining.
Speaker Change: On December 31st our outstanding letters of credit balance was reduced by a net $48 million.
Speaker Change: Our new letter of credit balance, which represents 10% of our title for funding is $179 million.
Speaker Change: After the quarter end on January 17th 20, twenty-five we further strengthened our balance sheet repaying $100 million on our higher interest rate term loan b, which reduces the outstanding balance to $153.3 million.
Speaker Change: It's been an exemplary first half of fiscal year 'twenty 'twenty five.
Speaker Change: Ahead of our original expectations set heading into the year as we relentlessly execute our growth with purpose strategy, creating greater efficiencies and scale.
As a result, we are raising our guidance with revenue now in the range of 1.73 billion to $1.76 billion, approximately 9% to 11% growth year over year.
Speaker Change: With adjusted earnings per share of $6.10 to $6 30 blocks.
Speaker Change: Approximately 21, and a half to 25, 5% growth year over year.
Speaker Change: For the full year, our new revenue guidance level, along with continued efficiencies is resulting in incremental operating leverage.
Speaker Change: In turn we now anticipate greater than 100 basis points of adjusted EBITDA margin expansion in fiscal year, 2020 five.
Speaker Change: We anticipate an adjusted effective tax rate of approximately 23% for the fiscal year we.
Speaker Change: We will continue our balanced approach to capital allocation aiming to deploy capital to maximize long term value and to generate high returns for all stakeholders.
Speaker Change: As a part of this approach our top priority remains to reinvest into our institutions as we execute on expanding our inclusive access mission to achieve optimal capacity and deliver positive student outcomes and.
Speaker Change: And with that I'll now turn the call over to the operator for Q&A.
Speaker Change: Thank you.
Speaker Change: And at this time, we'll be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Speaker Change: 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.
Speaker Change: And our first question comes from Alex Paris with Barrington Research. Please state your question.
Alex Paris: Thank you and thanks for taking my questions congratulations on another strong quarter.
Speaker Change: Thank you.
Speaker Change: First question relating to guidance, Bob I heard you and I was going to ask the question the raised our revenue.
Speaker Change: Revenue guidance and the operating leverage you get from that is going to result in greater than 100 basis points of adjusted EBITDA margin expansion, just thinking back to Investor day in 2023.
Speaker Change: Do we do we expect are there.
Speaker Change: Sort of operating leverage in 2026 and beyond the 100 basis points plus.
Speaker Change: Yeah, I would say, we do still anticipate 100 basis points plus in fiscal 'twenty six and that's above what we've just raised here in fiscal 'twenty five.
Speaker Change: Got you that's great and then second are the last conference call that we had was in late October. Since then we've had an election and I'd be remiss if I didn't ask about your feelings with regard to our the Trump administration coming in and and.
Speaker Change: The likely changes or not in terms of the regulatory.
Speaker Change: Environment.
Alex Paris: Well I think the general consensus Alex is that the regulatory overhang that the industry is subject to you will will be lighter, but we're not in a position to speculate about that now we.
Alex Paris: We know that secretary Macmahon is getting settled into her role we look forward to engaging with her and her team in the near future.
Alex Paris: <unk> about how we think about transparency and accountability, but also how we think about expanding our opportunities to serve students into address chronic workforce shortages in health care, so more to come on that count, but we're looking forward to engaging with the new secretary.
Alex Paris: That's great and then I guess the last question just a miscellaneous question with regard to med that.
Alex Paris: Because theres not enrollment data in the second quarter.
Alex Paris: Because it's on a semester basis or trade Mr basis.
Speaker Change: I was just wondering if we can get an update on the remediation plans I did hear you say that the January enrollment trends were positive.
Speaker Change: They do we continue to be encouraged by the remediation efforts they are.
Speaker Change: Unfolding consistent with our expectations Scott lives and team have done a really fantastic job with those and we look forward to.
Speaker Change: Being able to demonstrate that in the results of operations for that segment next quarter.
Speaker Change: And then the last one I just occurs to me and marketing expense.
Speaker Change: I don't I don't recall off the comments that were made with regard to marketing expense being flat in the second quarter was that consolidated or was that just Chamberlain and then how should we X what should we expect for marketing expenses in the second half of the year on a year over year basis.
Speaker Change: Sure. The the comments were specific to Chamberlain, but what I would tell you is that okay.
Speaker Change: <unk> can apply also to the entire company in terms of where we're at for first quarter.
Speaker Change: And second quarter so.
Speaker Change: For the balance of the year, what I would just suggest is.
Speaker Change: But you take a look at what we've done in the past and while we will grow our marketing on a dollar basis. The spend for this year and we anticipate that we're going to grow it at much less of a rate than our revenue.
Speaker Change: And as a proxy for that last year, we grew our marketing expense at about 4%, whereas the revenue is growing at 9%. So that that would be the way I would guide you for the full year.
That's very helpful and just what I wanted to hear thank you and I'll get back in the queue.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Jeff Silber with BMO capital markets. Please state your question.
Speaker Change: Thank you so much I know you don't provide specific quarterly guidance, but you can significantly outperform.
Speaker Change: Analysts expectations.
Speaker Change: I'm, assuming you probably outperformed your expectations as well can we just talk about maybe what drove the outperformance what specific areas you would cite.
Speaker Change: Well I think we've got a couple of things working for US we've got.
Speaker Change: Greater efficiency on the marketing spend we've been really pleased with what Maurice and team have done there.
Speaker Change: We've got a great new campaign at Walden that we think is.
Speaker Change: A driving real interest in our programs as well as the broader name are the.
Speaker Change: The initiatives that we have around enrollment in particular, where we're experiencing incrementally better conversions at the bottom of the funnel, which we're excited about and we continue to make strides in improving persistence across all five institutions and that obviously goes a long way towards helping us.
Speaker Change: Prove the financial outcomes. So you know, it's it's a little bit of everything across the five pillars of the strategy, but I would I would highlight persistence in marketing.
Speaker Change: And in particular.
Speaker Change: Gains at the conversion level at the bottom of the funnel.
Speaker Change: All right that's really helpful.
Speaker Change: I was also wondering if you could just maybe get us up to speed on the competitive environment I know it doesn't specifically changed quarter to quarter, but I'm just curious what you're seeing out there.
Speaker Change: Well I think.
Speaker Change: You know we we've got.
Very competitive environments across a couple of our large products nursing is a competitive environment for us medicine remains competitive environment forced that having been said.
Speaker Change: We continue to enjoy.
Speaker Change: <unk> market, leading positions and in some instances continue to take share that's certainly true.
Speaker Change: And post licensure nursing, particularly in the RN to BSN product.
Speaker Change: And we continue to feel good about our ability to gain share over time.
Speaker Change: In medicine, particularly as it relates to some of our Caribbean Medical school competitors. So I think the the the health care education thesis is one that's attracted a lot of attention across the industry I know lots of folks in various ways are seeking to move in that direction, but obviously, we've got long standing positions of strength across.
Speaker Change: Medicine, and veterinary medicine, nursing and behavioral health and we've got what we think are fantastic strategies for expanding our competitive moat in all of those products.
Speaker Change: Alright, great. Thanks, so much for the color of course.
Speaker Change: Thank you and our next question comes from Steven Pollack with Baird. Please state your question.
Speaker Change: Yeah. Thank you on the second half guidance and sort of what's implied for revenue growth.
Speaker Change: The first half's been really good and you talked about some other factors that are driving that performance, but you know what factors I guess.
Speaker Change: Are you contemplating or maybe that we need to consider in terms of the <unk>.
Implied step down in second half growth rate.
Bob Phelan: I'll start and I'll, let Bob add some additional color so.
Bob Phelan: I think you know we've got more challenging comps in the second half of the year that that's part of the dynamic.
Bob Phelan: Obviously, when we are in a position as we are this quarter.
Bob Phelan: To raise the guide would do that on a risk adjusted basis and so you know, we're obviously looking to be prudent and thoughtful but.
Bob Phelan: But if we get new information in subsequent quarters, we will adjust further but you know we just got more difficult comps in the back half and we signaled that at the beginning of the fiscal year I know in in Bob's commentary.
Speaker Change: Last quarter and the quarter before that we were clear that the second half of the fiscal year would be incrementally slower than the first but Bob feel free to jump in with any additional color no. The only thing I would add is that we do still have a strong back half of the year. So in terms of getting to the guidance. We provided the 9% to 11% growth. It does require us to still have a strong.
Bob Phelan: Back half of the year, although slightly below where we're at for the first half.
Speaker Change: Okay and then on.
Speaker Change: The digital transformation that you kind of alluded to with Michael bats.
Speaker Change: You can provide there in terms of color on what's being done maybe what's incremental.
Speaker Change: And I guess it is incremental to the growth purpose.
Speaker Change: Strategy and it is it I.
Speaker Change: I guess is there opportunity to accelerate sort of beyond that with some of these digital initiatives.
Speaker Change: Great question so.
Speaker Change: You know we're in year two of growth with purpose, which we've articulated as a three year strategy and as we get into the back half of that strategy.
Speaker Change: Incrementally more and more of the initiatives, we're driving habitat dependency.
And so you know it was a really an opportune time to have Michael take responsibility for our digital center of excellence because he comes at it not only as a.
Speaker Change: As a marketing leader and a technologist, but he comes at it as a consumer of those services as someone who actually runs one of our institutions and so it will take charge of our core tech stack as well as our product engineering, our data science.
Speaker Change: All of our innovation activities and will bring this perspective of both an operator.
Speaker Change: And a technologist to that which gives us greater assurance that those back half initiatives and broke the purpose that are particularly tech focus are ones that we're going to be able to execute against as well or better.
Speaker Change: Then the initiatives that we ran in the first half of that strategy.
Speaker Change: Excellent. Thanks, so much.
Speaker Change: Thank you and if there are any final questions. Please press star one on your phone now a pause for a couple of moments.
Speaker Change: And once again just press star one to ask a question.
Speaker Change: Thank you and with that we will conclude today's conference call. All parties may now disconnect. Thank you for your participation.