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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 December 31, 2023

 

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 January 26, 2024, there were 39,188,069 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

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

52

Part II. Other Information

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3.

Defaults Upon Senior Securities

53

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

53

Item 6.

Exhibits

54

Signature 

55

Part I. Financial Information

Item 1. Financial Statements

Adtalem Global Education Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except par value)

December 31, 

June 30, 

2023

2023

Assets:

Current assets:

Cash and cash equivalents

$

182,894

$

273,689

Restricted cash

 

3,183

 

1,386

Accounts receivable, net

 

133,666

 

102,749

Prepaid expenses and other current assets

 

58,356

 

100,715

Total current assets

 

378,099

 

478,539

Noncurrent assets:

 

 

Property and equipment, net

260,484

258,522

Operating lease assets

 

176,863

 

174,677

Deferred income taxes

 

58,212

 

56,694

Intangible assets, net

 

792,328

 

812,338

Goodwill

 

961,262

 

961,262

Other assets, net

 

65,852

 

68,509

Assets held for sale

7,825

Total noncurrent assets

 

2,322,826

 

2,332,002

Total assets

$

2,700,925

$

2,810,541

Liabilities and shareholders' equity:

 

Current liabilities:

 

Accounts payable

$

88,093

$

81,812

Accrued payroll and benefits

 

45,928

 

52,041

Accrued liabilities

 

97,675

 

105,806

Deferred revenue

 

135,281

 

153,871

Current operating lease liabilities

 

31,596

 

37,673

Total current liabilities

 

398,573

 

431,203

Noncurrent liabilities:

 

 

Long-term debt

 

696,373

 

695,077

Long-term operating lease liabilities

 

168,603

 

163,441

Deferred income taxes

 

27,243

 

26,068

Other liabilities

 

40,734

 

37,416

Total noncurrent liabilities

 

932,953

 

922,002

Total liabilities

 

1,331,526

 

1,353,205

Commitments and contingencies

 

 

Shareholders' equity:

 

 

Common stock, $0.01 par value per share, 200,000 shares authorized; 39,526 and 42,310 shares outstanding as of December 31, 2023 and June 30, 2023, respectively

 

831

 

822

Additional paid-in capital

 

597,587

 

568,761

Retained earnings

 

2,454,269

 

2,403,750

Accumulated other comprehensive loss

 

(2,227)

 

(2,227)

Treasury stock, at cost, 43,566 and 39,922 shares as of December 31, 2023 and June 30, 2023, respectively

 

(1,681,061)

 

(1,513,770)

Total shareholders' equity

 

1,369,399

 

1,457,336

Total liabilities and shareholders' equity

$

2,700,925

$

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

Six Months Ended

December 31, 

December 31, 

2023

2022

2023

2022

Revenue

$

393,242

$

362,834

$

762,087

$

717,103

Operating cost and expense:

 

 

Cost of educational services

 

172,069

 

159,303

 

340,687

 

318,948

Student services and administrative expense

 

155,584

 

141,802

 

321,679

 

288,187

Restructuring expense

 

68

 

1,363

 

744

 

16,428

Business integration expense

 

6,909

 

14,816

 

12,171

 

24,356

Total operating cost and expense

 

334,630

 

317,284

 

675,281

 

647,919

Operating income

 

58,612

 

45,550

 

86,806

 

69,184

Interest expense

 

(16,693)

 

(15,589)

 

(32,350)

 

(33,349)

Other income (expense), net

 

3,563

 

(1,440)

 

5,777

 

(679)

Income from continuing operations before income taxes

 

45,482

 

28,521

 

60,233

 

35,156

Provision for income taxes

 

(7,769)

 

(4,395)

 

(10,561)

 

(5,517)

Income from continuing operations

 

37,713

 

24,126

 

49,672

 

29,639

Discontinued operations:

 

 

Income (loss) from discontinued operations before income taxes

 

2,926

 

524

 

1,161

 

(2,741)

Gain (loss) on disposal of discontinued operations before income taxes

 

185

 

 

(3,174)

(Provision for) benefit from income taxes

 

(748)

 

(182)

 

(296)

 

1,521

Income (loss) from discontinued operations

 

2,178

 

527

 

865

 

(4,394)

Net income and comprehensive income

$

39,891

$

24,653

$

50,537

$

25,245

Earnings (loss) per share:

 

 

Basic:

 

 

Continuing operations

$

0.95

$

0.53

$

1.22

$

0.65

Discontinued operations

$

0.05

$

0.01

$

0.02

$

(0.10)

Total basic earnings per share

$

1.00

$

0.54

$

1.24

$

0.56

Diluted:

 

 

 

 

Continuing operations

$

0.92

$

0.52

$

1.20

$

0.64

Discontinued operations

$

0.05

$

0.01

$

0.02

$

(0.10)

Total diluted earnings per share

$

0.98

$

0.53

$

1.22

$

0.55

Weighted-average shares outstanding:

Basic shares

39,872

45,425

40,636

45,350

Diluted shares

40,787

46,121

41,486

46,232

See accompanying Notes to Consolidated Financial Statements.

2

Adtalem Global Education Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

Six Months Ended

December 31, 

2023

2022

Operating activities:

Net income

$

50,537

$

25,245

(Income) loss from discontinued operations

 

(865)

 

4,394

Income from continuing operations

49,672

29,639

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

 

 

Stock-based compensation expense

 

13,505

 

8,113

Amortization and impairments to operating lease assets

17,340

28,612

Depreciation

 

20,714

 

21,461

Amortization of intangible assets

 

20,010

 

34,704

Amortization and write-off of debt discount and issuance costs

2,310

6,819

Provision for bad debts

23,024

14,275

Deferred income taxes

 

(343)

 

(245)

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

 

38

 

3,483

Gain on extinguishment of debt

 

 

(71)

(Gain) loss on investments

(575)

4,950

Unrealized loss on assets held for sale

647

Changes in assets and liabilities:

 

 

Accounts receivable

 

(42,429)

 

(25,045)

Prepaid expenses and other current assets

 

(2,143)

 

494

Accounts payable

 

7,824

 

13,233

Accrued payroll and benefits

(6,073)

(25,295)

Accrued liabilities

 

25,130

 

(4,849)

Deferred revenue

 

(13,540)

 

(28,424)

Operating lease liabilities

(20,441)

(25,923)

Other assets and liabilities

 

(11,601)

 

(13,654)

Net cash provided by operating activities-continuing operations

 

83,069

 

42,277

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

 

9,515

 

(862)

Net cash provided by operating activities

 

92,584

 

41,415

Investing activities:

 

Capital expenditures

 

(30,328)

 

(9,747)

Proceeds from sale of marketable securities

 

626

 

1,256

Purchases of marketable securities

 

(498)

 

(1,257)

Net cash used in investing activities-continuing operations

 

(30,200)

 

(9,748)

Payment for working capital adjustment for sale of business

 

 

(3,174)

Net cash used in investing activities

 

(30,200)

 

(12,922)

Financing activities:

 

Proceeds from exercise of stock options

 

15,313

 

1,422

Employee taxes paid on withholding shares

 

(6,505)

 

(4,108)

Proceeds from stock issued under Colleague Stock Purchase Plan

 

359

 

289

Repurchases of common stock for treasury

 

(160,549)

 

Payment on equity forward contract

 

 

(13,162)

Repayments of long-term debt

 

 

(150,861)

Net cash used in financing activities

 

(151,382)

 

(166,420)

Net decrease in cash, cash equivalents and restricted cash

 

(88,998)

 

(137,927)

Cash, cash equivalents and restricted cash at beginning of period

 

275,075

 

347,937

Cash, cash equivalents and restricted cash at end of period

$

186,077

$

210,010

Non-cash investing and financing activities:

Accrued capital expenditures

$

9,062

$

5,209

Accrued liability for repurchases of common stock

$

2,400

$

Accrued excise tax on share repurchases

$

2,358

$

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

September 30, 2022

82,099

$

821

$

529,229

$

2,310,988

$

(2,227)

36,703

$

(1,342,786)

$

1,496,025

Net income

 

 

 

 

24,653

 

 

 

 

24,653

Stock-based compensation

 

 

 

1,968

 

 

 

 

 

1,968

Net activity from stock-based compensation awards

 

57

 

1

 

180

 

15

 

(622)

 

(441)

Proceeds from stock issued under Colleague Stock Purchase Plan

(1)

(5)

175

174

Settlement of equity forward contract

30,000

(43,162)

(13,162)

December 31, 2022

82,156

$

822

$

561,376

$

2,335,641

$

(2,227)

36,713

$

(1,386,395)

$

1,509,217

September 30, 2023

82,605

$

826

$

576,758

$

2,414,378

$

(2,227)

42,204

$

(1,611,072)

$

1,378,663

Net income

 

39,891

 

 

39,891

Stock-based compensation

 

6,050

 

 

6,050

Net activity from stock-based compensation awards

 

487

5

14,758

15

(855)

 

13,908

Proceeds from stock issued under Colleague Stock Purchase Plan

 

21

(4)

167

 

188

Repurchases of common stock for treasury

1,351

(69,301)

(69,301)

December 31, 2023

83,092

$

831

$

597,587

$

2,454,269

$

(2,227)

43,566

$

(1,681,061)

$

1,369,399

June 30, 2022

81,796

$

818

$

521,848

$

2,310,396

$

(2,227)

36,619

$

(1,339,449)

$

1,491,386

Net income

 

 

 

 

25,245

 

 

 

 

25,245

Stock-based compensation

 

 

 

8,113

 

 

 

 

 

8,113

Net activity from stock-based compensation awards

 

360

 

4

 

1,418

 

 

 

103

 

(4,108)

 

(2,686)

Proceeds from stock issued under Colleague Stock Purchase Plan

(3)

(9)

324

321

Settlement of equity forward contract

30,000

(43,162)

(13,162)

December 31, 2022

82,156

$

822

$

561,376

$

2,335,641

$

(2,227)

36,713

$

(1,386,395)

$

1,509,217

June 30, 2023

82,232

$

822

$

568,761

$

2,403,750

$

(2,227)

39,922

$

(1,513,770)

$

1,457,336

Net income

 

50,537

 

 

50,537

Stock-based compensation

 

13,505

 

13,505

Net activity from stock-based compensation awards

 

860

9

15,304

145

(6,505)

 

8,808

Proceeds from stock issued under Colleague Stock Purchase Plan

 

17

(18)

(10)

400

 

399

Repurchases of common stock for treasury

3,509

(161,186)

(161,186)

December 31, 2023

83,092

$

831

$

597,587

$

2,454,269

$

(2,227)

43,566

$

(1,681,061)

$

1,369,399

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 a national leader in post-secondary education and a leading provider of professional talent to the healthcare industry. 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 is 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.

Business integration expense was $6.9 million and $12.2 million in the three and six months ended December 31, 2023, respectively, and $14.8 million and $24.4 million in the three and six months ended December 31, 2022, 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 provide disclosures of significant segment expenses and other segment items. The guidance is effective for financial

6

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.

Revision to Previously Issued Financial Statements

During the third quarter of fiscal year 2023, Adtalem identified an error in its revenue recognition related to certain scholarship programs within its Medical and Veterinary segment. Certain scholarships and discounts offered within that segment provide students a discount on future tuition that constitute a material right under ASC 606 “Revenue from Contracts with Customers” that should be accounted for as a separate performance obligation within a contract. Adtalem assessed the materiality of this error individually and in the aggregate with other previously identified errors to prior periods’ Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99 “Materiality” and SAB 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” codified in ASC 250 “Accounting Changes and Error Corrections.” Adtalem concluded that the errors were not material to prior periods and therefore, amendments of previously filed reports were not required. However, Adtalem determined it was appropriate to revise its previously issued financial statements. Treating the discount on future tuition as a material right results in the deferral of revenue for a portion of tuition to future periods. In accordance with ASC 250, Adtalem corrected the prior periods presented herein by revising the financial statement line item amounts previously disclosed in SEC filings in order to achieve comparability in the Consolidated Financial Statements. The impact of this revision of Adtalem’s previously reported Consolidated Financial Statements are detailed below. In connection with this revision, Adtalem also corrected other immaterial errors in the prior periods, including certain errors that had previously been adjusted for as out of period corrections in the period identified.

7

The following table summarizes the effect of the revisions on the affected line items within the Consolidated Statements of Income (in thousands, except per share data):

Three Months Ended December 31, 2022

 

Six Months Ended December 31, 2022

As reported

Adjustment

As revised

As reported

Adjustment

As revised

Revenue

$

363,302

$

(468)

$

362,834

$

717,861

$

(758)

$

717,103

Operating cost and expense:

Student services and administrative expense

 

140,668

1,134

 

141,802

 

289,009

(822)

 

288,187

Business integration expense

 

15,941

(1,125)

 

14,816

 

24,356

 

24,356

Total operating cost and expense

 

317,275

9

 

317,284

 

648,741

(822)

 

647,919

Operating income

 

46,027

(477)

 

45,550

 

69,120

64

 

69,184

Other expense, net

(2,574)

1,134

(1,440)

(1,007)

328

(679)

Income from continuing operations before income taxes

 

27,864

657

 

28,521

 

34,764

392

 

35,156

Provision for income taxes

 

(4,247)

(148)

 

(4,395)