Covista Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Steve Beard highlighted that revenue grew 14% to $448 million, total enrollment up 11.6% year-over-year, adjusted EBITDA margin expanded by 440 basis points, and adjusted earnings per share up 47% to $1.81 per share.
• Chamberlain's enrollment up 11.5% to record levels, BSN Online Program with 44 clinical hub locations aiming for over 65 by FY2026.
• Walden enrollment up 13.2%, Get the W campaign resonating, and expanding access with scholarships.
• Chamberlain and Walden together graduated more Psychiatric-Mental Health Nurse Practitioners in 2023 than all other top 20 programs combined, with over 9,600 aspiring mental health nurse practitioners.
• Medical and Veterinary segment saw encouraging January new enrollment demand, and leading AI integration with Hippocratic AI.
• Michael Betz appointed as Chief Digital Officer.

Segment Performance

• Chamberlain: Second quarter revenue was $181 million, an increase of 17.9% year-over-year. Adjusted EBITDA increased by 42.5% to $52.6 million, with an adjusted EBITDA margin of 29.1%, 510 basis points higher than the prior year. Total student enrollment increased 11.5% year-over-year.
• Walden: Second quarter revenue was $171.3 million, up 16.7% year-over-year. Adjusted EBITDA increased by 50.2% to $52.1 million, with an adjusted EBITDA margin of 30.4%, 680 basis points higher than the prior year. Total student enrollment accelerated 13.2% year-over-year.
• Medical and Veterinary segment: Revenue in the second quarter increased 2.8% to $95.4 million. Adjusted EBITDA increased by 1.3% to $26.7 million, with an adjusted EBITDA margin of 28%, 40 basis points lower than the prior year.

Guidance

• Raised fiscal 2025 guidance: Revenue expected between $1.73 billion and $1.76 billion, adjusted earnings per share $6.10 to $6.30.
• Expect greater than 100 basis points of adjusted EBITDA margin expansion in fiscal 2025, and anticipate 100 basis points plus in fiscal 2026.

Risks

• No specific risks discussed in detail in the provided transcript.

Question and Answer

Q: First question relating to guidance, Bob, I heard you and I was going to ask the question, the raised 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, do we expect that sort of operating leverage in 2026 and beyond, 100 basis points plus?

A: Bob Phelan said Yeah, I would say we do still anticipate 100 basis points plus in fiscal 2026. And that’s above what we’ve just raised here in fiscal 2025.

Q: Second, the last conference call that we had was in late October. Since then, we have had an election and I would be remiss if I did not ask about your feelings with regard to the Trump administration coming in and likely changes or not in terms of the regulatory environment.

A: Steve Beard said I think the general consensus, Alex, is that the regulatory overhang that the industry is subject to will be lighter, but we’re not in a position to speculate about that now. We know that [Secretary McMahon] [ph] is getting settled into her role. We look forward to engaging with her and her team in the near future about how we think about transparency and accountability, but also how we think about expanding our opportunities to serve students and to address chronic workforce shortages in healthcare. So more to come on that count, but we’re looking forward to engaging with the new secretary.

Q: And then I guess the last question, just a miscellaneous question with regard to Med/Vet, because there’s not enrollment data in the second quarter, because it’s on a semester basis or a trimester basis, I was just wondering if we can get an update on the remediation plans. I did hear you say that the January enrollment trends look positive.

A: Steve Beard said They do. We continue to be encouraged by the remediation efforts. They are unfolding consistent with our expectations. Scott Liles and team have done a really fantastic job with those, and we look forward to being able to demonstrate that in the results of operations for that segment next quarter.

Q: On the second half guidance and sort of what’s implied for revenue growth, obviously, this first half has been really good and you talked about some of the factors that are driving that performance. But what factors, I guess, are you contemplating or maybe that we need to consider in terms of the implied step down in second half growth rate?

A: Steve Beard said I’ll start and I’ll let Bob add some additional colors. So, I think, we’ve got more challenging comps in the second half of the year. That’s part of the dynamic. Obviously, when we are in a position as we are this quarter to raise the guide, we do that on a risk adjusted basis. And so, we’re obviously looking to be prudent and thoughtful. But if we get new information in subsequent quarters, we’ll adjust further. But, we’ve just got more difficult comps in the back half. And we signaled that at the beginning of the fiscal year. I know in Bob’s commentary last quarter in the quarter before that, we were clear that the second half of the fiscal year would be incrementally slower than the first. Bob Phelan added 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 back half of the year, although slightly below where we’re at for the first half.

Q: On the digital transformation that you kind of alluded to with Michael Betz, anything you can provide there in terms of color of what’s being done, maybe what’s incremental. And, I guess, it’s incremental to the growth purpose strategy. And, I guess, is there an opportunity to accelerate sort of beyond that with some of these digital initiatives?

A: Steve Beard said Yeah, I appreciate the question. So, we’re in year 2 of growth with purpose, which we’ve articulated as a 3-year strategy. And as we get into the back half of that strategy, incrementally, more and more of the initiatives we’re driving have a tech dependency. And so, it was really an opportune time to have Michael take responsibility for our digital center of excellence, because he comes at it not only as a marketing leader and a technologist, but he comes at it as a consumer of those services is someone who actually runs one of our institutions. And so, it’ll take charge of our core tech stack as well as our product engineering, our data science, and all of our innovation activities. And it’ll bring the perspective of both an operator and a technologist to that, which gives us greater assurance that those back half initiatives and growth of purpose that are particularly tech focused are ones that we’re going to be able to execute against as well or better than the initiatives that we ran in the first half of that strategy.