Adtalem Global Education Inc. — Form 10-Q Summary
Filing identity and period: The supplied filing is for Adtalem Global Education Inc. (NYSE: ATGE), not Covista Inc. It covers the three months ended September 30, 2020, Adtalem’s first quarter of fiscal 2021. The filing was signed November 5, 2020.
Business context
Continuing operations comprise Medical and Healthcare (Chamberlain, AUC, RUSM and RUSVM) and Financial Services (ACAMS, Becker, OnCourse Learning and EduPristine). Adtalem Brazil, Carrington College and DeVry University are reported as discontinued operations; Adtalem Brazil was sold in April 2020.
Financial results and liquidity
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $268.2 million | $254.6 million |
| Operating income | $36.7 million | $25.7 million |
| Operating margin | 13.7% | 10.1% |
| Income from continuing operations attributable to Adtalem | $27.5 million | $17.5 million |
| Net income attributable to Adtalem, including discontinued operations | $19.9 million | $14.4 million |
| Diluted EPS, net | $0.38 | $0.26 |
| Continuing-operations operating cash flow | $84.7 million | $33.5 million |
- Revenue rose 5.4%: Medical and Healthcare revenue increased 5.5% to $218.8 million; Financial Services increased 4.9% to $49.4 million.
- GAAP operating income included $4.2 million of restructuring charges and $13.4 million of Walden acquisition and integration costs. It also lacked the $4.8 million asset-sale gain recorded in the prior-year quarter. Operating income excluding these special items, a non-GAAP measure, was $54.4 million, up 97.7% year over year.
- Cost of educational services fell to 42.4% of revenue from 50.3%; student services and administrative expense was 37.3%, versus 38.9%. The reported net income includes a $7.6 million loss from discontinued operations.
- Cash and cash equivalents were $561.2 million at September 30, 2020. Continuing-operations operating cash flow was $84.7 million; capital expenditures were $14.4 million.
- Debt principal was $293.3 million ($288.6 million carrying amount after debt issuance costs); no revolver borrowings were outstanding. The $300 million revolver had $231.6 million available after accounting for a $68.4 million letter of credit. The company reported compliance with debt covenants.
- Current assets were $768.5 million and current liabilities $409.9 million. Deferred revenue rose to $168.3 million from $91.6 million at June 30, 2020, reflecting academic-term billings and timing.
Material changes and management commentary
- Management attributed improved results to enrollment and revenue growth, lower bad-debt expense, and cost controls. Chamberlain revenue increased 14.8%; September-session new and total enrollment grew 13.2% and 11.9%, respectively. Medical and veterinary school enrollment grew 5.5% for new students and 4.3% overall.
- COVID-19 was estimated to reduce quarterly revenue by about $14 million, operating income by $7 million and EPS by $0.11. Estimated impacts included lost clinical revenue and housing/transportation revenue at AUC and RUSM, and lower ACAMS live-conference revenue. Management expected further effects during FY2021 and additional costs as in-person instruction resumed.
- Management projected FY2021 capital expenditures of $50–$55 million. It said existing cash, operating cash flow and revolver capacity should fund ongoing operations and growth plans, but treated the planned Walden acquisition separately. No full-year revenue, earnings or EPS guidance is provided in the supplied filing text.
- Adtalem agreed to acquire Walden University for $1.48 billion in cash, subject to adjustments, with closing expected in mid-2021 and regulatory and other conditions. Financing commitments included a $1 billion term facility, a $400 million revolver and up to $650 million of bridge financing if qualifying notes were not issued. The acquisition would materially increase debt.
- Walden was subject to a DOJ investigation into alleged False Claims Act violations concerning its nursing program, accreditation representations, advertising and clinical placements. The HLC notified Walden that it sought to assign a public Governmental Investigation designation; Adtalem said this could delay or prevent HLC approval. Adtalem was conducting its own investigation. These developments create uncertainty around the transaction’s timing and completion.
- Other notable exposures include provisional Title IV recertification for AUC, RUSM and RUSVM following audit findings; ongoing DeVry-related litigation and arbitrations; and an approved $44.95 million class-action settlement escrowed in 2020, with an appeal notice filed after quarter-end. The company stated it had adequately reserved for potential losses, while warning that litigation outcomes and costs could be material.
Important facts for investors to verify
- Confirm the filing entity: the document is Adtalem Global Education Inc., although the request metadata names Covista Inc.
- Track Walden acquisition approvals, the DOJ/HLC developments, final financing terms and expected added leverage.
- Monitor COVID-19 effects on clinical placements, international campus attendance, live conferences, enrollment and the cost of returning to in-person instruction.
- Review Title IV compliance and recertification status, debt-covenant headroom, and the continuing impact of the DeVry letter of credit on revolver availability.
- Assess the sustainability of earnings growth: reported results include discontinued-operation losses, acquisition costs and restructuring items; compare GAAP results with the company’s non-GAAP adjustments.
- Verify the progress and ultimate cost of DeVry-related settlements and litigation, including the appeal of the $44.95 million settlement.