Covista Inc. quarterly report, Q3 FY2022

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Filing identity and reporting period

Important mismatch: The supplied filing is Adtalem Global Education Inc.’s Form 10-Q, not a filing for Covista Inc. It covers the quarter and nine months ended March 31, 2022 (fiscal 2022 third quarter), and was signed May 5, 2022. The figures below summarize the supplied Adtalem filing.

Adtalem operates postsecondary education businesses: Chamberlain University, Walden University, and its medical and veterinary schools. ACAMS, Becker, and OnCourse Learning were sold in March 2022; EduPristine remained held for sale. Those businesses are reported as discontinued operations.

Financial performance and position

Unless otherwise noted, amounts are in millions of dollars. Quarter comparisons are with the three months ended March 31, 2021; nine-month comparisons are with the corresponding prior-year period.

  • Revenue: Quarterly revenue was $365.6 million, up 58.8%; the increase primarily reflects Walden, acquired August 12, 2021. Excluding Walden, revenue declined 1.6%. Nine-month revenue was $1,025.9 million, up 50.1%, while organic revenue declined 0.9%.
  • Operating results: Quarterly operating income was $33.3 million versus $36.0 million; operating margin was 9.1% versus 15.6%. Nine-month operating income was $35.9 million versus $91.0 million. Management’s non-GAAP operating income excluding special items was $76.5 million for the quarter and $183.2 million for nine months.
  • Profit and EPS: Quarterly net income attributable to Adtalem was $349.8 million, including a $474.0 million pre-tax gain on the sale of ACAMS, Becker, and OCL; continuing-operations income was $5.9 million versus $24.2 million. Nine-month net income was $309.7 million, but continuing operations recorded a $32.3 million loss versus $67.8 million income. Diluted EPS was $7.09 for the quarter and $6.26 for nine months, heavily affected by the sale gain. Non-GAAP continuing-operations income was $42.8 million for the quarter and $98.2 million year to date.
  • Costs and margins: Cost of educational services was 45.4% of quarterly revenue versus 49.9%, reflecting Walden’s lower-cost online model. Student services and administrative expense rose to 41.0% of revenue from 32.3%, partly due to Walden amortization and marketing. Restructuring expense was $10.5 million for the quarter and $17.0 million for nine months.
  • Cash flow: Nine-month operating cash flow from continuing operations was $58.4 million, down from $125.7 million. Capital expenditures were $22.2 million. Management forecast full-year fiscal 2022 capital spending of $30–$35 million.
  • Liquidity: March 31 cash and cash equivalents were $788.7 million; continuing-operations cash, cash equivalents, and restricted cash totaled $790.0 million. Current assets were $1,011.0 million and current liabilities $521.2 million. The company reported $316.0 million available under its $400 million revolving facility, including the effect of a letter of credit.
  • Debt: Debt principal outstanding was $1,253.3 million at March 31, including $800.0 million of 5.50% senior secured notes and $453.3 million of Term Loan B. Nine-month interest expense was $109.9 million versus $16.0 million. Adtalem prepaid $396.7 million of Term Loan B debt in March and repaid $373.3 million of notes on April 11, after quarter-end.

Material changes versus the prior comparable period

  • Walden’s acquisition added $139.1 million of quarterly and $348.3 million of nine-month revenue. It also added substantial amortization, integration costs, and acquisition-related debt expense.
  • The disposal of ACAMS, Becker, and OCL generated $962.7 million of net proceeds and a $474.0 million pre-tax gain. The resulting discontinued-operations income drove reported net income and EPS substantially higher.
  • Interest expense increased materially following acquisition financing and debt prepayment-related write-offs. Higher interest expense contributed to weaker continuing-operations results.
  • Quarterly revenue at Chamberlain declined 2.6%; Medical and Veterinary revenue was essentially flat. For the quarter, Chamberlain enrollment was down 4.3% year over year, and Walden enrollment was 42,788, down 8.4% on the comparative basis cited by management.
  • Shareholders’ equity increased to $1,491.3 million from $1,301.1 million at June 30, 2021. The company recorded a $150 million accelerated share repurchase, with 4.7 million shares initially delivered.

Outlook, risks, contingencies, and unusual items

  • Outlook: The filing provides no specific revenue or earnings guidance. Management said available cash, operating cash flow, and credit capacity should fund operations and growth plans for the foreseeable future. It expected additional Walden integration costs through the rest of fiscal 2022 and into fiscal 2023, and expected the EduPristine sale to close in fiscal 2022’s fourth quarter.
  • Enrollment and COVID-19: Management attributed enrollment weakness in part to continuing healthcare-industry disruption and said COVID-19 could continue to weigh on revenue, operating income, and EPS. It also cited increased on-campus operating costs. Walden enrollment may have been affected by acquisition-related uncertainty and prior negative publicity; management said a U.S. Department of Justice inquiry concluded with no findings of misconduct.
  • Regulatory and financial-aid exposure: Walden remained on a temporary, month-to-month provisional Title IV participation agreement and had an $84 million Department of Education letter of credit, reducing borrowing capacity. Adtalem expected its fiscal 2022 composite financial-responsibility score to fall below 1.5, potentially leading to additional oversight, cash monitoring, or a letter-of-credit requirement. AUC, RUSM, and RUSVM also had provisional agreements.
  • Debt and market risk: Term Loan B borrowings carried a 5.25% rate at March 31 and are variable-rate debt. The company estimated a 100-basis-point rate increase would add $3.2 million in annual interest expense. LIBOR transition arrangements had not yet identified a replacement benchmark rate.
  • Legal matters: The filing describes DeVry-related litigation and settlements, including a $19.9 million payment to participating claimants in February 2022 and a $44.95 million escrowed settlement fund. It also describes pending claims involving Chamberlain’s biometric proctoring practices and Walden’s DBA program representations. Management said it had reserved for probable and estimable losses; outcomes of other matters could not be predicted.
  • Other unusual items: The quarter included a large sale gain and a $12.5 million debt discount and issuance-cost write-off associated with Term Loan B prepayment. The purchase-price allocation for Walden was preliminary and subject to adjustment.

Investor facts to verify

  • Confirm the requested issuer and period: the supplied document is Adtalem’s FY2022 Q3 Form 10-Q, not Covista’s 2021 Q3 filing.
  • Separate continuing-operations performance from discontinued operations and the one-time sale gain when assessing earnings and EPS.
  • Review post-quarter debt repayment, remaining debt, interest-rate exposure, and available revolving-credit capacity.
  • Track enrollment trends at Chamberlain and Walden and the effect of integration costs and synergies on operating performance.
  • Monitor Walden’s Title IV provisional status, $84 million letter of credit, and the company’s composite financial-responsibility score.
  • Review the status and potential financial impact of the disclosed DeVry, Chamberlain, and Walden legal matters, along with the remaining EduPristine sale.