Adtalem Global Education Inc.

Greetings, and welcome to the Ad Telum Global Education Third Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to our host, Maureen Resack. Vice President, Treasury, and Investor Relations. Thank you. You may begin.

Thank you, and good afternoon. With me today from AdTalent's leadership team are Lisa Wardell, Chairman and Chief Executive Officer, and Mike Randolfi, Senior Vice President and Chief Financial Officer. I'd like to remind you that this conference call will contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to the future performance and financial condition of EdTalum's 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, in the most recent annual report on Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on August 28, 2019, and our other filings with the SEC. Any forward-looking statement made by us is based only on 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 statement, whether written or oral, 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, our most direct comparable gap measures. Our press release, which contains the gap financial and other quantitative information to be discussed today, as well as reconciliation of gaps to non-gap measures, is available on our website. Please note that all financial comparisons made during today's call are in comparison to the prior year period. unless otherwise stated. It is also important to note that our third quarter results reflect the application of discontinued operations for our former business and law segment as a result of the divestiture of AdTalent Brazil, which made up the entire segment. Telephone and webcast replays of today's call are available for 30 days. To access the replays, please refer to today's press release. And with that, I'll now turn the call over to Lisa.

Good afternoon, and thank you for joining us. On today's call, I will discuss the highlights from our third quarter, as well as provide some context for our business in light of the impact of the COVID-19 pandemic. I will then turn the call over to Mike to discuss our financial results before opening the call up for questions. We can all agree that this is an extraordinary crisis driving unprecedented uncertainty in global markets. While I can't predict all of the economic, social, and cultural implications of the crisis, I can tell you why we believe AdTalem is well-positioned to manage through this pandemic. Let me begin by recounting the journey AdTalem has taken in the four years since I have been CEO, as this helps provide context for our readiness for the crisis, the nature of our response, and the relative advantages we have given our legacy of virtual learning and our streamlined portfolio. In 2018, we transferred ownership of DeVry University and Carrington College to focus on serving employer needs in the medical and healthcare and financial services industries. Soon after, it became clear that our Brazil institutions, while driving excellent student outcomes, diluted our industry focus. In October of 2019, we announced the transfer of ownership of AdTal in Brazil, and last month, that transaction was closed, resulting in approximately 500 million of additional cash that allows us maximum optionality during these uncertain times. So, we now serve students and employers only in industries that are in great demand, producing physicians and nurses in healthcare, and elevating the governance, risk, and compliance, and critical finance and financial control capabilities of professionals and institutions in financial services. The world is racing to adopt modalities that AddTalent has used for decades. online learning, including significant faculty interaction, virtual events, webinars, modular at-your-own-pace education, and adaptive learning. Our longstanding history with these capabilities is a competitive differentiator for us in the new normal. I should also remind you that AdTalent has a history of resiliency and successful crisis response, appropriately focused on our top priority, which is the health and safety of our students faculty, customers, and colleagues. When the 2017 hurricanes caused a full displacement and relocation of both medical schools, we were able to continue student academic journeys without any delay in the academic year. And by strategically taking advantage of the crisis, we developed a UK track for AUC and permanently relocated Rossman to a more attractive island nation home in Barbados. strengthening its long-term competitive position. With the benefit of this experience, we were able to quickly react to the onset of the COVID-19 pandemic, shifting to robust online platforms for students and faculty and transitioning to remote work for our employees. In less than a week, we transitioned over 15,000 medical and nursing students that were previously on campus to online platforms, bringing the total number of online students to 40,000 with little disruption Student engagement and satisfaction have been high since this transition, in large part because we have faculty and institutions across our portfolio who have deep experience with virtual modalities and know the difference between just simply shifting to online lectures and actually teaching in a distance learning environment. To date, our enrollment and academic outcomes remain strong, with more than 920 physicians and 850 nurses entering the U.S. and Canadian workforces this year alone, at a time when the need for healthcare professionals has never been greater. In addition, we have moved quickly to adapt our programs to the new normal, which will require more virtual and more flexible interaction. For example, in the medical and healthcare vertical, we initiated online simulations, and in the financial services vertical, we launched CAM certification testing online with over 700 certification candidates for ACAMs scheduled for online exams in the first few weeks. The COVID-19 pandemic is highlighting the ongoing medical professional shortage across the U.S., which ADTALM has worked to address for decades, particularly in low-resource, very urban or very remote areas. The availability of healthcare workers was already stressed by the demands of caring for an aging U.S. population, coupled with the near-term retirement of scores of physicians and nurses. With more than 1 million registered nurses expected to reach retirement age within the next 10 to 15 years in the U.S., there is a need for approximately 200,000 additional new nurses each year through 2028 to fill new positions and to replace those who are retiring. This pandemic is exacerbating these trends and bringing the need for more healthcare professionals into sharp focus as a critical global issue. As the largest provider of healthcare professionals in the United States, it has been our priority to expand access to high quality medical education and deliver highly qualified professionals to the workforce. To further address this supply demand imbalance, last year we launched additional night and weekend BSN programs at Chamberlain University to accommodate additional qualified nursing students and provide class schedules conducive to the demands of adult learners. We also began the development of our hybrid BSN degree utilizing online instruction and in-person intensive learning, and we've officially launched marketing for our September 2020 cohort. Expanding the opportunity for learners to earn a BSN degree will be a crucial step to addressing the nursing shortage. The pandemic has allowed us to both accelerate and expand these additional programs and offerings that we already had in development at Chamberlain University. Despite what we believe are substantial competitive advantages in managing through the crisis, we will not escape the situation unscathed. There will be near-term negative impact on our business performance as a result of the pandemic. There will likely be a continuing impact to clinical weeks until hospital systems are once again able to accommodate students. We value our hospital system partners, and we are working with them to solve the clinical issue in a way that is safe for our students and does not further burden hospitals and staff that are already overwhelmed operationally and financially. Postponement of clinicals is both temporary and solvable. It's an issue that the entire medical education community is facing, along with an incredibly motivated student base that is dedicated to obtaining their degrees and filling positions within the healthcare system as soon as possible. The largest impacts to our financial services segment are twofold. responding to increased budgetary constraints of banking and enterprise customers, and managing cancellations of global conferences. Realizing that the burdens of governance, risk, and compliance for the finance industry will grow despite, and in some cases because of, the crisis, we have worked to quickly adapt our offerings to the needs of our members, customers, and employer partners in this new operating environment. While we recognize that there will be wide macroeconomic effects, such as general dampened consumer confidence, We are well positioned with a focused yet diversified portfolio of healthy businesses across the medical and healthcare and financial services industries poised for long-term growth. Further, our student population and the demographics we serve have the benefit of working towards careers that will be in high demand both during and after the crisis. We are well prepared to meet the potential surge in demand for these skill sets by leveraging existing technology and capabilities to further expand our product and program offerings and to ensure the continued superior student outcomes to an expanded student base. Despite the challenges we faced late in the quarter from the pandemic, we delivered strong third quarter performance with revenues growing roughly 5% and adjusted EPS growing 27%, highlighting that we were well on our way to meeting our financial goals for the full year prior to the crisis. Growth within our medical and healthcare vertical reflected the continued success of our investments in marketing and recruitment, which has been aided by our ability to keep the average cost of student acquisition relatively flat. These efficient investments have led to a new student enrollment growing 11.3% and total student enrollment growing 4.6% across the vertical. Chamberlain's new student enrollment increased at a double-digit rate for both January and March sessions, with total student enrollment growing mid-single digits compared to the prior year. This growth was driven by increased recruiting and marketing, coupled with restructuring of our HDS team, now our Workforce Solutions team, to better serve our hospital system partners and the implementation of an increasingly focused admissions process with an emphasis on proactive outreach from student advisors and improved student experiences from inquiry to enrollment. We continue to deliver strong student outcomes as shown by Chamberlain-graduated over 850 new nurses so far in 2020, and achieving a first-time NCLEX pass rate close to 88% on average in 2019. In addition, we see strong performance in the market across all of Chamberlain's offerings, particularly the pre-licensure BSN, family nurse practitioner, and BMP programs. In addition to growing our enrollment, we are equally focused on our overall mission in serving our global community, especially in the face of the COVID-19 pandemic. As part of this, in April, we kicked off a major support campaign for healthcare providers using the hashtag Care for Caregivers with over 9 million video views to date and website careforcaregivers.com to highlight our heroes, our alumni, and current students making an impact in the fight against COVID-19, as well as what others can do to support these caregivers in their lives. In addition, we announced our partnership with Ascend Learning to offer acute care readiness, a free online course developed for our employer partners who have licensed registered nurses not currently working in acute care settings, but needing instruction and skills to feel comfortable advancing in that setting. We have over 750 enrollees to date. New student enrollment in the medical and veterinary schools was up 3.2%, and total student enrollment was up 1.7%. driven primarily by Ross Vet. Ross Vet enrollment in January 2020 was among the strongest seen in the past seven years, coupled with one of the strongest entrance class GPA rates we've had to date. Brand awareness has continued to grow and we expect to capitalize on the strong rate of inquiries we are seeing for our May and September classes. We also continue to collaborate with strategic partners, evidenced by our partnership with Arkansas State University to drive workforce solutions to veterinary shortages. We have grown our medical and veterinary total enrollment while at the same time generating strong outcomes for our students. AUCM Ross Med showed very strong results, achieving a 91% and 93.5% residency match rate for graduates, respectively. These strong match rates help attract student interest and provide significant competitive advantage. Our ability to provide quality medical education at scale will prove to be a valuable differentiator as we work to fill the incremental demand for medical professionals and increase the number of qualified graduates in the healthcare workforce. It's important to note that our May sessions at all ADTALM healthcare institutions will start online with no disruption and increase services and connection opportunities for students and faculty. The financial services segment showed solid growth during the quarter, with revenue increasing 23%, driven by the addition of on-course learning. We continue to make strategic progress on multiple fronts within this vertical, most notably the appointment of Steve Beard as our group president, in addition to his role as chief operating officer. Steve has played a key role in repositioning AdTalent for its next phase of growth and the execution of its overall enterprise strategy, and he's focused on creating additional synergies and making strategic improvements across the financial services vertical. ACAMS is enhancing its product set to serve our employer partners with a more comprehensive solution set across compliance and risk and broader advisory services, more expansive language and regionalized offerings, and more valuable benchmarking through industry engagement and thought leadership. Our Global Sanctions Certification, CGSS, which we launched in Q2, is now available in over 90 countries and will be available in French and simplified Chinese by Q4. ACANS now has foundation certificate courses in AML in 11 languages and sanctions in five languages to provide our employer partners with the ability to train a broader, frontline group of employees to bolster their first line of defense against financial crime. In addition, we have begun pre-sales for our advanced CAM certification, which allows compliance professionals to expand their specialized knowledge while providing employer partners the ability to retain their key talents. Last quarter, we announced our partnership with MasterCard for a SaaS-based risk assessment tool for their card issuer financial institution customers, and we expect to go live in Q1 of fiscal 2021. More recently, we have entered into a partnership agreement with ING to provide ACAM's training and qualifications to their employees in 40 countries in which ING operates, with several qualifications being offered in nine languages. At less than 2% growth for Q3, ACAMS is falling short of our expectations, even accounting for COVID-19 disruption. But we have put the organizational changes in place, including accelerating the delivery of solutions directly responsive to current market demand that will yield better results post-pandemic and over the long term. Becker has implemented competitive changes within its core accounting business, including subscription packages, targeted marketing efforts, and more strategic pricing. We continue to build our continuing education capabilities and offerings, which have shown initial traction in both the B2C and B2B markets, and which we believe have significant long-term potential. Josh Bronstein was appointed president of OnCourse Learning at a critical juncture in the company's growth. Josh has a wealth of experience in strategically growing market share and expanding offerings to core customers, and he will be instrumental in growing OCL market share within the mortgage education segment. Q3 traction was driven by a combination of OnCourse's training platforms for loan officers, including signing enterprise renewals with major B2B customers such as Quicken Loans, increased content through webinars, a focused effort on government regulation and compliance offerings, and strategic pricing initiatives. AdTalent continues to maintain a strong balance sheet with ample liquidity and flexibility supported by additional cash on hand with the completion of the sale of our Brazil assets. This divestiture demonstrates our team's ability to close a transaction under crisis circumstances and further positions us to execute on our strategy and drive value for our shareholders. While our position on the use of transaction proceeds has always been a three-pronged balance of efficient return of capital to shareholders, prudent investments in our business to accelerate growth, In the near term, we will balance those priorities with the need to preserve liquidity and optionality in this uncertain and complex global environment. Prior to the COVID-19 pandemic, we strongly believed that ad talent had been undervalued, even prior to current valuations, and accordingly, we continued to execute our share repurchase program prior to the onset of the pandemic, which caused us to stop the share repurchase activity on March 12th. We have the liquidity to resume share repurchases when we think the time is right to do so. When we do so, we will be disciplined in our approach, as we have always been, but leaving aside the world economy and the effects on the U.S. equity market, we continue to believe that we are undervalued as a company. In conclusion, I am confident that AdTalent has a fully streamlined portfolio, serving needs in critical industries. I am so proud of the entire AdTalent team for not only their unwavering commitment to our education mission, but for their profound demonstration of our values, teamwork, energy, accountability, community, and heart always, but particularly during this crisis. AdTalent will emerge from this crisis stronger and prepared to outperform with new revenue sources and a more streamlined operation that can capitalize on the inherent strengths of the portfolio. With that, I will now turn the call over to Mike to discuss our financial highlights.