Filing summary
Issuer and period: The supplied filing is Adtalem Global Education Inc.’s unaudited Form 10-Q for the three months ended September 30, 2021 (first quarter of fiscal 2022), filed November 3, 2021. This does not match the request metadata naming Covista Inc. and “2021 Q1”; verify the intended issuer and reporting period.
Financial performance
| Metric | Quarter ended Sep. 30, 2021 | Comparable 2020 period |
|---|---|---|
| Revenue | $348.3 million | $268.2 million |
| Operating income (loss) | $(4.7) million | $36.7 million |
| Net income (loss) attributable to Adtalem | $(58.0) million | $19.9 million |
| Diluted EPS | $(1.17) | $0.38 |
| Operating cash flow, continuing operations | $40.9 million | $84.7 million |
| Cash and cash equivalents at period end | $360.1 million | $561.2 million at Sep. 30, 2020 |
| Debt principal outstanding | $1.65 billion | $293.3 million at Sep. 30, 2020 |
- Revenue increased 29.9%, including $68.6 million from the Walden acquisition; excluding the acquisition, revenue grew 4.3%.
- Operating margin was approximately (1.4)% versus 13.7% a year earlier. Cost of educational services rose to 46.8% of revenue from 42.4%, while student services and administrative expense rose to 45.8% from 37.3%.
- Interest expense increased to $47.4 million from $3.7 million, reflecting acquisition financing and related charges. GAAP continuing-operations loss was $40.6 million. Management’s non-GAAP continuing-operations net income excluding special items was $31.3 million, down from $41.2 million; diluted EPS on that basis was $0.62 versus $0.78.
- Operating cash flow from continuing operations fell by $43.7 million year over year. Investing cash outflow was $1.49 billion, primarily the $1.48 billion Walden purchase. Financing cash inflow was $515.0 million; cash, cash equivalents and restricted cash declined $933.3 million during the quarter.
- Current assets were $709.3 million and current liabilities $635.7 million at September 30, 2021. The filing reports $360.1 million in cash and $20.2 million in restricted cash. The $400 million revolving facility had $246.6 million available after outstanding letters of credit.
Material changes and business developments
- Adtalem acquired Walden University on August 12, 2021 for approximately $1.48 billion, funded with senior secured notes, a term loan and cash. Walden contributed $68.6 million in quarterly revenue and recorded a $9.2 million net loss after acquisition. Purchase accounting remains preliminary; acquired goodwill was $642.6 million and acquired intangible assets were approximately $833.4 million.
- Debt principal increased to $1.65 billion, comprising $800 million of 5.50% senior secured notes due 2028 and an $850 million Term Loan B due 2028. The Term Loan B interest rate was 5.25% at quarter end and is variable; a 100-basis-point rise in short-term rates was estimated to add $2.8 million of annual interest expense.
- Segment revenue: Chamberlain $135.6 million (+1.4%); Walden $68.6 million; Medical and Veterinary $84.8 million (−0.3%); Financial Services $59.3 million (+19.9%). Financial Services operating income improved with revenue growth, while Chamberlain and Medical and Veterinary operating income declined, partly due to return-to-campus costs.
- Management said Chamberlain’s September-session new and total enrollment fell 13.4% and 2.8%, respectively; Medical and Veterinary new and total enrollment fell 4.6% and 6.9%. Walden reported 8,413 new and 44,886 total students for the September term.
- Adtalem is exploring strategic alternatives for Financial Services. No share repurchases occurred in the quarter.
Outlook, risks and contingencies
- Management expects fiscal 2022 capital spending of $75 million to $85 million. It believes cash, operating cash generation and revolving-credit availability will fund operations and growth plans for the foreseeable future.
- Management expects additional Walden integration costs during the remainder of fiscal 2022. Return-to-campus costs were expected to continue. COVID-19 could still affect enrollment, clinical placements, Financial Services conferences and operating results; management reported no significant COVID-related revenue or earnings losses in the quarter.
- Walden’s Title IV participation remained under a temporary, month-to-month provisional agreement while the Department of Education reviewed the change in ownership. An $83.6 million letter of credit and additional cash-management and reporting requirements applied. The filing says Adtalem expects its consolidated federal financial-responsibility composite score to fall below 1.5 for fiscal 2022; potential consequences include heightened cash monitoring or additional letters of credit.
- AUC, RUSM and RUSVM also had provisionally recertified Title IV agreements due to compliance audit findings. Changes to the federal 90/10 rule are scheduled to apply to institutional fiscal years beginning on or after January 1, 2023.
- DeVry-related litigation and settlement costs are reported in discontinued operations. A $44.95 million settlement fund is held in escrow; payment was anticipated in fiscal 2022. On November 2, 2021, Adtalem and counsel for DeVry claimants reached proposed settlement terms for arbitrations, subject to Board approval and claimant participation. Other disclosed matters include a Chamberlain biometric-information class action, a student tuition appeal, and a Walden wage-and-hour action.
- Goodwill and indefinite-lived intangibles were not considered impaired at quarter end, but management cautioned that weaker-than-expected conditions could require reassessment. The filing also identifies uncertainty from the transition away from LIBOR.
Most important facts to verify
- Confirm the intended company: the filing is for Adtalem Global Education Inc., not Covista Inc.
- Confirm the intended period: this is fiscal Q1 2022, ended September 30, 2021, rather than a quarter ended in calendar Q1 2021.
- Review Walden integration performance, final purchase-price allocation, enrollment trends and the impact of acquisition-related amortization and financing costs.
- Monitor leverage, variable-rate debt exposure, revolving-credit availability and compliance with leverage covenants as they take effect.
- Track Walden’s Title IV ownership-change review, provisional status, letter-of-credit requirements and Adtalem’s expected composite-score outcome.
- Follow the DeVry escrow and proposed arbitration settlement, as well as other legal and regulatory proceedings.