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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number: 001-13988

Adtalem Global Education Inc.

(Exact name of registrant as specified in its charter)

Delaware

36-3150143

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

500 West Monroe Street

Chicago, Illinois

60661

(Address of principal executive offices)

(Zip Code)

(312) 651-1400

(Registrant’s telephone number; including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value per share

ATGE

New York Stock Exchange

Common stock, $0.01 par value per share

ATGE

Chicago Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

þ

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ

As of April 26, 2024, there were 37,606,468 shares of the registrant’s common stock, $0.01 par value per share outstanding.

Adtalem Global Education Inc.

Form 10-Q

Table of Contents

 

Page

Part I. Financial Information

Item 1.

Financial Statements

1

Consolidated Balance Sheets

1

Consolidated Statements of Income

2

Consolidated Statements of Cash Flows

3

Consolidated Statements of Shareholders’ Equity

4

Notes to Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

51

Part II. Other Information

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

53

Signature 

54

Part I. Financial Information

Item 1. Financial Statements

Adtalem Global Education Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except par value)

March 31, 

June 30, 

2024

2023

Assets:

Current assets:

Cash and cash equivalents

$

179,762

$

273,689

Restricted cash

 

7,562

 

1,386

Accounts and financing receivables, net

 

140,909

 

102,749

Prepaid expenses and other current assets

 

59,401

 

100,715

Total current assets

 

387,634

 

478,539

Noncurrent assets:

 

 

Property and equipment, net

272,792

258,522

Operating lease assets

 

169,498

 

174,677

Deferred income taxes

 

64,213

 

56,694

Intangible assets, net

 

784,042

 

812,338

Goodwill

 

961,262

 

961,262

Other assets, net

 

67,768

 

68,509

Assets held for sale

7,825

Total noncurrent assets

 

2,327,400

 

2,332,002

Total assets

$

2,715,034

$

2,810,541

Liabilities and shareholders' equity:

 

Current liabilities:

 

Accounts payable

$

92,198

$

81,812

Accrued payroll and benefits

 

67,647

 

52,041

Accrued liabilities

 

114,224

 

105,806

Deferred revenue

 

202,566

 

153,871

Current operating lease liabilities

 

32,475

 

37,673

Total current liabilities

 

509,110

 

431,203

Noncurrent liabilities:

 

 

Long-term debt

 

648,106

 

695,077

Long-term operating lease liabilities

 

159,717

 

163,441

Deferred income taxes

 

28,937

 

26,068

Other liabilities

 

48,201

 

37,416

Total noncurrent liabilities

 

884,961

 

922,002

Total liabilities

 

1,394,071

 

1,353,205

Commitments and contingencies

 

 

Shareholders' equity:

 

 

Common stock, $0.01 par value per share, 200,000 shares authorized; 37,765 and 42,310 shares outstanding as of March 31, 2024 and June 30, 2023, respectively

 

831

 

822

Additional paid-in capital

 

603,671

 

568,761

Retained earnings

 

2,491,090

 

2,403,750

Accumulated other comprehensive loss

 

(2,227)

 

(2,227)

Treasury stock, at cost, 45,335 and 39,922 shares as of March 31, 2024 and June 30, 2023, respectively

 

(1,772,402)

 

(1,513,770)

Total shareholders' equity

 

1,320,963

 

1,457,336

Total liabilities and shareholders' equity

$

2,715,034

$

2,810,541

See accompanying Notes to Consolidated Financial Statements.

1

Adtalem Global Education Inc.

Consolidated Statements of Income

(unaudited)

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

2024

2023

2024

2023

Revenue

$

412,658

$

369,082

$

1,174,745

$

1,086,185

Operating cost and expense:

 

 

Cost of educational services

 

175,321

 

165,820

 

516,008

 

484,768

Student services and administrative expense

 

156,689

 

144,526

 

478,368

 

432,713

Restructuring expense

 

473

 

1,278

 

1,217

 

17,706

Business integration expense

 

18,450

 

11,346

 

30,621

 

35,702

Gain on sale of assets

(13,317)

(13,317)

Total operating cost and expense

 

350,933

 

309,653

 

1,026,214

 

957,572

Operating income

 

61,725

 

59,429

 

148,531

 

128,613

Interest expense

 

(16,560)

 

(14,457)

 

(48,910)

 

(47,806)

Other income, net

 

2,871

 

3,980

 

8,648

 

3,301

Income from continuing operations before income taxes

 

48,036

 

48,952

 

108,269

 

84,108

Provision for income taxes

 

(10,595)

 

(389)

 

(21,156)

 

(5,906)

Income from continuing operations

 

37,441

 

48,563

 

87,113

 

78,202

Discontinued operations:

 

 

(Loss) income from discontinued operations before income taxes

 

(832)

 

(3,993)

 

329

 

(6,734)

Loss on disposal of discontinued operations before income taxes

 

(402)

 

 

(3,576)

Benefit from (provision for) income taxes

 

212

 

1,701

 

(84)

 

3,222

(Loss) income from discontinued operations

 

(620)

 

(2,694)

 

245

 

(7,088)

Net income and comprehensive income

$

36,821

$

45,869

$

87,358

$

71,114

Earnings (loss) per share:

 

 

Basic:

 

 

Continuing operations

$

0.97

$

1.08

$

2.18

$

1.73

Discontinued operations

$

(0.02)

$

(0.06)

$

0.01

$

(0.16)

Total basic earnings per share

$

0.95

$

1.02

$

2.18

$

1.57

Diluted:

 

 

 

 

Continuing operations

$

0.94

$

1.06

$

2.13

$

1.70

Discontinued operations

$

(0.02)

$

(0.06)

$

0.01

$

(0.15)

Total diluted earnings per share

$

0.93

$

1.00

$

2.14

$

1.54

Weighted-average shares outstanding:

Basic shares

38,713

45,125

40,000

45,276

Diluted shares

39,636

45,801

40,874

46,089

See accompanying Notes to Consolidated Financial Statements.

2

Adtalem Global Education Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

Nine Months Ended

March 31, 

2024

2023

Operating activities:

Net income

$

87,358

$

71,114

(Income) loss from discontinued operations

 

(245)

 

7,088

Income from continuing operations

87,113

78,202

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Stock-based compensation expense

 

19,405

 

10,908

Amortization and impairments to operating lease assets

24,705

37,928

Depreciation

 

32,106

 

31,618

Amortization of intangible assets

 

28,296

 

48,936

Amortization and write-off of debt discount and issuance costs

4,550

7,974

Provision for bad debts

35,741

23,391

Deferred income taxes

 

(4,650)

 

(1,718)

Loss on disposals, accelerated depreciation, and impairments to property and equipment

 

50

 

3,999

Gain on extinguishment of debt

 

 

(71)

(Gain) loss on investments

(1,281)

4,122

Gain on sale of assets

(13,317)

Unrealized loss on assets held for sale

647

Changes in assets and liabilities:

 

 

Accounts and financing receivables

 

(73,661)

 

(56,477)

Prepaid expenses and other current assets

 

(2,484)

 

7,034

Accounts payable

 

10,841

 

12,286

Accrued payroll and benefits

15,671

(11,719)

Accrued liabilities

 

39,748

 

(20,275)

Deferred revenue

 

60,935

 

26,038

Operating lease liabilities

(28,448)

(37,758)

Other assets and liabilities

 

(2,475)

 

(1,280)

Net cash provided by operating activities-continuing operations

 

246,809

 

149,821

Net cash provided by (used in) operating activities-discontinued operations

 

8,396

 

(404)

Net cash provided by operating activities

 

255,205

 

149,417

Investing activities:

 

Capital expenditures

 

(52,014)

 

(19,056)

Proceeds from sales of marketable securities

 

626

 

7,635

Purchases of marketable securities

 

(498)

 

(1,508)

Proceeds from note receivable related to property sold

 

 

46,800

Net cash (used in) provided by investing activities-continuing operations

 

(51,886)

 

33,871

Payment for working capital adjustment for sale of business

 

 

(3,174)

Net cash (used in) provided by investing activities

 

(51,886)

 

30,697

Financing activities:

 

Proceeds from exercise of stock options

 

15,412

 

1,622

Employee taxes paid on withholding shares

 

(6,600)

 

(4,214)

Proceeds from stock issued under Colleague Stock Purchase Plan

 

581

 

451

Repurchases of common stock for treasury

 

(250,463)

 

(44,710)

Payment on equity forward contract

 

 

(13,162)

Proceeds from issuance of long-term debt

 

1,896

 

Repayments of long-term debt

 

(51,896)

 

(150,861)

Net cash used in financing activities

 

(291,070)

 

(210,874)

Net decrease in cash, cash equivalents and restricted cash

 

(87,751)

 

(30,760)

Cash, cash equivalents and restricted cash at beginning of period

 

275,075

 

347,937

Cash, cash equivalents and restricted cash at end of period

$

187,324

$

317,177

Non-cash investing and financing activities:

Accrued capital expenditures

$

11,086

$

10,474

Accrued liability for repurchases of common stock

$

2,995

$

2,699

Accrued excise tax on share repurchases

$

3,257

$

361

Settlement of financing liability with assets

$

$

38,606

See accompanying Notes to Consolidated Financial Statements.

3

Adtalem Global Education Inc.

Consolidated Statements of Shareholders’ Equity

(unaudited)

(in thousands)

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Shares

Amount

Capital

Earnings

Loss

Shares

Amount

Total

December 31, 2022

82,156

$

822

$

561,376

$

2,335,641

$

(2,227)

36,713

$

(1,386,395)

$

1,509,217

Net income

 

 

 

 

45,869

 

 

 

 

45,869

Stock-based compensation

 

 

 

2,795

 

 

 

 

 

2,795

Net activity from stock-based compensation awards

 

15

 

 

199

 

2

 

(106)

 

93

Proceeds from stock issued under Colleague Stock Purchase Plan

(7)

(4)

(5)

192

181

Repurchases of common stock for treasury

1,229

(47,770)

(47,770)

March 31, 2023

82,171

$

822

$

564,363

$

2,381,506

$

(2,227)

37,939

$

(1,434,079)

$

1,510,385

December 31, 2023

83,092

$

831

$

597,587

$

2,454,269

$

(2,227)

43,566

$

(1,681,061)

$

1,369,399

Net income

 

36,821

 

 

36,821

Stock-based compensation

 

5,900

 

 

5,900

Net activity from stock-based compensation awards

 

8

98

2

(95)

 

3

Proceeds from stock issued under Colleague Stock Purchase Plan

 

86

(5)

162

 

248

Repurchases of common stock for treasury

1,772

(91,408)

(91,408)

March 31, 2024

83,100

$

831

$

603,671

$

2,491,090

$

(2,227)

45,335

$

(1,772,402)

$

1,320,963

June 30, 2022

81,796

$

818

$

521,848

$

2,310,396

$

(2,227)

36,619

$

(1,339,449)

$

1,491,386

Net income

 

 

 

 

71,114

 

 

 

 

71,114

Stock-based compensation

 

 

 

10,908

 

 

 

 

 

10,908

Net activity from stock-based compensation awards

 

375

 

4

 

1,617

 

 

 

105

 

(4,214)

 

(2,593)

Proceeds from stock issued under Colleague Stock Purchase Plan

(10)

(4)

(14)

516

502

Settlement of equity forward contract

30,000

(43,162)

(13,162)

Repurchases of common stock for treasury

1,229

(47,770)

(47,770)

March 31, 2023

82,171

$

822

$

564,363

$

2,381,506

$

(2,227)

37,939

$

(1,434,079)

$

1,510,385

June 30, 2023

82,232

$

822

$

568,761

$

2,403,750

$

(2,227)

39,922

$

(1,513,770)

$

1,457,336

Net income

 

87,358

 

 

87,358

Stock-based compensation

 

19,405

 

19,405

Net activity from stock-based compensation awards

 

868

9

15,402

147

(6,600)

 

8,811

Proceeds from stock issued under Colleague Stock Purchase Plan

 

103

(18)

(15)

562

 

647

Repurchases of common stock for treasury

5,281

(252,594)

(252,594)

March 31, 2024

83,100

$

831

$

603,671

$

2,491,090

$

(2,227)

45,335

$

(1,772,402)

$

1,320,963

See accompanying Notes to Consolidated Financial Statements.

4

1. Nature of Operations

In this Quarterly Report on Form 10-Q, Adtalem Global Education Inc., together with its subsidiaries, is collectively referred to as “Adtalem,” “we,” “our,” “us,” or similar references.

Adtalem is the leading healthcare educator in the U.S. Our schools consist of Chamberlain University (“Chamberlain”), Walden University (“Walden”), American University of the Caribbean School of Medicine (“AUC”), Ross University School of Medicine (“RUSM”), and Ross University School of Veterinary Medicine (“RUSVM”). AUC, RUSM, and RUSVM are collectively referred to as the “medical and veterinary schools.” See Note 18 “Segment Information” for information on our reportable segments.

2. Summary of Significant Accounting Policies

Basis of Presentation

Our significant accounting policies are described in Note 2 “Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (“2023 Form 10-K”). We have prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which are normal and recurring in nature) considered necessary for a fair presentation have been included. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. We use the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Consolidated Financial Statements refer to our continuing operations. These consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto included in our fiscal year 2023 Form 10-K. Prior period amounts have been revised to conform with the current period presentation.

Business integration expense was $18.5 million and $30.6 million in the three and nine months ended March 31, 2024, respectively, and $11.3 million and $35.7 million in the three and nine months ended March 31, 2023, respectively. These are costs associated with integrating Walden into Adtalem. In addition, during the first quarter of fiscal year 2023, we initiated transformation initiatives to accelerate growth and organizational agility. Certain costs relating to this transformation are included in business integration expense in the Consolidated Statements of Income.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Standards

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02: “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The guidance was issued as improvements to Accounting Standards Codification (“ASC”) 326. The vintage disclosure changes are relevant to Adtalem and require an entity to disclose current-period gross write-offs by year of origination for financing receivables. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The amendments should be applied prospectively. We adopted this guidance on July 1, 2023. The amendments impacted our disclosures and did not otherwise impact Adtalem’s Consolidated Financial Statements.

In November 2023, the FASB issued ASU No. 2023-07: “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The guidance was issued to improve disclosures about reportable segments and addresses requests from investors for additional, more detailed information about a reportable segment’s expenses by requiring entities to

6

provide disclosures of significant segment expenses and other segment items. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively. Early adoption of the amendments is permitted, including adoption in an interim period. The amendments will impact our segment disclosures but will not otherwise impact Adtalem’s Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09: “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The guidance was issued to enhance the transparency and decision usefulness of income tax disclosures by requiring entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2024. The amendments should be applied prospectively and retrospective application is permitted. Early adoption of the amendments is permitted. The amendments will impact our income tax disclosures but will not otherwise impact Adtalem’s Consolidated Financial Statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our Consolidated Financial Statements.

3. Discontinued Operations

On December 11, 2018, Adtalem completed the sale of DeVry University to Cogswell Education, LLC (“Cogswell”) for de minimis consideration. As the sale represented a strategic shift that had a major effect on Adtalem’s operations and financial results, DeVry University is presented in Adtalem’s Consolidated Financial Statements as a discontinued operation. The purchase agreement includes an earn-out entitling Adtalem to payments of up to $20.0 million over a ten-year period payable based on DeVry University’s financial results. Adtalem received $5.5 million and $4.1 million during the second quarter of fiscal year 2024 and the second quarter of fiscal year 2023, respectively, related to the earn-out. We have received a total of $12.5 million related to the earn-out thus far.

On March 10, 2022, Adtalem completed the sale of the Association of Certified Anti-Money Laundering Specialists (“ACAMS”), Becker Professional Education (“Becker”), and OnCourse Learning (“OCL”) to Wendel Group and Colibri Group (“Purchaser”), pursuant to the Equity Purchase Agreement (“Purchase Agreement”) dated January 24, 2022. Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, Adtalem sold the issued and outstanding shares of ACAMS, Becker, and OCL to the Purchaser for $962.7 million, net of cash of $21.5 million, subject to certain post-closing adjustments. In addition, on June 17, 2022, Adtalem completed the sale of EduPristine for de minimis consideration, which resulted in a transfer of $1.9 million in cash. We recorded a loss of $0.4 million and $3.6 million in the three and nine months ended March 31, 2023, respectively, for post-closing working capital adjustments to the initial sales prices for ACAMS, Becker, and OCL and a tax return to provision adjustment, which is included in loss on disposal of discontinued operations before income taxes in the Consolidated Statements of Income. These divestitures are the culmination of a long-term strategy to sharpen the focus of our portfolio and enhance our ability to address the growing and unmet demand for healthcare professionals in the U.S. As these sales represented a strategic shift that had a major effect on Adtalem’s operations and financial results, these businesses previously included in our former Financial Services segment are presented in Adtalem’s Consolidated Financial Statements as discontinued operations.

7

The following is a summary of income statement information reported as discontinued operations, which includes expense from ongoing litigation costs and settlements related to the DeVry University and Carrington College divestitures, a loss on sale of ACAMS, Becker, and OCL for working capital adjustments to the initial sales prices and a tax return to provision adjustment, and the earn-outs we received (in thousands):

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

2024

2023

2024

2023

Revenue

$

$

$

$

Operating cost and expense:

 

 

 

 

Student services and administrative expense

 

832

 

3,993

 

(329)

 

6,734

Total operating cost and expense

 

832

 

3,993

 

(329)

 

6,734

(Loss) income from discontinued operations before income taxes

(832)

(3,993)

329

(6,734)

Loss on disposal of discontinued operations before income taxes

(402)

(3,576)

Benefit from (provision for) income taxes

 

212

 

1,701

 

(84)

 

3,222

(Loss) income from discontinued operations

$

(620)

$

(2,694)

$

245

$

(7,088)

4. Revenue

Revenue is recognized when control of the promised goods or services is transferred to our customers (students), in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following tables disaggregate revenue by source (in thousands):

Three Months Ended March 31, 2024

Chamberlain

Walden

 

Medical and
Veterinary

Consolidated