Executive Summary / Key Takeaways

• Adtalem Global Education (NYSE: ATGE) is capitalizing on robust demand for healthcare professionals through its focused "Growth with Purpose" strategy, driving significant top and bottom-line expansion.
• The company's third quarter fiscal year 2025 results demonstrated strong momentum, with revenue increasing 12.9% year-over-year to $466.1 million and adjusted earnings per share surging 28% to $1.92, reflecting operational leverage and effective capital allocation.
• Enrollment growth continues across segments, notably at Chamberlain University (nursing) and Walden University (online, behavioral health), with the Medical and Veterinary segment returning to growth in Q3 FY25, indicating successful execution of strategic initiatives.
• ATGE is leveraging technology, including AI integration and advanced analytics, to enhance student experience, improve outcomes, and drive operational efficiencies, strengthening its competitive position.
• Management significantly raised its fiscal year 2025 guidance, now projecting revenue of $1.76 billion to $1.775 billion and adjusted EPS of $6.40 to $6.60, signaling confidence in sustained performance and future growth investments.

Adtalem Global Education: Forging a Path in Healthcare Education

Adtalem Global Education stands as a prominent leader in U.S. healthcare education, strategically positioning itself to address the nation's critical and growing workforce shortages in nursing, medicine, mental health, and veterinary sciences. The company's journey reflects a deliberate transformation, notably marked by the divestiture of DeVry University in 2018 to sharpen its focus and the significant acquisition of Walden University in 2021, which expanded its footprint, particularly in online and behavioral health programs. This history has culminated in the current portfolio of institutions – Chamberlain University, Walden University, American University of the Caribbean School of Medicine (AUC), Ross University School of Medicine (RUSM), and Ross University School of Veterinary Medicine (RUSVM) – all aligned under the banner of its "Growth with Purpose" strategy.

This strategy, now in its second year, is fundamentally an operational excellence framework centered on integrity, relentless execution, and disciplined innovation. It aims to expand access to quality education, enhance student outcomes, and efficiently deliver talent to high-demand sectors. The success of this approach is increasingly evident in the company's recent financial and operational performance, demonstrating how strategic focus and operational rigor are translating into tangible results for students, partners, and shareholders.

Competitive Positioning in a Dynamic Landscape

The postsecondary education market, particularly in healthcare fields, is competitive, featuring a mix of traditional non-profit institutions and publicly traded peers. Adtalem competes directly with companies like Grand Canyon Education (LOPE), Strategic Education, Inc. (STRA), Laureate Education (LAUR), and Perdoceo Education (PRDO), each with varying strengths in online, vocational, or international markets.

Compared to peers, Adtalem has recently demonstrated superior revenue growth momentum. In the third quarter of fiscal year 2025, ATGE's revenue grew 12.9% year-over-year, and 16.1% for the first nine months of FY25, outpacing recent growth rates observed at competitors like LOPE (8-10%), STRA (5-7%), LAUR (6-8%), and PRDO (4-6%). This indicates Adtalem's effective capture of market demand and enrollment efficiency relative to rivals.

While some competitors like LOPE may exhibit higher operating margins (LOPE ~35% vs. ATGE's implied ~23% adjusted operating margin in Q3 FY25), suggesting greater cost efficiency, Adtalem's strategic focus on healthcare specialization provides a distinct market positioning. Its institutions hold leading positions, such as Chamberlain being the nation's largest nursing school and Walden being a national leader in mental health education and a major producer of MSN graduates. Ross Vet is also highly ranked in veterinary internships and residencies. This specialization allows Adtalem to command pricing power and tailor programs directly to industry needs, potentially leading to higher value per student despite potentially higher operating costs in certain areas like clinical training or specialized facilities.

Adtalem's competitive advantages are increasingly tied to its operational execution and technological integration. While customer acquisition costs may be higher than some peers, the company's investments in enhancing the student experience and improving persistence rates are crucial for long-term value. Regulatory requirements, such as accreditation, also act as significant barriers to entry, favoring established institutions like Adtalem's.

Indirect competition from platforms offering lower-cost, non-degree alternatives or emerging AI learning tools poses a broader challenge to the sector. However, Adtalem's focus on accredited, career-oriented degrees, particularly in fields requiring licensure and hands-on training, provides a degree of insulation from these disruptors compared to more general education providers.

Technological Edge and Innovation

Technology and innovation are central pillars of Adtalem's strategy, serving as key differentiators and drivers of operational efficiency and student success. The company is actively integrating digital tools and artificial intelligence across its institutions to enhance the learning experience and improve outcomes.

A core aspect of Adtalem's technological differentiation lies in its online learning platforms and digital infrastructure, particularly at Walden University. These platforms are designed for flexible distance learning, catering specifically to working adults. Recent enhancements, such as the redesigned Walden website and investments in cutting-edge technology, aim to streamline the student journey from inquiry through graduation.

Adtalem is also leveraging data analytics, including predictive analytics, to enhance retention and academic outcomes. By identifying students who may need additional support, the company can intervene proactively, improving persistence rates which are critical for both student success and financial performance.

A significant area of innovation is the integration of Artificial Intelligence. Adtalem has partnered with Hippocratic AI to develop AI-driven curricula and train healthcare professionals in the practical use of AI in care delivery, including plans for the first-ever AI certification for students. Chamberlain University has launched "Nurse Ally," an AI tutor that has received positive student feedback and is being rolled out to additional programs. While specific quantifiable benefits like percentage improvements in efficiency or cost reduction targets for these AI initiatives are not detailed, the stated goal is to enhance the student experience, improve learning outcomes, and prepare graduates for the evolving technological landscape of healthcare. This focus on integrating AI into the curriculum and student support systems positions Adtalem at the forefront of educational technology adoption in healthcare fields, potentially creating a competitive moat by producing graduates with sought-after skills.

These technological advancements contribute to Adtalem's competitive moat by improving the quality and accessibility of its programs, enhancing student engagement and retention, and potentially driving operational efficiencies over time. While direct quantitative comparisons of the impact of these technologies versus competitors are not available, management's commentary suggests these investments are contributing to the observed enrollment growth and operational leverage.

Operational Execution and Segment Performance

Adtalem's "Growth with Purpose" strategy is yielding tangible results across its segments, reflecting strong operational execution. Total enrollment has shown consistent year-over-year growth, reaching over 94,000 students as of Q3 FY25, marking seven consecutive quarters of expansion.

Chamberlain University: This segment continues to be a significant growth engine. In Q3 FY25, Chamberlain's revenue increased 13.1% to $192.6 million, contributing substantially to consolidated revenue growth. Adjusted operating income for the quarter was $47.5 million, up 9.6%. The growth is driven by strong enrollment increases (6.8% in Q3 FY25), particularly in the undergraduate BSN and online MSN programs, higher tuition rates, and favorable program mix. The expansion of the BSN Online program, now available in 36 states with 53 clinical hubs, is a key operational achievement, bringing nursing education to underserved areas. Investments in student support and academic outcomes, while impacting short-term margins, are aimed at sustaining high persistence rates.

Walden University: Walden has demonstrated remarkable acceleration under the new strategy. Q3 FY25 revenue grew 18.5% to $178.4 million, with adjusted operating income soaring 50.6% to $48.0 million. Enrollment increased 13.5% year-over-year, exceeding pre-pandemic levels. This performance is attributed to robust enrollment growth across master's and undergraduate degrees, higher tuition rates, increased average credit hours, and continued high persistence rates. Operational excellence and efficiencies have generated significant leverage, outpacing investments in digital enhancements and student support. The "Get the W" campaign and digital innovations have successfully boosted inquiries and conversion rates.

Medical and Veterinary: This segment returned to enrollment growth in Q3 FY25, with total student enrollment up 1.2% for the January 2025 semester. Q3 FY25 revenue increased 3.6% to $95.0 million. Adjusted operating income, however, decreased 21.9% to $17.9 million in Q3 FY25. While revenue benefited from tuition rate increases, profitability was impacted by increased investments to drive future growth, enhance academic support, and a higher provision for bad debts. Management is focused on increasing enrollment and operational effectiveness, with initiatives like the clinical return home program and efforts to improve the enrollment experience showing early positive returns, particularly in inquiry-to-enrollment yield for the January intake. Ross Vet continues to operate near capacity and maintains strong residency matching rates.

Financial Health and Capital Allocation

Adtalem's strong operational performance has translated into robust financial health and cash flow generation. Net cash provided by operating activities from continuing operations increased by $46.7 million in the first nine months of FY25 compared to the prior year, reaching $273.8 million. This was primarily driven by the significant increase in operating income.

The company maintains a healthy balance sheet with a low adjusted EBITDA net leverage ratio (0.8x as of Q3 FY25). It has actively managed its debt, making a $100.0 million prepayment on its Term Loan B in January 2025, reducing the balance to $153.3 million and lowering interest expense. As of March 31, 2025, total long-term debt stood at $552.2 million.

Capital allocation reflects a balanced approach. Investments are prioritized to expand program capacity, enhance student-facing capabilities (including technology), and support growth initiatives. Capital expenditures were $31.3 million in the first nine months of FY25, focused on IT and Chamberlain campus development, with full-year FY25 capital spending anticipated in the $40.0 million to $50.0 million range.

Concurrently, Adtalem has demonstrated a strong commitment to returning value to shareholders through share repurchases. The company completed its thirteenth and fourteenth share repurchase programs and authorized a new $150.0 million fifteenth program through May 2028. Share repurchases significantly reduced diluted shares outstanding, contributing positively to earnings per share growth.

Outlook and Guidance

Based on the strong performance and continued momentum, Adtalem's management significantly raised its fiscal year 2025 guidance. The company now expects full-year revenue in the range of $1.76 billion to $1.775 billion, representing approximately 11% to 12% growth year-over-year. Adjusted earnings per share are projected to be between $6.40 and $6.60, indicating approximately 28% to 32% growth year-over-year.

This raised guidance reflects the expectation of continued operational leverage, with adjusted EBITDA margin expansion anticipated to be greater than 150 basis points in FY25, an increase from prior forecasts. Management plans to increase growth investments in the fourth quarter of FY25, strategically positioning the company for further expansion in fiscal year 2026, where they anticipate adjusted EBITDA margin expansion of 100 basis points plus.

The outlook is underpinned by confidence in sustained enrollment momentum, driven by the effectiveness of the "Growth with Purpose" initiatives, ongoing investments in student experience and technology, and the persistent high demand for healthcare professionals. While revenue growth is expected to be slightly more balanced between the first and second halves of FY25 compared to the accelerating trend in FY24, the overall trajectory remains positive.

Risks and Regulatory Considerations

Despite the positive momentum, Adtalem operates in a highly regulated environment, which presents ongoing risks. Participation in U.S. federal financial aid programs (Title IV) is critical but subject to complex regulations and potential changes in government policy or funding.

A key area of regulatory focus is the U.S. Department of Education's (ED) financial responsibility test. Adtalem's consolidated composite score declined to 0.20 for FY22, leading to provisional certifications for its institutions and requirements to post letters of credit. As of March 31, 2025, Adtalem had $179.0 million in letters of credit outstanding in favor of ED. While management believes these conditions will not have a material adverse effect on operations, changes in financial responsibility regulations or other triggers could require additional letters of credit in the future.

The new Gainful Employment (GE) rule, effective July 1, 2024, introduces debt-to-earnings and earnings premium tests for certain programs. Programs failing these metrics could face disclosure requirements or loss of Title IV eligibility. Adtalem is evaluating the potential impact, but the outcome is subject to various factors and ongoing legal challenges seeking to block enforcement.

Compliance with the 90/10 Rule, which limits the percentage of revenue from federal education aid for proprietary institutions, is also critical. Adtalem's institutions were below the 90% threshold in FY24 and FY23 under the amended rule, but maintaining compliance requires ongoing monitoring and strategic management of revenue sources.

Other risks include ongoing litigation related to past divestitures, potential borrower defense to repayment applications, and the possibility of goodwill or intangible asset impairments if economic conditions or operating performance deteriorate significantly.

Conclusion

Adtalem Global Education's "Growth with Purpose" strategy is clearly delivering results, positioning the company as a key provider of talent to the in-demand U.S. healthcare sector. The recent third quarter fiscal year 2025 performance, marked by strong revenue and earnings growth, underscores the effectiveness of its operational execution and strategic focus. Enrollment momentum across its core segments, coupled with investments in technology and program expansion, suggests a sustainable growth trajectory. The significant increase in fiscal year 2025 guidance reflects management's confidence in the company's ability to continue leveraging market opportunities and generating operational leverage. While regulatory risks and competitive pressures remain inherent to the industry, Adtalem's specialized focus, operational rigor, and commitment to innovation provide a solid foundation. For investors, Adtalem represents an opportunity to participate in addressing a critical societal need while benefiting from a company demonstrating strong financial performance and a clear path for future growth.