Adtalem Global Education Inc
NYSE:ATGE
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
45.59
91.23
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Adtalem Global Education Inc
You don't have any saved screeners yet
Greetings and welcome to the Adtalem Global Education Second Quarter, Fiscal Year 2022, Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Chandrika Nigam, Director of Investor Relations. Thank you. You may begin.
Thank you. I'd like to remind you that this conference call will contain forward-looking statements within the meeting of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 with respect to the future performance and financial condition of Adtalem Global Education that involve risks and uncertainties. Actual results may differ materially from those projected or implied by these forward-looking statements.
Potential risks, uncertainties, and other factors that could cause results to differ are described more fully in Item 1A Risk Factors of our most recent annual report on Form 10-K, filed with the SEC and other filings with the SEC. Any forward-looking statement made by us is based only on the information currently available to us and speaks only as of the date on which it was made.
We undertake no obligation to publicly update any forward-looking statements, whether written or verbal, that may be made from time-to-time, whether as a result of new information, future developments, or otherwise except as required by law. During today's call, our commentary will refer to non-GAAP financial measures which are intended to supplement, though not substitute for our most direct comparable GAAP measures. Our press release, which contains the GAAP financial and quantitative information, to be discussed today, as well as reconciliation of GAAP to non-GAAP measures is available on our website. Please note that all financial results and comparisons made during today's call. Are on a continuing operations basis, excludes special items, and are in comparison to the prior period, unless otherwise stated.
Telephone and webcast replays of today's call are available for 30 days. To access the replays, please refer to today's press release. We'll begin today's presentation with prepared remarks from Steve Beard, Adtalem's President and Chief Executive Officer, and then hear from Bob Phelan, Senior Vice President and Chief Financial Officer. Following the prepared remarks, we will have a question-and-answer session. And with that, I will now turn the call over to Steve.
Thank you Chandrika Nigam. Afternoon, everyone. And thank you for taking the time to join our Second Quarter fiscal year 2022 Earnings Call today. Five months into my tenure at Adtalem's President and CEO, I'm incredibly encouraged by the tremendous progress we've made towards our key strategic objective to reposition Adtalem. For the past several quarters, we've been on a path to simplify our portfolio, with an enhanced focus on our core healthcare assets. This ongoing transformation of our business, repositions us for sustainable long-term growth, and a very compelling market with attractive and durable demand.
Our recently announced definitive agreement to sell our Financial Services segment in an all-cash transaction to $1 billion is a critically important catalyst in realizing our future state vision for Adtalem. It greatly enhances our ability to address at scale the rapidly growing and unmet demand for healthcare professionals in the United States. I am immensely proud of the strong growth and enhanced operating margins we've generated and our Financial Services segment over the past two years. This is positioned us to unlock significant shareholder value through this transaction.
We expect GAAP after-tax proceeds from the transaction to be north of $800 million, providing attractive optionality for strengthening our balance sheet and enhancing shareholder value. As you can imagine, we're laser-focused on closing the transaction as quickly as we can. We will have definitive perspectives on the use of proceeds at that time. In the meantime, you can be assured that any use of proceeds will be tailored to accelerating the organic growth of our core business, improving our balance sheet, and enhancing the value of the enterprise.
We remain committed to closing the GAAP between the intrinsic value of our assets, and the market capitalization of the company. We have no current plans for any large-scale acquisitions. With that, let me highlight a few ongoing initiatives that we believe will enhance our capabilities to serve our students, employer, partners, and stakeholders going forward. First, the integration of Walden University is progressing as planned. And we remain confident in delivering our projected cost synergies of $60 million of annual run rate savings within 2 years of completing the transaction.
A vital element of that integration process has been the introduction of a new enterprise wide operating model. Key components of this model includes; strategic use of shared services to support our institutions, which brings greater efficiency to our business model while enabling our institutions to focus fully on academic delivery, and student outcomes. In addition, a redesigned marketing function empowered to enhance the brand positioning of our institutions, optimize our spend, and personalize our customer engagement.
And finally, and enhanced customer focus set of capabilities to provide personalized and differentiated customer experience along the entire student journey, along with predictive student support solutions designed to improve retention and persistence. As we launch and refine our new operating model, we're aided by the singular focus on healthcare, and a portfolio made up of lifetime degree granting institutions. The relative simplicity of this portfolio lends itself to continuous improvement and scale the efficiencies that will allow us to drive improved enrollment and persistence at incrementally lower delivery costs, all while innovating across the student journey.
Taken together, we believe these initiatives will drive company-wide improvements in academic, operational, and financial performance for the benefit of all of our stakeholders. At the same time, our commitment to expanding access to high-quality education and driving superior student outcomes remains unchanged. Adtalem's purpose is to empower students to achieve their goals, by success, and make inspiring contributions to our community. I'm incredibly proud of our consistent and longstanding focus on academic outcomes and student success across all of our institutions.
Some recent examples of this focus includes Chamberlain exceeding the national average for NCLEX results, and American University of the Caribbean receiving re-accreditation for six years through 2027 by the accreditation commission Oncologists of Medicine. We're extremely proud to train the next generation of nurses, doctors, veterinarians, and social workers. Our students are both our customer and our product. And their success in realizing their ambitions and making a positive impact on the world will always be our North Star. Despite the significant progress we're making on our efforts to enhance academic, operational and financial outcomes.
We continue to be negatively impacted by the COVID -related headwinds facing higher education more broadly. The emergence of the Omicron variant forced many health care professionals to delay their education plans, resulting in a continued decline in enrollments, particularly in our post-licensure nursing programs. The Omicron variant also had an adverse impact on enrollments in our medical programs as some students deferred or delayed returning to campus. As a result, we are lowering our outlook for the rest of the year to reflect these continued headwinds. This revised outlook also reflects the move of financial services to discontinued operations.
Bob will elaborate more on the outlook in his remarks, but it's important to reiterate that we believe these headwinds are comploro. And in no way dampened or dilute the secular trends our brands in businesses are poised to enjoy. Looking ahead, we remain confident that market demand for highly qualified health care professionals will continue to exceed supply. And we don't believe that there is anyone better positioned to address this opportunity than Adtalem's. This has long been the case, but the divestiture of the Financial Services segment, once complete, brings this into sharp relief. Among other things, the transaction yields of family of degree granting institutions with remarkably attractive attributes.
Market-leading breadth, depth, scale, and reach, and health care education, a center of gravity in the all-important nursing space and highly complementary adjacent offerings in the medical sciences, and the social and behavioral sciences. The opportunity to expand the customer life cycle from undergraduate programs to graduate and advanced degrees.
Opportunities from market segmentation across leading brands. The ability to engage health systems and other employer partners at scale. And finally, an unyielding commitment to addressing critical talent shortages and advancing diversity, equity, and inclusion in healthcare. In closing, I'm extremely optimistic about the opportunities that lie ahead. Our offerings are bound together by our mission to provide global access to knowledge that transports lives and enables careers. And we will continue to invest in growing our platforms to deliver on our commitments to all of our stakeholders. To thank you and with that, I'll turn the call over to Bob for discussion of our financial results.
Thanks, Steve. Before discussing the financial results, I'd like to highlight that we will be retroactively reporting the Financial Services segment as a discontinued operation, starting with the second quarter of fiscal 2022. Therefore, our updated reporting segments are comprised of continuing operations from Chamberlain, Walden, and Medical and Vet as presented in the 8-K filed today. Beginning with the third quarter of fiscal 2022, we'll be making the following two changes to our disclosures. First, in addition to operating income, we will also disclose total and segment level EBITDA, which we believe will provide additional insights into the performance of our businesses.
Second, we will transition enrollment data to focus exclusively on total enrollment, which we believe is the metric that most closely correlates with future revenue, given that it contemplates both in new enrollment and student persistence. Let me now provide a summary of our financial performance for the continuing operations during the quarter. Revenue in the second quarter increased 58.4% to $371.2 million compared with the prior year driven by the acquisition of Walden. Consolidated operating income, excluding special items in the second quarter was $70.2% million, a 70% increase compared with the prior year due to the addition of Walden.net income from continuing operations, excluding special items was $37.8 million, a 17.3% increase compared with the prior year, driven by higher operating income from Walden, which is partially offset by additional interest expense.
Diluted earnings per share, excluding special items for the quarter, was $0.75. An increase of 23% compared with the same period in the prior year. Next, I'll discuss the highlights of the second quarter by segment. The Chamberlain segment reported second quarter revenue of a $139.1 million, a decrease of 2% when compared with the prior year, an operating income of $25.5 million versus $32.5 million in the prior year.
The decrease in operating income is primarily the result of the decline in revenue. Higher costs associated with the return to in-person campus instruction, and higher costs, marketing. New and total student enrollment in the November session decreased 0.5% and 2.1% respectively, compared with the prior year.
We believe the decrease in new student enrollment was primarily attributable to COVID-related headwinds in our post-licensure programs as the recent surge further burdened nurses, leading to new -- to fewer new starts. However, our pre-licensure programs performed relatively well due to improved persistence. We expect the COVID headwinds to subside over time and believe that demand for nurses will continue to outpace supply over the long term, representing strong growth opportunities for us in the future. Turning to Walden, revenue in the second quarter was a $140.6 million. The segment operating loss was $2.4 million, driven primarily by intangible amortization expense.
Segment operating income, excluding special items was $32.4 million. New and total student enrollment during the quarter decreased 18.3% and 9.1% respectively compared with the prior year. Walden enrollment was disproportionately impacted by COVID -related headwinds in post-licensure programs, which dominated the student mix within the segment. In contrast, Chamberlain has a significant percentage of pre-licensure programs which have not been as negatively impacted by COVID headwinds, and their November enrollment session occurred prior to the Omicron surge.
As a result, pre-licensure nursing and non-healthcare focused programs experienced the most significant headwinds. While social and behavioral science programs continued to perform relatively well. Our integration efforts are progressing well and we remain on track to realize a $60 million of annual run rate cost synergies within the first two years of Walden ownership.
In our medical and vet segment, revenue of $91.5 million declined 1% compared with the prior year. Segment operating income increased from $18.8 million to $19.5 million driven primarily by lower expenses. While performance of this segment has been relatively stable, we remained optimistic that recent leadership changes in our new operating model will accelerate revenue growth and margin expansion. Turning now to cash flow and balance sheet. The second quarter is a seasonably low quarter from a cash flow perspective.
Net cash used in continuing operations was $48.5 million. Our capital expenditures for the quarter totaled $8.1 million. As a result, free cash flow used in the second quarter was $56.6 million. As a reminder, we define free cash flow as cash provided by continuing operations, less capital expenditures. We ended the second quarter with cash and cash equivalents of $275.4 million and outstanding bank borrowings under our existing term loan B, and secured senior secured notes of $1.65 billion. Moving to our outlook for the remainder of fiscal 2022, starting with the top line, we expect adjusted revenue to be within the range of $1.35 billion and $1.39 million and adjusted diluted earnings per share of $2.90 to $3.10 from continuing operations, excluding special items.
Given the complexity and uncertainty of the markets we serve, it is important to understand the factors and assumptions we took into consideration when developing our guidance range. Our full-year guidance is impacted primarily by two factors. The move of our Financial Services segment to discontinued operations, and the continued near-term headwinds from COVID, resulting in lower enrollments. The impact from COVID-related headwinds on our industry, particularly those associated with the Omicron variant, causing record spikes in cases and hospitalizations, is expected to negatively affect enrollments, especially in our post-licensure nursing programs for the remainder of the fiscal year.
While we expect these headwinds to subside over time, we believe there will be a lag in enrollment recovery within the health care education space as compared to the broader education industry. Next, moving to the expected impact from the pending sale of our Financial Services segment, net proceeds from the transaction are estimated to be an excess of $800 million. We expect the divestiture to be dilutive to adjusted earnings per share from continuing operations by approximately $0. 90 on a full-year basis, reflecting the loss of operating income and retention corporate overhead, previously allocated to the segment.
We continue to thoughtfully rationalized our corporate cost structure and drive operating efficiencies across our businesses while transitioning to our enhanced operating model. I also want to emphasize that this dilutive impact on EPS is prior to factoring in any benefit in future years from the use of net proceeds from the sale.
We are immensely excited about the optionality this transaction provides in enhancing our financial flexibility towards the deployment of the sale proceeds. And we will provide more details upon closing. We remain highly encouraged in our ability to to fully leverage our streamlined health care focus portfolio with the twin goals of driving outstanding student outcomes and maximizing shareholder value. With that, I will now turn the call over to the Operator for Q&A.
Operator?
Thank you. My apologies, I was muted. At this time we'll be conducting your question-and-answer session. [Operator Instructions]. Our first question comes from Jeff Silber with BMO Capital Markets. Please state your question.
Thank you so much. I just want to make sure I'm getting the math correct. So I believe your prior guidance for adjusted EPS for the current year was $4.20 to $4.45. You're now talking about a $2.90 to $3.10 range, that's about $1.30 difference. Of that $1.30, $0.90 is impacted by the Financial Services divestiture and I'm assuming the other $0.40 is impacted by the COVID-related headwinds you're seeing in post-licensure, nursing, etc. Is that correct?
That's exactly right. The only thing I would add to that is that there are some cost reductions that we're offsetting some of that revenue reduction with. But you're absolutely right with that analysis.
Okay, good. Thank you for clarifying that. So maybe we can talk a little bit about what's going on in the post-licensure programs. I mean, I understand, especially with Omicron folks reluctant and we were seeing that beforehand. But what makes you confident? What are you seeing, if anything now, that this is really more of a temporal impact as you deemed it?
We've got the benefit of prior history with post-licensure programs at Walden. And really the only cogent explanation to what we're seeing now, is the fact that Walden's programs are entirely post-licensure. These are folks that are working nurses, they're currently under tremendous strain because of the spike in infections and what that has done to healthcare delivery more broadly. And none of them are being pushed to continue their education or have any incentive to do so.
What we also believe, is that the pandemic will end and even before that, there would be some relief from the Omicron spike, which appears to be diminishing in most areas around the country. It's our expectation that the launch - that population of working students gets relief from the near-term challenges at delivering care, that their incentive for continuing their education will be every bit as strong as they were before the pandemic, and every bit as strong as they were in the low between Delta and Omicron.
Okay. I understand. I also want to just clarify something. I think I heard you said that effective next quarter. You're not going to be providing new enrollment data anymore, is that correct?
That's correct.
Can you just help me with that thought process, I just didn't understand why you've made that decision?
Yes we just -- as we look at our historical trends in enrollment, we think the new enrollment number is actually noisily distracting from the overall trend in the business, and we think if we show total enrollment on a rolling basis that gives us, and obviously gives you folks a much more reliable view of the trends in our business without the up and down spikes between new enrollment numbers which are impacted by a number of things, including the myriad different starts that we have among our institutions in any given fiscal year. It's just a clear picture into where the enrollment trend is headed, and we think it will provide a more reliable view into the state of the business in any given time.
Okay. Fair enough. One more question and I'll jump back in the queue and I actually got this from one of your investors, and this is more of a clarification. Given what's been happening in Walden, will you be having to take a goodwill impairment charge and if so, is that something that you do at year-end or is it something you do before then?
No, we don't anticipate taking an impairment charge at all.
Okay. Great. Thanks for that. Appreciate it.
Thank you. Our next question comes from Jeff Meuler with Baird, please go ahead.
Thank you. So I understand the contributing factors in terms of post-licensure, pre-licensure mix between Walden and Chamberlain as well as start timing. Just can you give us any sense of what is non-nursing enrollment doing at Chamberlain? I know nursing's a sizable percentage of the mix, but it's far from all of it. So just trying to make sure it's an isolated issue in nursing.
I think there's -- as a general proposition, there's downward pressure on enrollments across the board, but they're most acute in nursing, and within nursing most acute in post-licensure. So the overall pressure on enrollments that higher education seem more broadly, is not something than any of our institutions are immune to. But again, where we see it most pronounced is in nursing and in that category, most pronounced in post-licensure.
And then I'm trying to understand the exact reporting and implications. So did you say that you're reporting [Indiscernible] as disco ops starting this quarter you just reported so Q2 of '22 segment level profitability gets impacted by that reallocation of corporate expenses in this quarter? So when we're looking at the performance this quarter, at the segment level, and the year-over-year trends, it has that re-allocation in it this quarter, but it doesn't have that re-allocation in it in the year ago that the year-over-year trends in the presentation are based off of? Hopefully that -- hopefully, I stated that question correctly.
I think what I would say is that we did put out also an 8-K that separately does have the first quarter and the fourth quarters from last year, all on a restated basis so that it's comparable to what you're looking at with the second quarter of this year. If that doesn't answer, I'd be happy to take a follow up on that.
That includes the corporate expense reallocation down to the segment levels for those historical quarters?
Right. That would be consistent with what we had done in that 8-K. Yes.
Okay. Thank you.
Thanks.
Thank you. Are there no further questions at this time, I will turn it back to management for closing remarks.
Well, we'd just like to thank everyone for participating in the call and also thank all of our colleagues at Adtalem for all the great work they're doing under what are really challenging and difficult circumstances. So thank you, everyone.
This concludes today's conference. All parties may disconnect. Have a great day.