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 fiscal third quarter and nine months ended March 31, 2021; the request metadata’s “2020 Q3” does not match the filing period. Adtalem reported Medical and Healthcare and Financial Services segments. Adtalem Brazil, Carrington College, and DeVry University are presented as discontinued operations.
Key financial metrics
Amounts below are in millions of dollars except per-share data. Comparable periods are the three or nine months ended March 31, 2020.
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $280.7 | $271.5 | $832.0 | $792.3 |
| Operating income | $44.2 | $54.5 | $121.2 | $120.5 |
| Operating margin | 15.8% | 20.1% | 14.6% | 15.2% |
| Income from continuing operations | $29.7 | $153.4 | $88.7 | $172.1 |
| Net income attributable to Adtalem | $24.7 | $150.8 | $67.9 | $170.7 |
| Diluted GAAP EPS | $0.48 | $2.83 | $1.30 | $3.13 |
| Operating cash flow, continuing operations | Not provided for quarter | Not provided for quarter | $167.2 | $92.0 |
- Revenue rose 3.4% in Q3 and 5.0% for the nine-month period. Q3 segment revenue increased 1.3% in Medical and Healthcare and 14.3% in Financial Services.
- Management’s non-GAAP continuing-operations diluted EPS was $0.72 in Q3 versus $0.81, and $2.28 for nine months versus $1.70. These adjusted measures exclude specified items and should not be treated as GAAP results.
- Nine-month capital expenditures were $34.8 million. Management projected full-year FY2021 capital spending of $50–$55 million.
- At March 31, cash and cash equivalents were $497.7 million; marketable securities were $10.9 million. Restricted cash was $808.0 million, including $804.3 million held in acquisition escrow and unavailable for general corporate purposes.
- Reported long-term debt was $1,070.6 million net of issuance costs, including $800 million of 5.50% senior secured notes issued in March and $291.8 million principal outstanding on the Term B Loan. The notes’ proceeds were escrowed for the proposed acquisition. The existing revolver had no borrowings; stated remaining availability was $231.6 million, after the effect of letters of credit.
Material changes versus the prior comparable period
- Q3 operating income declined 18.9%, and operating margin fell to 15.8% from 20.1%. Management cited higher marketing and employee-benefit costs and COVID-related revenue losses.
- Reported Q3 net income and EPS fell sharply year over year largely because the prior-year quarter included a $111.8 million unrealized gain on a foreign-currency hedge related to the Adtalem Brazil sale. That gain was not repeated. Q3 FY2021 also included $3.6 million of acquisition and integration costs and $5.0 million of pre-acquisition interest expense.
- Nine-month operating income was nearly flat on a GAAP basis, while revenue grew. The prior-year period included an $83.8 million unrealized hedge gain and a $4.8 million gain on asset sale; FY2021 included $28.2 million of acquisition and integration expenses.
- Continuing-operations operating cash flow rose to $167.2 million from $92.0 million; management attributed the change in part to timing of operating payments and working-capital items.
- Debt rose substantially with the $800 million notes issuance for the planned Walden acquisition. Treasury-share repurchases totaled $81.6 million for the nine months, compared with $136.9 million a year earlier.
Outlook, commentary, risks and unusual items
- Adtalem expected the Walden University acquisition, at a purchase price of $1.48 billion subject to adjustments, to close in the first quarter of FY2022, conditional on regulatory and other approvals. It arranged $800 million of notes and planned a $850 million term loan and $400 million revolver alongside other funding. The filing does not provide clear numerical full-year revenue or earnings guidance.
- Walden had an active DOJ investigation concerning alleged False Claims Act violations and an HLC “Under Governmental Investigation” designation. Adtalem said it was conducting its own review; the designation could delay or prevent HLC approval. The DOJ’s decision not to intervene in a related lawsuit did not resolve the underlying matters.
- Management estimated COVID-19 reduced revenue by about $9 million and operating income by $6 million in Q3, and revenue by $31 million and operating income by $20 million over nine months. Clinical-placement constraints and lost housing and transportation revenue affected the medical schools; canceled or virtualized live events affected ACAMS. Management anticipated further disruption and higher costs as in-person instruction resumed.
- Management stated that cash, operating cash generation, and the existing credit facility were expected to support ongoing operations and growth plans, apart from funding the Walden acquisition. Debt covenants were reported compliant at quarter-end.
- Other matters include continuing DeVry-related litigation and settlements, a $44.95 million escrowed settlement fund, provisional Title IV recertifications for AUC, RUSM, and RUSVM, and a $68.4 million letter of credit associated with the DeVry settlement. The filing says potential losses in certain legal matters cannot be predicted.
- The Term B Loan’s interest rate was hedged at 3.946% through a swap; the company noted LIBOR transition uncertainty. The filing also identifies acquisition-completion, integration, leverage and debt-service, regulatory, COVID-19, and shareholder-activism risks.
Important facts for investors to verify
- Confirm the issuer and period: the supplied text is Adtalem’s quarter ended March 31, 2021, not Covista’s 2020 third quarter.
- Track Walden regulatory approvals, the DOJ/HLC matters, acquisition timing, final purchase-price adjustments, and whether planned financing closes on the stated terms.
- Assess post-acquisition debt, interest expense, liquidity available after excluding escrowed restricted cash, and compliance with debt and education-related financial responsibility requirements.
- Monitor enrollment, clinical-placement capacity, campus and housing activity, ACAMS conference recovery, and whether COVID-related losses or return-to-campus costs differ from management’s estimates.
- Review the status and potential cash impact of DeVry-related litigation, the settlement appeals, other disclosed legal proceedings, and the $68.4 million letter of credit.