Adtalem’s Q2 Earnings & Revenue Exceed Expectations Adtalem (ATGE) Q2 Earnings & Revenues Surpass Estimates, ’24 Guidance Revised Upward

Written By Michael Gary Scott

Adtalem Global Education Inc. ATGE has reported a strong performance for the second quarter of fiscal 2024. Both earnings and revenues have exceeded the Zacks Consensus Estimate and displayed impressive year-over-year growth.

Following this positive news, the leading education provider witnessed a 1.6% increase in after-hour trading on January 30.

The company’s second-quarter results are reflective of robust enrollment growth and a successful execution of its Growth with Purpose strategy. The emphasis on this growth strategy has facilitated organic revenue expansion, enhanced operational efficiencies, and delivered exceptional academic outcomes. Encouraged by the favorable momentum of the quarter, ATGE has raised its fiscal 2024 guidance. Equipped with over 81,000 students and 300,000 alumni, the company is well-positioned to combat critical shortages of healthcare providers.

Earnings & Revenue Discussion

Adjusted earnings per share (EPS) of $1.23 have exceeded the Zacks Consensus Estimate of $1.01 by 21.8% and demonstrated a 51.4% increase from $1.17 in the year-ago quarter.

Adtalem Global Education Inc. Price, Consensus, and EPS Surprise

Adtalem Global Education Inc. Price, Consensus and EPS Surprise

Revenues of $393.2 million have surpassed the consensus estimate of $374.1 million by 5.1% and demonstrated an 8.4% year-over-year increase. The impressive results were propelled by strong demand at Chamberlain University and Walden University.

During the second fiscal quarter, the total student enrollment increased by 6.2% to 81,772 students, outperforming our Zacks model prediction of 77,607 students for the reported quarter.

Adjusted operating income decreased by 3% from the previous year, totaling $75.6 million. The adjusted operating margin contracted 230 basis points (bps) year over year to 19.2%.

Adjusted EBITDA escalated by 2.3% from the prior-year quarter to reach $92.6 million, yet the adjusted EBITDA margin shrank by 150 bps year over year to 23.5%. This value can be contrasted with our projection of 20.5% for the metric.

Segment Details

Chamberlain: The segment recorded an 8.6% increase in revenues from the year-ago quarter, reaching a total of $153.6 million. Furthermore, the total student enrollment rose by 6.6% to 35,592 students, driven by sustained growth in pre-licensure and post-licensure nursing programs as well as increased persistence across the segment.

Adjusted operating income for Chamberlain decreased by 10.8% from the prior-year quarter to $29.6 million, while the adjusted operating margin contracted by 420 bps year over year to 19.3%. The segment’s adjusted EBITDA was $36.9 million, down 2.2% from the previous year’s level. Additionally, the adjusted EBITDA margin also witnessed a 270 bps decline, settling at 24%.

Walden: This segment generated revenues of $146.8 million, indicating an 11.3% year-over-year increase. The quarter saw a 7.9% rise in total student enrollment to 40,971 students, led by growth in healthcare and non-healthcare programs, as well as a high persistence rate.

Walden’s adjusted operating income amounted to $30.2 million, reflecting a 3.9% increase from the previous year. The adjusted operating margin contracted 140 bps year over year to 20.6%. Adjusted EBITDA also improved, reaching $34.6 million, up 9.8% from the prior-year period, although the EBITDA margin dropped 30 bps year over year to 23.6%.

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Medical and Veterinary: The segment observed a 3.8% increase in revenues, amounting to $92.9 million from the year-ago quarter. However, the total student enrollment declined by 7.5% from the prior-year level to 5,209. This is attributed to no new enrollment period starting in the fiscal second quarter of 2024, consistent with the prior quarter.

Adjusted operating income for this segment decreased by 2% from the prior year’s figure to $22.5 million. The adjusted operating margin also contracted by 130 bps year over year to 23.8%. Adjusted EBITDA witnessed a 2.3% increase from the prior year, reaching $26.4 million, but the EBITDA margin shrank by 40 bps year over year to 28.4%.

Liquidity & Cash Flow

As of December 31, 2023, Adtalem held cash and cash equivalents amounting to $182.9 million, compared with $273.7 million at the end of fiscal 2023. The long-term debt stood at $696.4 million, up from $695.1 million at the end of fiscal 2023. The net debt to adjusted EBITDA ratio for the trailing 12 months was 1.5x at the end of December 2023.

In the first six months of fiscal 2024, net cash provided by operating activities (continuing operations) totaled $83.1 million, indicating growth from $42.3 million in the year-ago period. Additionally, free cash flow for the quarter was noted at $(23) million, showing an improvement from $(53) million a year ago.

Revised Fiscal 2024 Guidance

Adtalem has revised its fiscal 2024 guidance, now projecting revenues in the range of $1,520 million to $1,560 million, up from the previous expectation of $1,470 million to $1,530 million. Furthermore, the adjusted EPS is expected to be within the range of $4.55 to $4.75 per share, an increase from the earlier estimate of $4.25 to $4.45 per share.

Zacks Rank & Key Picks

Adtalem currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Consumer Discretionary sector include:

H World Group Limited HTHT, which currently sports a Zacks Rank #1 (Strong Buy). The stock has demonstrated a trailing four-quarter earnings surprise of 94.5%, with a 33.5% loss over the past year. The Zacks Consensus Estimate for HTHT’s 2024 sales and EPS indicates an improvement of 7.9% and 9.8%, respectively, from the year-ago levels.

Atour Lifestyle Holdings Limited ATAT also holds a Zacks Rank of 1. The stock showcased a trailing four-quarter earnings surprise of 15.5% and has experienced a 32.9% downturn in the past year. The Zacks Consensus Estimate for ATAT’s 2024 sales and EPS implies growth of 14.2% and 48.6%, respectively, from the year-ago levels.

Netflix, Inc. NFLX, currently sporting a Zacks Rank of 1, has displayed a trailing four-quarter earnings surprise of 5.4% and recorded a 55.5% gain in the past year. The Zacks Consensus Estimate for NFLX’s 2024 sales and EPS suggests growth of 11.7% and 21.8%, respectively, from the year-ago levels.

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