Business context and reporting period
The supplied filing is Adtalem Global Education Inc.’s Form 10-Q for the quarter ended March 31, 2023, covering the third quarter and first nine months of fiscal 2023. This does not match the request metadata identifying Covista Inc. and 2022 Q3; the filing’s figures below are for Adtalem, not Covista.
Adtalem provides post-secondary education through Chamberlain University, Walden University, and its Medical and Veterinary schools. Results exclude the former Financial Services businesses, which were sold and reported as discontinued operations.
Financial performance and position
Amounts are in U.S. dollars; financial statement amounts are rounded to millions unless otherwise indicated.
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $369.1M | $364.3M | $1,086.2M | $1,021.2M |
| Operating income | $59.4M | $32.9M | $128.6M | $30.8M |
| Operating margin | 16.1% | 9.0% | 11.8% | 3.0% |
| Income (loss) from continuing operations | $48.6M | $4.4M | $78.2M | $(37.1)M |
| Net income | $45.9M | $347.7M | $71.1M | $304.2M |
| Diluted EPS, continuing operations | $1.06 | $0.09 | $1.70 | $(0.75) |
| Diluted EPS, total | $1.00 | $7.04 | $1.54 | $6.15 |
- Q3 adjusted net income, a non-GAAP measure, was $51.6M, or $1.13 diluted adjusted EPS, up 24.7% from $41.4M, or $0.84, a year earlier. Nine-month adjusted net income was $146.9M versus $93.4M.
- Q3 adjusted operating income was $73.0M, down 4.3%; nine-month adjusted operating income was $217.6M, up 22.2%. Q3 adjusted EBITDA was $85.9M, down 6.8%; nine-month adjusted EBITDA was $260.2M, up 16.2%.
- Continuing-operations operating costs were 83.9% of revenue in Q3 versus 91.0% a year earlier. Reported margin benefited from a $13.3M gain on a campus-property transaction; adjusted Q3 operating margin was 19.8% versus 20.9%.
- Continuing-operations cash flow from operations was $149.8M for the first nine months, compared with $58.8M a year earlier. Capital expenditures were $19.1M; investing activities provided $30.7M, including $46.8M repayment of a property note. Financing activities used $210.9M, including debt repayments and share repurchases.
- At March 31, 2023, cash and cash equivalents were $315.4M, restricted cash was $1.8M, and current assets and current liabilities were $533.0M and $437.9M. Long-term debt carrying value was $694.4M; principal outstanding was $708.3M. The $400M revolving facility had $323.8M available. The company reported compliance with debt covenants.
Material changes versus the prior comparable period
- Q3 revenue increased 1.3%. Chamberlain revenue rose 5.0% and Medical and Veterinary revenue rose 4.6%, partly offset by a 4.5% decline at Walden. Nine-month revenue increased 6.4% as reported, including the acquisition-period comparison effect at Walden; consolidated organic growth was 0.1%.
- Enrollment at March 31 was down 7.9% year over year at Walden. Chamberlain’s January and March 2023 sessions were up 1.8% and 2.0%, respectively; Medical and Veterinary enrollment for the January semester increased 1.6%.
- Interest expense declined to $14.5M in Q3 from $36.6M and to $47.8M for nine months from $109.9M, principally reflecting lower debt after repayments and prior-year financing charges. The Term Loan B rate had risen to 8.84% from 5.25% at March 31, 2022.
- Prior-year total net income included a $474.0M pretax gain from selling ACAMS, Becker, and OnCourse Learning. This largely explains why reported total net income and EPS were substantially lower in FY2023 despite stronger continuing-operations earnings.
- Debt principal declined from $1,253.3M at March 31, 2022 to $708.3M at March 31, 2023, following debt repayments. Adtalem repurchased 1.23M shares for $47.8M during the first nine months of FY2023.
Outlook, commentary, risks and unusual items
- Management estimated FY2023 capital spending of $25M–$35M, including $19.1M spent through March 31, primarily for campus development, maintenance, and technology. It expected additional Walden integration costs in the remainder of FY2023 and FY2024.
- Management said continuing healthcare-worker stress associated with COVID-19 may continue to weigh on enrollment and results, particularly at Chamberlain and Walden. It also cited marketing costs as a pressure on Q3 adjusted operating income. No quantified full-year revenue or earnings guidance is provided in the supplied text.
- Adtalem revised previously presented comparative financial statements after identifying an error in accounting for certain Medical and Veterinary scholarships that provide discounts on future tuition. It concluded prior-period errors were not material enough to require amended filings, but revised comparative figures in this 10-Q. Investors should use the revised comparisons shown here.
- Q3 included a $13.3M gain following repayment of a mortgage on a former campus facility, a $6.2M net tax benefit primarily from releasing a valuation allowance, and $11.3M of acquisition, integration, and transformation costs. The nine-month period also included a $5.0M impairment of an equity investment.
- Walden remained on a Temporary Provisional Program Participation Agreement with the U.S. Department of Education, with month-to-month Title IV participation, added reporting and cash-management requirements, and a letter of credit. Adtalem had provided a separate $76.2M letter of credit following an Education Department review; it also had an $84.0M surety-backed letter of credit for Walden. Management expected its consolidated financial-responsibility score could fall below the 1.5 benchmark and acknowledged possible additional oversight or collateral requirements.
- Other notable risks include dependence on federal student aid and regulatory compliance, variable-rate debt and the planned transition from LIBOR to SOFR, and pending litigation. The filing describes a pending appeal in a Chamberlain biometric-information case, claims against Walden concerning its DBA program and telemarketing, and a DeVry-related settlement fund of $44.95M already held in escrow. The company said it had reserved for potential losses it considered probable and estimable; outcomes of other matters could not be predicted.
- Management stated that no goodwill or indefinite-lived intangible impairment trigger was identified as of March 31, 2023, but noted that worsening economic conditions, higher rates, or weaker operating performance could require reassessment.
Most important facts for investors to verify
- Confirm the intended issuer and period: this source is Adtalem’s March 31, 2023 10-Q, not a Covista Inc. 2022 Q3 filing.
- Review Walden’s enrollment trajectory and provisional Title IV status, including the implications of its letters of credit and any additional Education Department conditions.
- Assess whether operating improvement persists after excluding the property-sale gain and other adjustments, and compare GAAP results with management’s non-GAAP measures.
- Monitor the variable-rate Term Loan B, interest-rate exposure, LIBOR-to-SOFR transition, available revolver capacity, and covenant headroom; covenant calculations are not fully detailed in the supplied text.
- Track the revised scholarship revenue accounting and the status, potential costs, and timing of the disclosed litigation and contingencies.