All right, we're going to get started. Good afternoon. My name is Stephen Pollock, the Baird Research Analyst covering post-secondary education here at Baird. Our next presenting company is Adtalem Global Education. They operate five health care-focused institutions in the U.S., with more than 80,000 students currently enrolled. Here from the company, we have CEO Steve Beard. We also have in the audience CFO Bob Phelan and Head of IR, Jay Spitzer. I will turn it over to you, Steve, for some opening comments.
Yeah, thanks for having me. I've got a few slides that I'll walk through that will introduce the story. I'll take as little time as possible with that. Safe harbor statement, forward-looking statements, you guys know all of that. Adtalem Global Education, we are a mission-driven organization focused on doing a couple of really important things. The first is expanding access to high-quality clinical careers for a universe of students that have historically been overlooked by traditional higher ed. Also, we're really focused on doing our part to address what we think are some of the critical clinical workforce shortages in health care: steep asymmetry between supply and demand for nurses, physicians, veterinarians, and social workers. It's a fantastic time to be in our business. It's a fantastic time to be able to provide this support to health care.
Given everything that is going on in higher education, it is a really great time to be in the business of expanding opportunity to high-quality, career-focused programs. As Stephen mentioned, we go to market through five institutions, all post-secondary higher ed, all with a center of gravity in health care, currently serving about 92,000 students or 94,000 students. The slide corrects me. 92% of the programs and the enrollment across those five institutions are health care. Chamberlain University, which is the country's largest nursing school, a little over 40,000 students, a mix of pre-licensure and post-licensure nursing, campus-based programs, and online programs. By far, from a scale perspective, the leader in the nursing category, physical presence in 17 states across 23 campuses, the largest product there being the Bachelor of Science in Nursing degree.
Walden University, which is a comprehensive, fully online university with just under 50,000 students, takes to market a wider variety of programs, over 100 programs, all online. Within Walden, we have the third largest nursing school in the country, which is primarily post-licensure. In our medical and veterinary segment, we have three institutions: two medical schools, the Ross University School of Medicine, the American University of the Caribbean School of Medicine, and the Ross University School of Veterinary Medicine. About 4,500 students in total across those three institutions. We are two of the largest medical schools serving the U.S. market and by far the largest veterinary medical school serving the U.S. market, furnishing about 9% of all vets that go into U.S. practice every year.
It's a fantastic platform with a great breadth of programs covering bachelor's degrees all the way through doctoral programs in some of the most high value and high sought-after clinical careers out there: medicine, veterinary medicine, nursing, and social work. For the last two years, we have been pursuing a strategy primarily focused on operational excellence. We refer to it as growth with purpose. It's a strategy intended to take the five institutions that we've integrated since our acquisition of Walden and really get best in class at pulling the levers of value creation across those businesses, which fall into five categories: marketing, enrollment, retention, pricing, and programs. We are two years into what we have architected as a three-year strategy. The results on that strategy have been really fantastic.
We've been super pleased with our ability to both improve our ability to attract students to our program, to get them enrolled in our programs, to ensure they persist through our programs, get their credential, and on to the next chapter of their careers. We've had real success with pricing optimization, and we're eager to complete that three-year journey by bringing online a host of what we think are market-responsive new programs. You see on this page some of the empirical results of that strategy as we've been able to grow total enrollment sequentially now over nine straight quarters. At the same time, we've been able to grow revenues and profitability along the way. We'll get into some of that. It is a trajectory in a normalized demand environment that's really unmatched by any of our peers in the space.
We are taking share in the programs where we compete. We are doing it in a way, just as importantly, that has an outsized impact on the availability of nurses and physicians, social workers, and other clinicians who are sorely in need across U.S. health care. Financial performance, which I made reference to a moment ago, revenue has been having a nice trajectory over the last several years, almost all organic, growing within the constraints of our existing profile. It has not required a ton of capital investment in new campuses or new programs, taking full advantage of the headroom, which we are able to do because we are just getting much better at executing on those value drivers that I mentioned earlier.
At the same time, doing that while expanding the profitability of the business, going from a starting point, which several years ago we thought was somewhat anemic, to a place that we think is largely competitive with some of the best names in the space, while still investing in the future competitiveness of our business and expanding our competitive moat. Earnings per share, obviously growing in an attractive way as that profitability flows through earnings. As we, with Bob's help, are increasingly thoughtful stewards of the balance sheet, managing both debt on the balance sheet and also taking advantage of opportunities to return capital to shareholders through aggressive share repurchase.
Some of the metrics we're super proud of at Adtalem by the numbers: number one grantor of nursing degrees, the number one grantor of MD degrees in the country, social and behavioral sciences, super important in a world where I think we all agree we're living through a bit of a mental health crisis. Number one confer of the master in social work degree, which is the gateway credential for clinical social work. Super proud of that. A huge alumni base practicing all over the country, bedside care, but also in administration and health care leadership. As I mentioned earlier, in veterinary medicine, by far the category leader. We do this with academic outcomes that we're extremely proud of, particularly given the profile of the student we serve.
Great NCLEX pass rates in nursing, great NAVLE pass rates for veterinary programs, first-time Step 1 MLE, which is kind of the gateway exam you take before you move to the clinical portion of your medical school journey. Really, really fantastic outcomes there. First-time residency match rates, which is what every aspiring medical student looks at when they're choosing a medical school. Very great results there across a whole host of residencies, from the esoteric plastic surgery to family medicine. We're placing physicians all over the country in all kinds of communities and all sorts of disciplines.
While the cohort default rate did not mean much over the last few years because most students were not obligated to repay their loans, although that has recently changed, we enjoyed arguably the lowest cohort default rates in all of higher education, which is a reflection of the employability of our students and the kinds of remuneration they receive in their professions. These are attractive, high-paying, stable professions. Our students can service the loans they use to finance their education and go off to live comfortable and prosperous professional lives. In some mission-driven organization, unmatched scale, serving what we believe is an underserved community of learners, doing it in a way that we believe will have an outsized impact on the quality of care we all rely upon in U.S. health care, and doing it in a way that we think presents tremendous value for our owners.
We've got an incredibly attractive free cash flow profile. We've got really strong earnings that we think are sustainable over time. We're benefiting from what we think are fantastic secular demand trends, both from employers and from aspiring students. We think we're on a path that is entirely sustainable and that will keep us well ahead of our competitor set for the foreseeable future. With that sort of backdrop on the company, its mix of institutions and programs, happy to get into it.
Yeah, thank you. If there's any questions in the room, session5@rdbbear.com. Maybe just start, give me a couple of references to sort of the student that you target. Who is that targeted student? Who are you kind of looking to go after?
Yeah, so we serve what used to be known as the nontraditional student. These are working adults. These are folks that come to their academic journeys late in life. These are veterans. These are often first-generation college students, folks who grew up in homes where English wasn't the first language spoken. We take to market programs that serve the part-time student, serve the student that wants to go to school nights and weekends, someone who wants to stop and maybe start their program later. We have a number of self-paced, competency-based programs. It is all about being adaptable, flexible, and where appropriate, personalized to meet the needs of those students. That is against a backdrop where we believe traditional higher education has largely chased a value proposition rooted in selectivity and prestige, where folks really take a lot of pride in the number of students they turn away.
We take a ton of pride in the number of students we accept and the number of students we get on into these very attractive programs and professions. We are the largest producer of Black physicians in the United States, something we are very proud of, the largest producer of Latino physicians in the United States. The same is true in nursing and our other disciplines. At a time where health inequities are stubborn and enduring and can be addressed with a more diverse clinical workforce, we are proud to play a big part in delivering that.
What is the competitive environment like for that student? What are you seeing from maybe a cyclical demand element? You have had strong enrollments. I am just wondering how much that is. Is demand good? Is the competitive environment getting better for you? What is driving some of the strong results you have had recently?
Yeah, so I think I would describe the demand environment as normalized. Obviously, COVID had devastating impacts on higher education as a category. There was a one-time reset in demand post-COVID. Now that we're in a normalized environment, I think we're in a position to take more than our fair share for all the reasons I talked about at the outset. From a competitive perspective, what we're seeing, more players, particularly proprietary players, are chasing the health care thesis. We've seen folks that historically have not participated in that market move into it, like UTI, for example. We see other folks doubling down on health care. We think we've got a very attractive and sustainable competitive moat. Nursing, our biggest product, is a state-by-state exercise. Every state has its own state board of nursing that has to approve a new nursing program there.
We've got a permission to enroll students on an uncapped basis all over the country. We've got brand equity. We've got great clinical relationships. We've got a fantastic reputation among students. Even though there are more folks chasing the nursing and health care thesis, the demand is growing. We continue, we believe, to outpace those competitors in our value proposition for students.
What's the benefit to having both Chamberlain and Walden as separate go-to-market institutions? You touched on it a little bit, but maybe you can provide more detail in terms of what's the brand perception among students for each of Chamberlain and Walden?
Yeah, so Walden and Chamberlain, in our view, are two highly complementary institutions. The number one and number three largest nursing school in the country, one that's fully online and all post-licensure, one that has a heavy focus on pre-licensure nursing and offers both campus-based and online enrollment. The brand in Walden is viewed very favorably by corners of the nursing marketplace that are not as strong for Chamberlain. For example, Walden, we believe, owns the MSN, the Master of Science in Nursing category. They are the category leader there. Chamberlain, by contrast, owns the Bachelor of Science in Nursing market there. Positioning those two brands as distinct and taking them to market in a distinct way allows us to capture more of the overall share as opposed to trying to harmonize the programs and the brand perceptions of those two institutions.
Gotcha. What's the sort of pricing level, pricing philosophy, maybe for nursing especially, but kind of more institutions overall?
Yeah, a real distinction there also. Chamberlain is a premium brand with incredible brand equity, and we're able to price the programs accordingly. Walden is a bit more of a fighter brand. As a result, their programs are priced incrementally south of where Chamberlain's programs are. Taken together, it provides sort of a fantastic mix of enrollment opportunities for us, even at those two price points. Because Walden is a fully online university without some of the capital and expensivity of Chamberlain, even at a lower price point, Walden represents a fantastically profitable model for us in nursing.
I have just a question we get often. What's sort of the pricing philosophy or the contribution to the growth algorithm from pricing?
Yeah, so we think about it as price optimization. In some instances where we have pricing power, I'll take the medical schools, for example. We were priced well south of our competitors there. We had pricing power. We've incrementally taken advantage of that over the last couple of cycles. That's a big contributor to the overall revenue story. Over in Walden, we had some programs where we had crept up in price in ways where we were actually losing some enrollments. We calibrated down to get a better mix there. We're toggling between where do we have brand equity to take price up, how does that affect us competitively relative to our peers, and where we're overpriced, where do we calibrate down to get more enrollment. We've had a ton of success with that.
You can't pull the pricing lever all the time, but I think we've done it in a thoughtful way.
OK. Like I said, since the last couple of years, especially since the growth of purpose strategy was implemented, you've had a lot of success. Enrollment and growth have been sort of better than a lot of the history of Adtalem. I guess what's changed? What's different? Give us confidence in the sustainability of the recent results.
Yeah, I think it really goes back to the strategy, the growth of purpose strategy, which operational excellence isn't a sexy strategy to pursue, but it is one that has real durable benefits. I'll just use marketing as an example. Historically, like a lot of folks in our space, we had concentrated most of the marketing investment at the bottom of the funnel, performance marketing, intended to drive conversion in period. When I came into the seat, I hired a Chief Marketing Officer from CPG who had a ton of conviction that we should be balancing that investment between the top of the funnel and the bottom of the funnel, that brand investments, while they take longer to pay off, they are more durable. Done correctly over time, they actually drive down the cost of acquiring new customers. That's actually worked for us.
That new philosophy on marketing mix, both at the institution level and then at the program level and now at the market level, has allowed us to bring the acquisition cost for students consistently down over the course of the last two and a half years. Those are the kind of improvements in operating the business that we can drive consistently over time, particularly given the demand environment we have. Everything we're doing around persistence, when you drive up the persistence of students, it has a host of benefits. We're enjoying near-record persistence across many of our largest programs. You get the lifetime value of the student, really important in programs like medicine, which are longer and more expensive. You get the reputational benefit of getting students through to their degree and off to their careers.
Just as importantly, it is less expensive to keep a customer than to acquire a new one. You bring really attractive new enrollment trends over high persistence numbers, then you create a flywheel in total enrollment. That is what you have seen as you have watched our total enrollment number grow over the last few cycles. These are ways of running the business that are repeatable and scalable. As long as we are enjoying the kind of secular demand trends we have today, we believe they bode well for the growth of the business over the next several cycles.
I guess looking out, right, so persistence, you've had good success with marketing. You've made some investments. As we look over the next two, three years, what elements are most impactful to sort of sustain this growth rate? Is it new programs? Is it closer connections with the health care systems to provide employment opportunities? Like I said, from here, what's sort of that next incremental step?
I think it starts with student success and ensuring that as we grow, particularly when you're growing in the low teens, you're dropping a ton of new students on the platform. Any leakage in student outcomes becomes a barrier to growth. Protecting academic performance and student success is job one. Beyond that, it's about ensuring that we are maximizing the existing capacity we have in the model to the extent we've got campuses that have had room and programs that have had room, ensuring we're creeping up to something that feels more like capacity enrollments. Then it's thoughtfully bringing on new capacity in the form of new programs, which we're actively doing, but also in some instances moving into new geographies where we do not have real presence today, but we think we have lots of room to grow once we enter those markets.
We're looking at California and Colorado and New York State as attractive places to grow the nursing franchise. Fully maximizing existing capacity, bringing on new capacity, preserving student outcomes, even in an environment of rapid growth, we think is the formula for sustaining growth over time.
OK. The margin has done well. Part of that, I think, is the operating leverage of the enrollment growth. What is the operating leverage on sort of incremental enrollment? What maybe specific investments have to be made in order to increase capacity?
Yeah, so we believe in the integrated model that we have today, where we're supporting all five of our institutions on a single chassis, if you will. We have real operating leverage in the business. We can grow revenues and grow enrollment without commensurate growth in expense along the way. That is inclusive of marketing expense. Where we toggle between, and Bob and I spent a lot of time talking about this, is what's the right way to think about the need to deliver that additional incremental margin to the bottom line and to ensure that we're making the kinds of investments in the future growth of the business to ensure that we can persist with this trajectory over time. Where we've guided to date is for folks to expect about 100 basis points of margin improvement each year. We've been able to beat that.
We have guided to that extent this year. We are always going to try to win today and win tomorrow and deliver attractive profitability today on an incrementally expanded basis, but also ensure that we have the right programs, the right student support, the right kind of marketing campaigns to protect that really attractive earnings profile well into the future.
OK. On the med vet school, there were some challenges in the medical school specifically. Some of the changes that were made around that, I think, kind of go back to things we talked about with growth of purpose. What's the outlook for those businesses? How quickly can they reaccelerate? What's kind of the structural growth rate for that business?
Sure. In the medical and veterinary segment, and the med schools in particular, you only have three enrollment cycles in a given year. We had one really awful enrollment cycle, which we attribute entirely to an execution failure on our part. We were very transparent about that. We launched a whole host of remediation measures, including changing out the leadership of the segment, changing out the leadership of the enrollment teams. The challenge with the medical schools is it's a four-year program. It's a 100-day sales cycle. It takes a longer period of time to change the trend line in that business than it does in Chamberlain and Walden. The good news is that even if bad news has a long tail in that business, good news has a long tail as well. We've now turned the corner there.
We've gone positive total enrollment year over year in the segment. We look forward to building on that momentum with the medical schools going forward. Our goal is to ensure that we are the leading option for anyone considering a Caribbean medical school as the vehicle to getting an MD. We believe we are well on our way to achieving that.
Great. Thinking out to fiscal 2026, you're at junior end, so coming up at the end of fiscal 2025 now. How do we think about, like I said, 2026 outlook expectations? You provided targets at the investment a couple of years ago for revenue up 5%-8%, EPS up 13%-18%. For both 2024 and 2025, you've been well ahead of those targets. How do we think about 2026?
Yeah, so Bob reminds me, we'll be out with guidance for fiscal 2026 in August when we are announcing Q4 and full year results. We believe now is a good time to think about another investor day. We're working on the logistics of that. We're aiming for the first calendar quarter of next year. At that point, we'll have multi-year projections for the business. For the moment, we believe the prior guidance that you just articulated, mid-single digits revenue, 100 basis points of margin, that's still a fair baseline to think about performance for this business. We're going to do everything we can to beat it. Given the experience we've had over the last two years beating that guidance, when we come out with new multi-year targets, we will factor that into where we peg those goals over the next three years.
OK. Switching gears to the regulatory environment. Conversation of funding cuts, the Department of Education, labor reductions there, intentions to fully dismantle the Department of Education. What would that mean for your business? Just A, from A, maybe reduced capacity as well as a sort of full elimination of the department.
The news cycle coming out of Washington is pretty exhausting. The one thing we try to ensure that no one loses sight of is that the current regulatory environment for proprietary higher education companies is as good as it has been in a very, very long time. This is a very attractive environment for Adtalem and its peers in the space. Noise notwithstanding, the administration and its Department of Education believes that we shouldn't be making distinctions amongst post-secondary institutions on the basis of capital structure or tax status. They believe those distinctions should be made on the basis of student success, academic outcomes, and return on investment. Those are attributes or measurements where we show very well. What folks are focused on most recently are some of the provisions in the reconciliation bill that is now in the Senate, the so-called Big Beautiful Bill.
Folks have focused primarily on the bad news for higher education. However, there's also good news in the reconciliation bill. The important distinction is that the bad news in the reconciliation bill applies to all of higher ed, for-profit, not-for-profit, public, private. The good news in the reconciliation bill focuses primarily on proprietary operators. When you net those two, and I'll walk through them specifically, it's actually a good news story for us. Who knows if the bill ever becomes law? If it does, there's a proposal to get rid of gainful employment. There's a proposal to get rid of borrower defense to repayment. There's a proposal to eliminate 90/10, all of which are regulatory headwinds for proprietary operators and goes a long way towards putting those institutions on similar footing as their not-for-profit peers. We think that's fantastic.
That has not gotten enough attention. On the negative side, you've got proposals to eliminate the Grad PLUS Loan program, to eliminate the Parent PLUS Loan program, to propose aggregate borrowing limits for graduate programs, of which we have a ton. Off to the side, the White House tossed out their budget proposal a couple of days ago, which proposes slashing funding for the Department of Education, which you mentioned, and also slashing funding for the Pell Grant program. That is bad news for everyone in higher education. When we look at that in the aggregate, we do not believe that if that bill were to be adopted as drafted today, it represents a material threat to our business. There are a couple of reasons why. We have long, as a proprietary operator, had to think about alternative financing sources for our programs.
We believe for students that run into borrowing limits or are not able to avail themselves of lending programs that have gone away, there are private lending options that are now available for them. We would bring those online for our students. The Pell Grant, which I was a Pell Grant student 30 years ago, fantastic program. If you brought down the aggregate value of the Pell Grant, the student will need to make up the delta somewhere else. We believe through scholarshipping, through employer pay, and through private loan programs, we can close the gaps for those students. We believe that we have the tools and vehicles necessary to help our students if that becomes an impediment to them continuing their studies.
On cutting funding for the Department of Education, I will tell you, I think most of that is really aimed more towards K-12 than higher education. Philosophically, this administration thinks K-12 education should be a state prerogative, not a federal prerogative. I've visited with the Department of Education twice so far in this administration. I believe that they are committed to ensuring they're being responsive to the needs of institutions, even with a diminished staff. We'll see how that plays out in reality. Those staff cuts are currently being challenged in court, as I think you know. We'll see what comes of that also. Very noisy, very chaotic, certainly a reason for concern. As you get closer to the specifics of those dynamics, we think they are all things we can manage.
We also think that some of the positive things happening for our sector in those bills are really positive for us. We're excited about them.
OK. I think with that, we're at time. Please join me in thanking Steve for his insights.