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Vocational education company Adtalem Global Education (NYSE:ATGE) beat analysts' expectations in Q2 CY2024, with revenue up 12.4% year on year to $409.9 million. The company's full-year revenue guidance of $1.68 billion at the midpoint also came in 1.2% above analysts' estimates. It made a non-GAAP profit of $1.37 per share, improving from its profit of $1.03 per share in the same quarter last year.
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Adtalem (ATGE) Q2 CY2024 Highlights:
- Revenue: $409.9 million vs analyst estimates of $398.6 million (2.8% beat)
- EPS (non-GAAP): $1.37 vs analyst estimates of $1.28 (7% beat)
- Management's revenue guidance for the upcoming financial year 2025 is $1.68 billion at the midpoint, beating analyst estimates by 1.2% and implying 6% growth (vs 9.2% in FY2024)
- EPS (non-GAAP) guidance for the upcoming financial year 2025 is $5.73 at the midpoint, beating analyst estimates by 1.3%
- Gross Margin (GAAP): 55.5%, in line with the same quarter last year
- Free Cash Flow of $168.7 million, up 19.7% from the previous quarter
- Market Capitalization: $2.77 billion
Formerly known as DeVry Education Group, Adtalem Global Education (NYSE:ATGE) is a global provider of workforce solutions and educational services.
Education ServicesA whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Adtalem's 9.3% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Adtalem's recent history shows its demand slowed as its annualized revenue growth of 7% over the last two years is below its five-year trend.
This quarter, Adtalem reported robust year-on-year revenue growth of 12.4%, and its $409.9 million of revenue exceeded Wall Street's estimates by 2.8%. Looking ahead, Wall Street expects sales to grow 5.1% over the next 12 months, a deceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Adtalem has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company's free cash flow margin averaged 17.7% over the last two years, quite impressive for a consumer discretionary business.
Adtalem's free cash flow clocked in at $168.7 million in Q2, equivalent to a 41.1% margin. This quarter's result was good as its margin was 31.4 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.
Over the next year, analysts predict Adtalem's cash conversion will fall. Their consensus estimates imply its free cash flow margin of 23.5% for the last 12 months will decrease to 11.3%.
Key Takeaways from Adtalem's Q2 ResultsIt was good to see Adtalem's full-year revenue forecast beat analysts' expectations. We were also glad its revenue outperformed Wall Street's estimates. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock remained flat at $75 immediately after reporting.
