Adtalem Global Education Inc.

Greetings and welcome to the Ad Telum Global Education Second Quarter Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A 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. I'd like to remind you that this conference call will contain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 with respect to the future performance and financial condition of Ad Talem 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 on August 18, 2020, and our 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. looking statement, 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 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 operation basis, excluding special items and are in comparison to the prior year 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 Lisa Wardell, Ed Tellem's Chairman and Chief Executive Officer, and Mike Randolphie, Senior Vice President and Chief Financial Officer. Following the prepared remarks, Stephen Beard, our Chief Operating Officer, will join us for the question and answer session. And with that, I'll now turn the call over to Lisa.

Good afternoon and thank you for joining us today. This quarter we continue to achieve strong operational results with revenue growth of 6.4% and earnings per share growth of 35% in the quarter. This was driven by operational execution and marketing fueled by prior period marketing spend, efficiency in admissions due to inquiry conversion improvements, new talent contributions and structural changes in several of our institutions, and strong demand in the segments where we have strategically focused our businesses. Our past decisions to invest in marketing and operational improvements are bearing fruit and generating double-digit enrollment growth at Chamberlain, along with double-digit new enrollment growth at AUC and high single-digit new enrollment growth at RothMed in the first half of fiscal 2021. During the quarter, we also drove robust revenue growth in both medical and healthcare and financial services, with each growing revenue about 6%. Our superior student outcomes continue to be a hallmark of our success and the foundation for future enrollment growth. Given the strong first half of our fiscal year, we've raised our full year earnings guidance, which Mike will discuss further in his remarks. The demand for healthcare professionals remains extremely strong, and we are continuing to assist our partners in filling their critical workforce gaps. With the COVID-19 vaccine beginning to be distributed on a wide scale, we are pleased to share that many at-talent institution students and graduates will be part of the solution in helping distribute and deliver the vaccine worldwide. We continued to execute on our enterprise strategy during the quarter. The pandemic has put a great deal of stress on the healthcare industry and has exacerbated healthcare workforce shortages that have existed for years. Add Talent seeks to both increase the talent supply to address the rapidly growing and unmet demand for healthcare professionals and solve complex issues for employers. This strategy continues to be validated and accelerated by the needs of our employer partners during the pandemic. Our medical schools graduate an average of nearly 1,000 physicians each year. To put that into context, the average number of graduates annually by all U.S. medical schools combined is under 20,000 graduates every year over the past five years. Abtallon Medical Schools graduate more than twice as many physicians than the largest US-based medical school. Regarding our planned acquisition of Walden University, we remain confident that the transaction is strategically complimentary to the legacy Abtallon institutions through providing additional online capabilities, scale and healthcare offerings, graduate program mix, and behavioral science offerings being requested by our employer partners. I want to ensure our investors are aware that 77% of the revenue and 88% of the EBITDA for Walden are in the healthcare-related program offerings, including nursing and social and behavioral sciences. In December, inquiry volume industry-wide for behavioral sciences increased 63% year-over-year. In terms of degree mix, 85% of programs are graduate, and of the 15% of undergraduate programs, approximately one-third are degrees in nursing. The US nursing education market is currently at $28 billion and is expected to grow at a 21% CAGR to $60 billion by 2024. These programs allow us to assist providers in addressing the societal determinants of health and their employee shortages, which have increased as a result of the pandemic. Chamberlain University and Walden University combined will have the largest nursing enrollment in the market, which still represents less than 10% of the total market. The collective scale will further enable future growth for both institutions. Adding Walden increases our scale to fill the need for qualified healthcare professionals that is both required by our employer partners and is a national imperative during and post-pandemic. Walden significantly increases our capabilities in online and hybrid learning modalities, another secular shift that has been accelerated by the current pandemic, and we see that trend continuing well into the future. Walden is expected to provide incremental, unlimited free cash flow of $120 million post-close. In addition, as a reminder, we are targeting $60 million in cost synergies to be fully phased in within 24 months of the transaction close. With tax considerations and the $60 million of cost synergies, the 8.4x multiple decreases to an even more attractive multiple under 6x EBITDA. We have provided additional information on the Walden transaction in a supplemental slide deck posted on our investor website. The acquisition of Walden is progressing well and we remain on track to meet the targeted closing date in mid-calendar year 2021, subject to closing conditions. As it relates to the U.S. Department of Justice's inquiry on the content and cost of Walden's Master of Science in Nursing program and the availability of clinical site placements for this program, I want to reiterate that we take these matters very seriously. We are conducting a thorough independent investigation and have hired independent legal advisors to do so. To date, we have not found evidence that substantiates the allegations. Turning to highlights by segments. Across our medical and healthcare institutions, our teams are working diligently to meet the surging demand for healthcare professionals and continue to leverage the opportunities that our scale provides us. What truly sets our institutions apart from their peers are superior academic outcomes, a focus on student support and success, and our strong relationships with employer partners. Following the largest enrollment period in Chamberlain's history in September, we are pleased to see continued strong growth in the November session, with new and total student enrollment increasing 8.1% and 10.2% respectively, representing all-time highs for the period. Enrollment during the quarter was driven by ongoing investments to further strengthen the Chamberlain brand, targeted messaging by program, and our focus on operational execution. We are also seeing substantial growth across the country in our campus programs, which included expansion of our evening and weekend classes, now offered at five campuses, and several campuses with mid-session November starts. Because 16 of our 22 campuses do not have capstone enrollment, we can continue to meet the growing demands of these programs and see a clear runway to further expansion. Demand in California in particular has been very strong, well above our current campus caps. Later this year, we plan to open a second campus in Southern California. At our current California campus, we have been approved to raise the enrollment cap by 50%. In the meantime, we have also successfully implemented a process that channels prospective California students to Chamberlain's other campuses, further increasing enrollment and demonstrating the power of the Chamberlain brand and scale. Our students continue to perform well academically, with first-time NCLEX pass rates through the third calendar quarter of 2020 of 91%, which is on par with the national average pass rate. These academic results achieved despite challenges from the pandemic speak to the continued strength of our programs, our acceleration of predictive analytics, and our robust student support. Chamberlain has worked to establish strong connections with community and junior colleges, serving as a further differentiator as we partner with these schools to build a pathway to our programs. Notably, our Jump Start program, which enables students earning an associate's degree in nursing to also take two RN to BSN courses at Chamberlain at no cost to them, is generating strong interest and ultimately enrollments into our RN to BSN degree program. In our medical and veterinary schools, we are focused on expanding and developing stronger relationships with our clinical partners. We've been focusing on driving more synergies between Ross Med and AUC, including combined operations such as marketing, admissions, and student services, as well as joint clinical programs with our partners. As our enrollment continues to grow, we see this as an opportunity to deliver more clinical revenue over the long term while ensuring our students get quality clinical placements in a timely manner. For the January semester, our medical and veterinary schools had a portion of their students successfully returning to campus to continue their educational journey, while other students remain online as we begin calendar year 2021. That being said, we are monitoring the risk of the potential impact of the nationwide surge in COVID-19 on clinicals as we enter the third quarter. We view this risk as manageable and temporary, and we continue to benefit from robust relationships with geographically diverse clinical partners. This enables us to shift a portion of the clinicals from one location to another as needed. In addition, we provide students with an increasing speed of online elective clinical options. Ross Vet continues to see increased demand for its programs as a result of its growing brand recognition, the steady consumer demand for veterinarians, and an increased interest from students in animal health issues, including the role they play in human infectious disease. We are continuing to focus on increasing diversity, access, and inclusion in medicine through the partnerships with HBCU and HSI undergraduate institutions. Since the beginning of 2018, we have enrolled over 580 graduates of HBCU and HSI undergraduate programs in our medical schools. Additionally, we've entered into partnerships with 10 HBCUs and HSIs and are in active conversation with others. To accelerate this effort, as well as build stronger undergraduate advisor relationships, we have combined our efforts across med and vet and formed a new field marketing organization, the Student University Partnership Team. We are already seeing improved results and inquiries as a result. In addition, we recently announced a partnership with minorities in agriculture, natural resources, and related sciences to further our commitment to increase diversity in the veterinary profession and strengthen the pipeline of highly qualified, diverse students pursuing an education in veterinary medicine. As a result of these initiatives and our ongoing focus on execution and agility in meeting students' needs during the pandemic, I'm very encouraged by the promising enrollment trends across our medical and veterinary schools and expect this momentum to continue through the second half of fiscal year 2021. In our financial services segment, we continue to enhance our offerings strengthen our talent and infrastructure, and expand our capabilities to position the segment for long-term growth. As a reminder, at Callum's last two acquisitions, ACAMS and OCL have achieved 23% and 22% revenue cater since acquisition, respectively. And we are confident both businesses are ideally positioned to capture demand to enable further growth in their respective markets. OnCourse Learning's position as the go-to provider in the mortgage industry has allowed it to capitalize on favorable market conditions, differentiating OCL from competitors through a combination of offerings, capabilities, and scale. Demand for pre-licensure and exam prep have been quite strong, and our institutional partners have been able to rely on OCL's robust offerings to support new hires. Licensed mortgage professionals are required to earn continuing education credits to maintain their credentials, and our teams have performed exceptionally well in capturing that demand. At Becker, we are continuing to reinvest in the business to both capture increasing consumer CPA test prep demand and to leverage Becker's brand in the continuing education sector. During the quarter, we saw 20% revenue growth in continuing education, with strong market response in all segments due to our expanded content and webinar offerings. I am strongly encouraged by the traction we're gaining in this space as BRCA brings its expertise to address an important need for professionals and employer partners. CPA test prep continues to see a short-term shift from B2B to B2C sales in response to the pandemic, as professionals in the financial services industry seek certifications on their own, offsetting declines from corporate hiring freezes. Importantly, even with these dynamics, we are adding new institutional relationships, which we expect to bolster our test prep revenue later in the year. As we look ahead, we are excited about enhancements we are making to our certified management accountant offering, which is one of the fastest growing accounting credentials in the world. Our team will bring the Becker experience to the CMA exam prep, and we are already receiving positive feedback from potential customers. ACAMS remains the leader in the rapidly growing anti-money laundering and financial crime certification market, which is critical as global commerce continues its shift online. We intend to continue expanding our offerings to meet the diverse needs within the global market, including driving growth in the anti-financial crime space. In early December, we announced the launch of our new anti-money laundering compliance certification program for fintech firms in partnership with Fintrail, a firm focused on managing exposure to financial crime risk. We're also seeing tremendous growth with our other new certifications, including sanctions, and in the new short course offerings, including know your customer and transactions monitoring. Following the success of our virtual Las Vegas conference in September, we're continuing to hold other virtual conferences, including our Caribbean conference, which took place in early December and had nearly 450 participants. Going forward, we plan to use the hybrid conference model to expand participation by including attendees that aren't able or willing to travel. This will provide an alternative model that can supplement future growth of in-person conferences. With regard to the regulatory environment, we are well positioned to support the Biden administration's priorities, including health care equity, access to education, particularly in health care and for the diverse and underrepresented communities, and championing the fight against financial crime. The Biden administration has made clear that it seeks solutions to these problems facing our nation, and ASALM is addressing all of these challenges and making a measurable social impact. Padtown's medical schools graduate more black physicians than any other school in the United States, and a higher percentage of our students, 41% versus 21% for U.S. medical schools, practice in underserved rural and urban communities where they are needed most. Specifically, over 70% of graduates from AUC and Ross Med who matched in 2020 entered primary care residency programs versus 47% of graduates from U.S. medical schools in aggregate. With regard to other Biden administration priorities, our voluntary student commitments, reviewed by a third party for the past four years, demonstrate alignment with proposed regulations, including our commitment to 85-15 or below for federal funding, including VA and military benefits. Among our Title IV institutions, the percentage of combined revenue coming from Title IV funds is 71%. Recent data published by the Department of Education showed that for fiscal year 2017, our talent institutions had a combined three-year cohort default rate of 3.1%, which is well below the combined rate for private for-profit four-year schools of 12.9%, and it's half the rate of private not-for-profit schools of 6.3%. Further endorsement that our programs and degrees provide a return on investment that employers are willing to fund for their employees, our students, and that our graduates are obtaining employment and paying back their loans to the U.S. taxpayer. Our leadership team is laser-focused on operational execution, as evidenced by our commitment to grow EPS 28 to 32% on revenue growth of 5 to 7% this fiscal year, despite the challenges brought about by the global pandemic. As we achieve further scale and competitive differentiation in healthcare and financial services education Through the acquisition of Walden University and organic growth across the portfolio, we are well positioned to deliver near-term and long-term growth and profitability for our shareholders as we continue to execute our workforce solutions provider strategy. Before turning over to Mike, I also want to mention our recent shareholder engagement. You likely have seen the letters issued by Engine Capital and Hawk Ridge Partners. Members of AdTalent's Board of Directors and Management have met with Engin and Horbridge on numerous occasions in late 2020 and early this year. We will continue our dialogue with them and give careful consideration to the views put forth in their letters to the Board. Several of their suggestions are already being implemented as we have had a clear focus on operational efficiency and streamlining the portfolio for some time. I can assure you that as fellow AdTalent owners, We take our stewardship of your investments extremely seriously. With that, I will now turn the call over to Mike to discuss our financial highlights in greater detail.