Covista Inc. Q1 FY2027 earnings call

• Strategic Execution: Management is executing its 'Purpose at Scale' strategy, focusing on operational excellence, platform extension via new campuses, employer integration, and AI-driven technology.
• Enrollment Growth: Total enrollment rose 7.6% to nearly 105,000 students, marking the 13th consecutive quarter of growth. Chamberlain’s pre-licensure BSN program saw its 17th straight quarter of growth.
• Chamberlain Expansion: New campuses opened or are opening in Cincinnati, Salt Lake City, and Nashville. The company is deepening partnerships with health systems like Advocate Health and SSM Health to secure durable enrollment pipelines.
• Walden Performance: Walden achieved record enrollment with double-digit growth for 10 consecutive quarters, driven by strong persistence and broad-based demand across healthcare and non-healthcare programs.
• Medical/Veterinary Strength: Ross Medical and AUC students demonstrate licensing exam pass rates comparable to or higher than traditional USMD peers. Veterinary operations remain near capacity with strengthening leading indicators.
• Technology & AI: Covista has moved beyond prototype stages for its AI-powered classroom. The company is actively optimizing content for Large Language Model (LLM) search to maintain visibility and positive sentiment amidst the shift from traditional search.
• Capital Allocation: The company returned $84 million to shareholders via share repurchases while funding new initiatives from operating cash. Net leverage stands at 0.5 times, and the company repriced debt to lower borrowing costs.

Chamberlain reported revenue of $192.4 million, a 7.4% year-over-year increase, representing approximately 37.6% of total company revenue. Adjusted EBITDA grew 7.1% to $37.6 million with a margin of 19.5%. Walden University reported revenue of $216.7 million, a 14.1% year-over-year increase, representing approximately 42.3% of total company revenue. Adjusted EBITDA surged 27.9% to $27.4 million with an expanded margin of 26.7%. The MedVet segment contributed the remainder of the revenue and profit growth, with total company revenue reaching $511.5 million (up 10.7%) and consolidated adjusted EBITDA rising 17.1% to $131.2 million.

• Revenue Guidance Raised: Fiscal 2027 revenue guidance is increased to a range of $2.06 billion to $2.095 billion (approximately 5.5% to 7% growth), up from the previous range of $2.05 billion to $2.09 billion.
• EPS Guidance Raised: Fiscal 2027 adjusted earnings per share guidance is raised to a range of $9.00 to $9.20 (approximately 9% to 11.5% growth), up from the previous range of $8.90 to $9.15.
• Prudent Outlook: Management emphasized a prudent view for the remaining three quarters, noting that Q1 results were ahead of plan but future quarters face headwinds such as Walden’s academic calendar shift (moving revenue from Q2 to Q3) and rising startup costs for new Chamberlain campuses.
• Margin Expectations: Full-year adjusted EBITDA margin expansion is expected to be between zero and 50 basis points, significantly less than the 140 basis points achieved in Q1 due to planned investments.
• CapEx and Tax: Capital expenditures are expected to remain above fiscal 2026 levels, weighted toward the first half of the year. The adjusted effective tax rate is expected to be higher than in fiscal 2026.

• Academic Calendar Phasing: Walden’s return to a normalized academic calendar causes a one-time shift of $18 million in revenue and EBITDA from Q2 to Q3, creating volatile quarter-over-quarter comparisons.
• Startup Costs: Investments in new campus capacity (e.g., Chamberlain’s Nashville opening) incur upfront costs before they generate meaningful enrollment revenue, potentially weighing on margins in the short term.
• Regulatory and Policy Caps: State and accreditation policies limit physical space and faculty availability, acting as binding constraints on capacity rather than interest.
• Student Financing Hesitancy: Uncertainty surrounding loan changes may cause some student hesitancy until financing options are fully understood, though management believes this will be overcome through consumer education.
• AI Search Disruption: The shift to LLM-based search represents a dynamic risk for consumer acquisition; however, Covista mitigates this through proactive content optimization and strong brand equity.

Q: Analyst asked if confusion regarding nursing loan caps impacted enrollment and if expenses were shifted to future quarters to boost Q1 EPS. / A: CEO stated no impact from nursing cap confusion, attributing earlier medical/vet dynamics to pull-forward enrollments and financing hesitancy. CFO confirmed no expense shifting occurred; the beat was driven by revenue outperformance and additional Q1 investments.

Q: Analyst questioned why Chamberlain’s total enrollment growth was only 1.3% despite expectations of a step-function increase. / A: CEO explained that while new student enrollment (led by pre-licensure BSN) grew strongly, continuing student return rates were softer than forecast, and post-licensure RN-to-BSN programs faced lingering softness. Management expects these issues to be corrected through persistence efforts and pricing tactics later in the year.

Q: Analyst asked about the prudence behind the modest guidance raise relative to the large Q1 beat and what factors drive this caution. / A: CEO cited the Walden calendar shift impacting Q2/Q3 comparables, rising startup costs for new campuses, and a higher expected tax rate. He noted that while Q1 was strong, the full-year guidance reflects a prudent view of these known variables, with potential for further adjustment if visibility improves.

Q: Analyst inquired about the cadence of margin pressure from growth investments and drivers of strong revenue per student. / A: CFO clarified that full-year margin expansion remains capped at 50 basis points, with Q2 likely showing lower YoY margins due to the calendar shift. CEO attributed revenue per student strength to a combination of favorable student mix, credit load increases, and pricing optimization.

Q: Analyst sought details on how Covista is adapting to the shift from traditional search to AI/LLM search regarding acquisition costs. / A: CEO highlighted that Covista is ahead of peers due to prior rebranding and heavy investment in monitoring LLM outputs. The company ensures its brands appear authoritatively and positively in AI responses, reporting no negative impact on inquiries or enrollments thus far.