Adtalem Global Education Inc. Q3 FY2025 earnings call

• Chamberlain University saw enrollment growth of 6.8%, with its BSN Online program available in 36 states and 53 clinical hubs, surpassing 3,000 students. The Practice Ready Specialty Focused program has over 4,000 enrollees. - Walden University achieved a 13.5% enrollment increase, with the Get the W campaign and predictive analytics enhancing retention. - Medical and Veterinary segment returned to growth, with AUC and Ross Met partnering with Hippocratic AI for AI-driven curricula. - Completed a $300 million share repurchase program and announced a new $150 million repurchase program through May 2028. - Strong cash flow with trailing 12-month free cash flow of $287 million and a healthy balance sheet with $219 million in cash.

Chamberlain University: Third quarter revenue was $192.6 million, a 13.1% increase year-over-year. Total student enrollment climbed 6.8% to over 40,000 students. Adjusted EBITDA was $56.8 million, with a margin of 29.5%. Walden University: Third quarter revenue was $178.4 million, a 18.5% increase year-over-year. Total student enrollment rose 13.5% to 48,500 students. Adjusted EBITDA was $54 million, with a margin of 30.3%. Medical and Veterinary segment: Third quarter revenue was $95 million, a 3.6% increase year-over-year. Total student enrollment increased 1.2%. Adjusted EBITDA was $22.9 million, with a margin of 24%.

• Raised 2025 revenue guidance to $1.76 billion to $1.775 billion. - Adjusted EPS guidance revised to $6.40 to $6.60. - Anticipate adjusted EBITDA margin expansion greater than 150 basis points in 2025, up from the prior assumption of greater than 100 basis points.

• Regulatory and legislative changes that could impact the business. - Potential challenges in scaling capacity, particularly at the vet school which operates near capacity.

Q: Hey, good afternoon. Thanks for taking the question and congrats on the really strong quarter. Appreciate all the commentary you gave on sort of the investments you're going to make in Q4 to set you up for future growth. I wanted to sort of frame this as looking back at your 2023 Investor Day targets for FY 2026, you've obviously seen pretty big outperformance on really all fronts for 2024 and 2025. And as we're coming towards the close of 2025, I sort of wanted to check in on how those targets for 2026 stands sort of balancing some of the investments you're making, the momentum you have in the business and where things are today?

A: Yeah, thanks for the question. The targets that we set at Investor Day were reasonable and appropriate for the outlook we have for the business at the time. We're obviously gratified that we've been able to pace ahead of those. And as we look ahead to our next Investor Day, which we expect will do sometime early in the calendar year, next year, we'll be recalibrating long-term growth targets based on the experience we've had with Growth with Purpose to-date. But for now, those represent, we think reasonable benchmarks and to the extent we're able to outperform them, we're gratified to do so.

Q: Just wanted to follow-up from the last question and maybe take it from a macro to a micro level. Are you seeing any hesitancy on behalf of students, with all the noise coming down in Washington, maybe rethinking whether they should enroll in any of your programs because there could be some funding pressure?

A: No, not at all. I don't see anything in the consumer behavior for our students, either prospective or current, that suggests any concerns about the ability to finance their educations. So, nothing along those lines at all.

Q: Thank you so much. Just wanted to follow-up from the last question and maybe take it from a macro to a micro level. Are you seeing any hesitancy on behalf of students, with all the noise coming down in Washington, maybe rethinking whether they should enroll in any of your programs because there could be some funding pressure?

A: No, not at all. I don't see anything in the consumer behavior for our students, either prospective or current, that suggests any concerns about the ability to finance their educations. So, nothing along those lines at all.

Q: Thank you so much. Just wanted to follow-up from the last question and maybe take it from a macro to a micro level. Are you seeing any hesitancy on behalf of students, with all the noise coming down in Washington, maybe rethinking whether they should enroll in any of your programs because there could be some funding pressure?

A: No, not at all. I don't see anything in the consumer behavior for our students, either prospective or current, that suggests any concerns about the ability to finance their educations. So, nothing along those lines at all.

Q: The next question comes from Jeff Silber with BMO Capital Markets. Please state your question.

A: All right. That's great. I appreciate that. And then just specifically focusing on the quarter, it was great to see the Medical and Veterinary business return to growth again. But you saw some pretty sizable margin degradation in the quarter. If we can just get a little bit of color, I know you said you're making investments, but maybe we can talk about that. And do you envision that business returning to margin expansion maybe in 2026?

A: Yeah, I'll open and let Bob weigh in. As we often do, we try not to focus attention too much on the quarter-by-quarter story as it relates to margins, because we've got a tremendous amount of confidence in the long full-year projections for margin expansion. And a lot of the changes driven by the timing of some investments. But I'll let Bob speak to them specifically.

Q: Your next question comes from Alex Paris with Barrington Research. Please state your question.

A: Hi, guys. Thanks for taking my question. Congrats on the quarter and the strong nine months. First off, you're saying now, Bob that adjusted EBITDA margins can expand more than 150 bps in 2025, up from more than 100 bps. I think previously you had said that 2026 should expand by 100 basis points. Any change to that thought?

A: No, no change to that.

Q: Great. And then, while I got you, Bob, I think I noticed there were some fairly significant asset impairment and strategic advisory costs on the P&L?

A: Yeah, I can address. The asset impairment relates to a property that we've moved out of basically a new property we moved into from a headquarters perspective. So there was an asset impairment there. When it comes to the second point, the strategic advisory costs, really, that's work that we're doing to develop a plan further enhancement of our strategic position. So, it involves what you may have seen in some of our comments about expansion of capacity and capabilities.

Q: Great. And then just sort of my last question is to dig a little deeper into the regulatory and legislative, Steve. There's been so much change, obviously and since the new administration came into the White House and big changes at the Department of Education, 50% RIF and then the legislation that passed out of committee that was referred to by an earlier question. I'm just wondering what is the tone in Washington? What is the tone in the -- from the Department of Education? It seems to be much more business-friendly. And I'm hearing things anecdotally from some of the other publicly- traded companies in the group that, the Department of Education actually reaches out and they ask questions and pushes things through faster, because they're much more cooperative. So big, big changes, proposals to eliminate meaningful employment, proposals to eliminate 90/10. I'm just wondering what you are able to say in terms of your interaction with DC, has it changed significantly for the better?

A: Our interactions in the Capitol and at the Department of Education in particular have been extremely constructive. We've got into a welcoming audience across the issues that are important to us. We've been able to engage them on our agenda, both educational and healthcare, talked to them about ways we think our programs can address challenges in both those industries. And they've been constructive and receptive. So, your characterization of what you're hearing about the tone there is aligned with our experience to-date.

Q: And then with a 50% RIF, who did they cut? It seems like the department is more efficient than it ever has been?

A: No idea. But we've not had any trouble getting in touch with them. We've had no trouble getting responses on the issues that are important to us. So while they have done a number of layoffs, as is the case across Washington, we've seen no diminution in their responsiveness to us.

Q: That's great to hear. Thank you very much. That's all I had.

Q: Your next question comes from Steve Pawlak with Baird. Please state your question.

A: Yeah, thank you. Steve, the Walden growth was really strong this quarter. I heard you referenced the digital innovation and analytics to drive retention, which I'd love any sort of additional clarity on kind of what that means in practice?

A: I just want to make sure I'm following your question, Steve. What -- how are we using digital technology to drive persistence?

Q: Yeah what's the -- just like I said, any more clarity on sort of what the digital innovation means and how it's, the mechanism for how it's improving the retention or enrollment?

A: Yes. So, with respect to Walden, I think we're now three quarters in to the implementation of what is proven to be a very effective predictive analytic tool for us around student engagement. And so, at Walden, we've increased and enhanced our ability to intervene in the student journey in ways that keep our students pacing through materials in ways that ensure they're successful. So, we contracted for that platform a few quarters ago. We've integrated it into our systems, and we're really pleased with the results we're getting there. Walden's enjoying near record persistence across its largest programs, and obviously persistence is an extremely important measure of our ability to drive student success.

Q: Okay. And then on sort of the bigger picture sort of innovations and investments you're making to meet the demand that you talked about, what are the primary limitations on being able to scale up capacity? Because if -- good demand, good conversion, I guess, kind of what's the ceiling for enrollment growth, maybe just from an operational perspective?

A: So, I would think of it in two buckets. First, there's still opportunity to grow enrollments in our existing program portfolio. The only place where that's a challenge is at the vet school, where we operate near capacity. We continue to work hard to utilize the headroom we have in programs where we have that headroom in addition, as we talk to our employer partners, as we talk to prospective students, there are new programs that we'd like to bring online that we think are responsive to their interests and responsive to industry needs. We think there's opportunities for geographic expansion, that's complementary to our existing footprint, and we're taking a hard look at that. And the vehicles that we would use to accomplish bringing on that new capacity are everything from, again, investments in existing programs to acquiring new programs, to standing up new de novo programs. And all of that's on the table because we think the market opportunity in healthcare education is sufficiently robust that we should leverage all of those vehicles in our pursuit of making a real dent in the workforce challenges US healthcare is struggling with.