Business context and reporting period
The supplied filing is Adtalem Global Education Inc.’s Form 10-Q, not a Covista Inc. filing. It covers the fiscal quarter and nine months ended March 31, 2019; the comparable periods ended March 31, 2018. Carrington College and DeVry University were sold in December 2018 and are reported as discontinued operations.
Continuing operations comprise Medical and Healthcare, Professional Education, and Technology and Business (Adtalem Brazil). Results are unaudited and are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Three months ended March 31, 2019 | Nine months ended March 31, 2019 |
|---|---|---|
| Revenue | $308.6 million; down 0.5% year over year | $909.4 million; down 0.2% |
| Operating income from continuing operations | $46.3 million; down 11.8% | $114.1 million; down 19.8% |
| Net income attributable to Adtalem | $37.9 million, versus $39.3 million | $45.7 million, versus a $29.0 million loss |
| Diluted EPS | $0.64, versus $0.63; continuing-operations EPS was $0.62, versus $0.69 | $0.76, versus a loss of $0.46 |
| Operating cash flow | Not separately stated in the supplied figures | $128.5 million, including $144.6 million from continuing operations |
Reported operating margin was 15.0% for the quarter versus 16.9% a year earlier, and 12.5% for the nine-month period versus 15.6%. Continuing-operations income attributable to Adtalem for the quarter was $36.3 million. Nine-month continuing-operations income was $84.0 million; comparisons were affected by prior-year tax charges and current-period restructuring and insurance items. Management’s non-GAAP continuing-operations income excluding special items was $40.0 million for the quarter (versus $43.4 million) and $111.8 million for nine months (versus $119.9 million).
At March 31, 2019, cash and cash equivalents were $321.2 million, total current assets $540.1 million, and current liabilities $309.2 million. Total debt principal was $297.8 million ($291.6 million net of issuance costs); the Term B Loan carried a 5.50% rate. The revolving facility had $231.6 million of availability after letters of credit. Adtalem reported compliance with debt covenants. Cash, cash equivalents and restricted cash declined $122.8 million over the nine months, principally alongside $176.9 million of share repurchases and divestiture-related cash transfers.
Material changes versus prior periods
- Revenue was essentially flat overall, but segment trends diverged. Quarterly Medical and Healthcare revenue grew 1.6% and Professional Education grew 14.1%; Technology and Business revenue fell 15.5% as reported, including an $8.0 million adverse currency effect. Consolidated revenue grew 2.1% on a constant-currency basis.
- Nine-month Brazil revenue declined 18.7% as reported, including a $31.3 million adverse currency effect; it declined 2.8% on a constant-currency basis. Management also cited competition, discounting, changes and delays in FIES funding, and lower demand for law exam preparation.
- Student Services and Administrative Expense rose 4.5% for the quarter and 8.9% for nine months, including costs allocated to continuing operations after the divestitures. Restructuring expense increased to $47.1 million for nine months from $3.2 million, primarily reflecting the RUSM Dominica campus impairment and real estate and workforce actions.
- The quarter’s net income included $1.7 million from discontinued operations; the nine-month discontinued-operations loss was $38.2 million, including $33.0 million of disposal losses. These disposals materially affect year-over-year reported earnings and comparability.
- The company repurchased $176.9 million of stock during the nine months, versus $111.6 million in the prior-year period. Shares outstanding were 56.954 million at March 31, 2019, compared with 60.369 million a year earlier.
Outlook, commentary, risks and unusual items
- No formal revenue or earnings guidance is provided in the supplied filing. Management expected approximately $65 million of fiscal 2019 capital spending, including $20–25 million for relocating RUSM to Barbados, and anticipated additional restructuring expense in the remainder of fiscal 2019.
- Management said liquidity, operating cash generation and the credit facility were expected to fund operations, growth plans—including the announced OCL Financial Services acquisition—and the share repurchase program for the foreseeable future, absent significant investment opportunities.
- On April 12, 2019, Adtalem agreed to acquire OCL Financial Services for $121 million in cash, subject to adjustments; closing was expected in the fourth quarter of fiscal 2019. The transaction was subsequent to the reporting date.
- RUSM relocated from Dominica to Barbados in January 2019. The Dominica property and equipment were fully impaired, contributing to $39.1 million of nine-month restructuring charges. Adtalem recorded a $15.6 million insurance settlement gain for hurricane claims in the first nine months; $35.7 million of insurance proceeds was classified as investing cash flow.
- Adtalem retained or remained contingently liable on certain leases associated with the divested businesses, and provided a $10 million loan to DeVry University at 4%, due January 2022. The DeVry sale includes potential earn-out payments to Adtalem of up to $20 million over ten years. Carrington and DeVry sales were for de minimis consideration, with post-closing adjustments still pending.
- Key risks include reliance on government student-aid programs and regulatory compliance, Brazil’s FIES funding and currency exposure, and competition and enrollment trends. RUSVM’s veterinary program was in the “zone” under gainful-employment measures; further adverse determinations could threaten Title IV eligibility. The filing also describes multiple pending or appealed lawsuits related principally to DeVry advertising and graduate outcomes; outcomes and potential effects were not predictable.
- Goodwill and intangible assets totaled approximately $1.17 billion, about 54% of total assets, making impairment estimates significant. Management reported no triggering event for impairment as of March 31, 2019. Adoption of the new lease standard was planned for July 1, 2019, with management expecting significant increases in balance-sheet assets and liabilities.
Important facts for investors to verify
- Confirm the filing identity and period: this is Adtalem’s 10-Q for the quarter ended March 31, 2019, despite the Covista and “2018 Q3” request metadata.
- Review the drivers of operating-income decline and the company’s non-GAAP adjustments, particularly restructuring, the hurricane settlement gain, tax items and discontinued operations.
- Assess Brazil’s underlying constant-currency performance, FIES exposure, collection trends and the impact of currency movements.
- Track RUSVM’s gainful-employment status, financial-aid regulatory developments, and the progress and potential costs of DeVry-related litigation and retained lease obligations.
- Verify the funding, closing and expected returns of the proposed $121 million OCL acquisition alongside buybacks, capital spending and debt obligations.