Adtalem Global Education Inc. (NYSE:ATGE) Q1 2024 Earnings Call Transcript

Adtalem Global Education Inc. (NYSE:ATGE) Q1 2024 Earnings Call Transcript October 26, 2023

Adtalem Global Education Inc. beats earnings expectations. Reported EPS is $0.93, expectations were $0.82.

Operator: Greetings, and welcome to the Adtalem Global Education's First Quarter Fiscal Year 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jonathan Spitzer, VP of IR. Thank you, Jonathan. You may begin.

Jonathan Spitzer: Good afternoon, ladies and gentlemen, and welcome to our earnings call for the first quarter 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. Before I hand you 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 as forward-looking statements that are based on current -- our current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions or otherwise.

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

Steve Beard: Good afternoon, everyone, and thank you for taking the time to join our first quarter fiscal year 2024 earnings call. We delivered a strong quarter as our growth with purpose strategy, a 3-year initiative focused on driving organic revenue growth has delivered top and bottom line results ahead of our expectations. It has also returned us to total enrollment growth while continuing to deliver outstanding student outcomes. In the first quarter of fiscal 2024, revenue was $369 million, up 4% versus prior year and adjusted earnings per share was $0.93, up 3% versus prior year. Accelerating performance across our five operational pillars, marketing, enrollment, retention, pricing and programs affords us the opportunity to capitalize on our market-leading scale and our market responsive health care focus.

Our emphasis on enhancing the student experience and investing in innovative and differentiated capabilities is showing up in our quality measures, our academic outcomes and improved persistence rates. As a result, our talent graduates are highly employable and attractive in-demand professions and far less likely to default in their student loans compared to their counterparts at postsecondary institutions, private, public and for profit alike. Our brand campaigns that launched last fiscal year are delivering incremental spend efficiencies and organic increase this quarter as we optimize our use of data-driven tools and methods. Our successful execution has resulted in double-digit inquiry growth year-over-year at all of our institutions. In addition to optimizing our marketing capabilities, we are simplifying and streamlining student application experience to make admissions as user friendly as possible.

These efforts have driven encouraging results with increased year-over-year application conversion rates. Moving on to results by segment. Across our five institutions, we are striking an optimal balance between investing to accelerate near-term performance and expanding profitability over the long-term. Chamberlain and Walden were the primary drivers of our strong performance in the first quarter, and we remain confident that the financial performance of those institutions will continue to accelerate for the balance of the fiscal year. In the Med/Vet segment, Ross University School of Veterinary Medicine continues to operate near capacity. As for our medical schools, we diagnosed the conversion challenges and are executing remediation efforts to return those institutions to growth.

Based on early indications, we expect total enrollment trends to improve over the remainder of the fiscal year. Adtalem's brand recognition combined with its ability to scale, in-demand programs and innovative specialized nursing curriculum continues to position it as the leading school of nursing in the U.S. Our campus-based pre-licensure Bachelor Science and Nursing degree program continues to resonate with over 12,500 students enrolled. We recently launched BSN online option, achieved year-over-year triple-digit growth and is swiftly approaching 1,000 students. The next generation NCLEX exam is now being administered to pre-licensure students, and we are leveraging proprietary adaptive learning technology to prepare our BSN students for the exam.

Additionally, our Practice-Ready Specialty-Focused model, coupled with our social determinants of learning framework, is creating an unparalleled offering in nursing education. Practice-Ready Specialty-Focused has provided specialized training to more than 1,000 BSN students through a proprietary learning model that better prepares students for the specialty work they will take on within U.S. health care. We've expanded this program to all 23 training campuses, broadening access for our students, while addressing areas of acute nursing shortages. At Walden, we've made significant progress toward regaining our leadership position in online education. Our brand investments and shifts in marketing mix continue to show momentum in new student growth, which is up double digits year-over-year for the second straight quarter.

This successful execution has resulted in elevated demand at Walden led by our health care programs, specifically social and behavioral sciences and nursing. We continue to invest in expanding these programs, which we believe positions us for long-term growth. Thanks in part to enhance data-driven marketing capabilities, Walden's competency-based Tempo program grew new enrollments by 50% year-over-year. Also of note, Walden's 69th commencement conferred more than 6,500 doctoral, masters and bachelors degrees to students from all 50 states and to more than 40 countries. Nearly 35% of those degrees were for post-licensure nursing programs. And we are especially proud to say that more than half of the graduates who reported their race identified as being from underrepresented minority groups.

Ross Vet continues to operate near capacity, addressing the critical need for veterinarians in the U.S. and through our Growth with Purpose strategy, we are executing on new initiatives designed to further scale our program to meet the needs of the animal health community in the U.S. At our medical schools, we've identified opportunities for improving performance and are executing on remediation plans, including the restructuring of our enrollment and academic support teams to enhance the student journey. Starting in October to meet the needs of our medical students, we commenced a 10-week Capstone program designed to improve their preparedness for the step 1 USMLE exam, which then allows them to progress on to core clinicals. We are confident that the actions we're taking at the medical schools will improve total enrollment trends over the course of this fiscal year.

A student concentrate on their laptop in the library, taking advantage of an educational program online. Editorial photo for a financial news article. 8k. --ar 16:9

As I said at the outset, our Growth with Purpose strategy is driving top and bottom line performance ahead of expectations. And we remain confident that these trends will accelerate over the course of the year. Accordingly, we are raising our fiscal 2024 guidance. We now expect revenue to be in the range of $1.47 billion to $1.53 billion and adjusted EPS to be in the range of $4.25 and to $4.45. We remain optimistic about our future and the foundation we've built for the students we serve. Adtalem is well-positioned for success as the leading health care educator and a systemically important component of U.S. health care. The successful execution of our Growth with Purpose initiatives drive enrollment, enhance student outcomes and to pose our graduates towards rewarding careers.

And this is what drives Adtalem's impact on our communities, and we remain enthusiastic about what lies ahead. Now I'll turn the call over to Bob for further discussion of our financial results.

Bob Phelan: Thanks, Steve, and hello, everyone. Our first quarter results reflect strong demand for our programs and our continued focus on enhanced student outcomes. I'll begin with a review of our financial results and key drivers for our performance in the first quarter. Later in my remarks, I will discuss our expectations and assumptions for the balance of fiscal 2024. Starting with the top line. Revenue in the first quarter increased by 4.1% to $368.8 million driven by growth at Chamberlain and Walden, partially offset by Med/Vet, as our enterprise wide Growth with Purpose strategy accelerates. Consolidated adjusted operating income was $63.3 million compared with $66.8 million in the prior year. Adjusted EBITDA came in at $80.5 million, a decrease of 3.8% compared with the prior year, resulting in adjusted EBITDA margin of 21.8% or 180 basis points lower than prior year, as growth in revenue and operational efficiencies were offset by strategic investments in Growth with Purpose initiatives and other costs.

Adjusted net income for the quarter was $39.4 million, 5.3% lower compared to last year. Adjusted earnings per share was $0.93 or a 3.3% increase compared with the prior year. Diluted shares outstanding were 4.2 million lower compared to last year, resulting in first quarter diluted shares outstanding of 42.2 million. Next, I will discuss financial highlights by segment. Chamberlain reported first quarter revenue of $142.6 million, an increase of 5.3% when compared with the prior year, driven by growth in enrollment. Total student enrollment during the quarter increased 5.2% compared with the prior year as a result of continued growth in pre-licensure and post-licensure nursing programs as well as high persistence across the segment. Adjusted EBITDA decreased by 6.5% to $31.5 million as our underlying operational leverage was more than offset, primarily by investments in student support services to enhance student outcomes and other expenses.

We believe these investments will continue to deliver positive returns through higher future persistence rates and academic outcomes. Turning to Walden. Revenue during the quarter was $141.6 million, an increase of 8.2% when compared with the prior year, driven primarily by total student enrollment growth and the optimization of our tuition pricing model. Total student enrollment returned to growth this quarter, up 0.5% compared with the prior year as strong demand for our social and behavioral health and nursing programs continued to gain traction in addition to high persistence across the segment. Adjusted EBITDA increased 21% to $35.1 million as transformation and operational efficiencies are generating its intended leverage as we grow revenue.

For the Medical and Veterinary segment, revenue in the first quarter decreased 3.8% to $84.6 million. Total student enrollment decreased 7.5% compared with the prior year due to lower starts at the medical schools, partially offset by the veterinary school, which continues to operate near capacity. We are focused on our medical schools remediation plans to improve enrollment in our medical schools over the course of the fiscal year. Adjusted EBITDA decreased by 11.9% to $19.1 million due to lower revenue, partially offset by operational improvements as we execute on our medical schools remediation plans. Shifting to cash flow and the balance sheet. Our business continues to generate robust operating cash flow. Free cash flow during the quarter was $76 million, which was slightly lower year-over-year, driven primarily by higher CapEx spend of $15 million during the quarter, which is part of our Growth with Purpose strategy intended to improve student outcomes.

Reflecting our disciplined capital allocation philosophy, we maintained net leverage of 1.3x adjusted EBITDA with $708 million in long-term debt. Further, we returned $92 million in capital to our shareholders by repurchasing 2.2 million shares under our Board authorized share buyback program during the first quarter. Since the authorization of our $300 million program, we have repurchased shares worth approximately $219 million. Over approximately the last 18 months, we've repurchased roughly 10 million shares or approximately 20% of our shares outstanding. We believe these investments drive long-term intrinsic value for our shareholders. Turning to our guidance for fiscal 2024. As we accelerate performance through our Growth with Purpose strategy, we are raising our revenue guidance to be in the range of $1.47 billion to $1.53 billion, representing low to mid-single-digit year-over-year growth.

We are also raising our adjusted earnings per share guidance be in the range of $4.25 to $4.45, also reflecting low to mid-single-digit growth. We anticipate continuing to generate strong cash flow bolstering our balance sheet strength and providing us the ability to execute on our capital allocation philosophy. Let me provide additional context in relation to our fiscal 2024 outlook. We are forecasting total enrollment trends to continue to improve throughout the year, building on the higher first quarter total enrollment growth. And in turn, we still anticipate revenue to follow this trend with greater acceleration to occur in the back half of the year. As it relates to the phasing of our earnings during fiscal 2024, we continue to make incremental growth investments earlier in the year and are anticipating the second quarter to see a slightly higher investment level than the first quarter.

This does result in a short-term reduction to our adjusted EBITDA margin profile, specifically in the second quarter, but we anticipate growing our margin profile in the second half of the year, as revenue growth accelerates generating leverage, resulting in a full year adjusted EBITDA margin profile of approximately 24%, consistent with prior year and what we shared at our June 2023 Investor Day. Included within our raised fiscal '24 guidance is the cost of an incremental $158 million letter of credit that will be placed in early November in accordance with request by the Department of Education. This new letter of credit will result in an annualized interest expense of approximately $6 million and will be placed through our availability on our existing revolver.

This has no material impact to our strategic plans nor does it impact our strong financial position, highlighted by our low net leverage and our healthy profitability levels and cash flow generation. In conclusion, our results demonstrate our ability to deliver short-term results, while sustainably investing in the long-term growth targets that we provided at our June 2023 Investor Day. I'm excited about the opportunities and the momentum our team is generating as a purpose driven organization, creating substantial value for our students and our shareholders. With that, I will now turn the call over to the operator for Q&A.

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