Business context and reporting period
The supplied filing is Adtalem Global Education Inc.’s Form 10-Q, not a filing for Covista Inc. It covers the quarter and six months ended December 31, 2021 (Adtalem fiscal Q2 and first half of FY2022), and was signed February 8, 2022. Adtalem operates Chamberlain University, Walden University and medical and veterinary schools. Walden was acquired August 12, 2021; the company classified ACAMS, Becker, OnCourse Learning and EduPristine as discontinued operations and held for sale.
Key financial metrics
Amounts below are in millions of dollars except per-share data. Quarter comparisons are with the three months ended December 31, 2020; first-half comparisons are with the six months ended December 31, 2020.
| Metric | Q2 FY2022 | Q2 FY2021 | First half FY2022 | First half FY2021 |
|---|---|---|---|---|
| Revenue | $371.2 | $234.4 | $660.3 | $453.2 |
| Operating income | $24.7 | $29.1 | $2.7 | $55.0 |
| Operating margin | 6.7% | 12.4% | 0.4% | 12.1% |
| Net income (loss) attributable to Adtalem | $17.9 | $23.3 | $(40.2) | $43.2 |
| Diluted EPS | $0.36 | $0.44 | $(0.81) | $0.82 |
| Net cash from operating activities, continuing operations | Not separately provided | Not separately provided | $(19.0) | $58.0 |
Q2 continuing-operations income was $39.0 million, including a $39.4 million income tax benefit; first-half continuing-operations loss was $38.1 million, despite a $30.8 million tax benefit. Q2 discontinued-operations loss was $21.2 million, including a $25.3 million tax provision. First-half total operating cash flow, including discontinued operations, was $1.1 million, versus $63.4 million a year earlier. Capital expenditures were $14.8 million in the first half.
At December 31, 2021, cash and cash equivalents were $275.4 million ($276.6 million including restricted cash), current assets were $610.5 million and current liabilities were $497.5 million. Debt principal was $1.65 billion; its balance-sheet carrying value, net of discounts and issuance costs, was $1.608 billion. The company reported $316.0 million of Revolver availability, after an $84.0 million Walden letter of credit. Q2 and first-half interest expense was $25.9 million and $73.3 million, respectively.
Material changes versus prior periods
- Q2 revenue increased 58.4% year over year, principally from Walden; excluding the acquisition, revenue declined 1.6%. First-half revenue increased 45.7% reported, while organic revenue declined 0.5%.
- Q2 GAAP operating income fell 14.9%; first-half operating income fell 95.1%. Higher acquisition-related amortization, integration and restructuring costs, campus-return costs and weaker results at Chamberlain contributed. Q2 operating income excluding special items was $70.2 million, up 70.0%; this is a company-defined non-GAAP measure.
- Q2 net income attributable to Adtalem declined despite higher continuing-operations income, primarily because of higher interest expense and discontinued-operations losses. First-half results moved from net income to net loss, reflecting increased interest expense and acquisition and other special items.
- Debt rose substantially to fund the Walden acquisition. The company issued $800 million of 5.50% senior secured notes due 2028 and entered into an $850 million Term Loan B and $400 million revolving facility.
- Chamberlain revenue declined 2.0% in Q2; Medical and Veterinary revenue declined 1.0%. Chamberlain’s November 2021 new and total enrollment declined 0.5% and 2.1%, respectively. Walden reported 4,999 new and 41,158 total students for December 2021; compared with figures from its prior owner, enrollment was down 18.3% and 9.1%, respectively.
Outlook, risks and unusual items
- Management forecast FY2022 capital spending of $55–$65 million and said available cash, operating cash flow and credit availability should fund operations and growth plans for the foreseeable future. It expected additional Walden integration costs during the rest of FY2022.
- On January 24, 2022, after quarter-end, Adtalem agreed to sell ACAMS, Becker and OCL for $1 billion, with completion expected in Q3 FY2022, subject to closing conditions. EduPristine was also being marketed for sale. Completion, timing and proceeds are uncertain.
- Management said COVID-19-related disruption could continue to weigh on enrollment and results; the specific revenue and earnings impact was not quantifiable. Return-to-campus costs were expected to continue. Future restrictions on clinical placements could also affect medical-school revenue.
- Walden’s Title IV participation was under a temporary, month-to-month provisional agreement pending Department of Education review of the ownership change. Its $84 million letter of credit reduces Revolver borrowing capacity. Management expected Adtalem’s consolidated federal financial-responsibility composite score to fall below 1.5 for FY2022, potentially requiring additional oversight, cash monitoring or a letter of credit.
- Adtalem was in compliance with debt covenants at December 31, 2021. Its Term Loan B bears floating-rate interest; a 100-basis-point increase was estimated to add $3.0 million of annual interest expense. The filing notes LIBOR transition uncertainty.
- Disclosed contingencies include appeals concerning a DeVry class-action settlement funded by $44.95 million in escrow, ongoing DeVry-related arbitrations and other litigation. A proposed $0.8 million Walden wage-and-hour settlement remained subject to court approval. The filing states that potential impacts of some matters cannot be predicted.
- Walden purchase accounting remained preliminary. The filing reported no goodwill or indefinite-lived intangible impairment trigger as of December 31, 2021, but warned that deteriorating conditions could require reassessment.
Most important facts for investors to verify
- Confirm the issuer and period: the supplied document is Adtalem’s FY2022 Q2 10-Q, not Covista’s.
- Track completion and net proceeds of the $1 billion sale, including the separate EduPristine disposition and the accounting and cash-flow effects.
- Monitor Walden enrollment, integration costs and synergies, final purchase-price allocation, and the Department of Education’s ownership-change and Title IV decisions.
- Assess cash generation, debt service, floating-rate exposure, covenant headroom and the impact of the Walden letter of credit on liquidity.
- Review enrollment trends, clinical-placement capacity, COVID-19 effects, litigation developments and any changes to impairment assumptions.