Covista Inc. quarterly report, Q1 FY2019

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Filing summary

Entity and period: The supplied filing is Adtalem Global Education Inc.’s unaudited Form 10-Q for the three months ended September 30, 2018 (first quarter of fiscal 2019), not a filing identified as Covista Inc. Confirm the intended issuer. Unless stated otherwise, financial amounts below are in U.S. dollars.

Financial performance and position

  • Revenue: $284.2 million, down 3.1% from $293.1 million. Management reported 1.2% growth on a constant-currency basis.
  • Profitability: Continuing-operations operating loss was $2.5 million, versus operating income of $29.9 million a year earlier. Continuing-operations loss attributable to Adtalem was $4.8 million, versus income of $25.4 million. Net loss attributable to Adtalem, including discontinued operations, was $9.5 million, compared with net income of $12.8 million; diluted EPS was $(0.16), versus $0.20.
  • Margins: Cost of educational services was 52.3% of revenue (59.1% prior year); student services and administrative expense was 34.7% (30.3%); operating margin was (0.9)% (10.2%); continuing-operations net margin was (1.7)% (8.7%). The filing reports these percentages rounded.
  • Cash flow: Cash from operating activities was $78.0 million, including $73.7 million from continuing operations and $4.3 million from discontinued operations, compared with $90.3 million total in the prior-year quarter. Capital expenditures were $15.2 million. Investing activities used $20.4 million and financing activities used $54.9 million; share repurchases accounted for $59.2 million of financing outflows.
  • Liquidity and debt: September 30 cash and cash equivalents were $408.8 million; restricted cash was $0.9 million. Term B Loan principal was $299.3 million, at a 5.24% interest rate; the balance-sheet debt amount, net of issuance costs and current portion, was $289.6 million. The $300 million revolver had $231.6 million of undrawn availability after letters of credit. The company reported compliance with debt covenants.
  • Balance sheet: Total assets were $2.35 billion and total liabilities were $901.0 million. Cash held in Brazil was $74.5 million and, under the company’s stated plans, was not available for general company purposes.

Material changes and business developments

  • Medical and Healthcare revenue rose 5.7% to $202.1 million, including recovery from hurricane-related disruption in the prior-year quarter. Professional Education revenue fell 11.0% to $35.6 million, mainly reflecting ACAMS conference timing and fewer Becker CPA exam candidates. Technology and Business revenue fell 24.3% to $47.3 million; currency translation reduced reported revenue by $12.6 million, and constant-currency revenue declined 4.2%.
  • Restructuring expense increased to $39.5 million from $1.1 million. The largest item was a $37.8 million impairment of RUSM’s Dominica campus after Adtalem decided not to return there. The company also recorded severance and other restructuring costs and expects additional costs during fiscal 2019.
  • DeVry University and Carrington were classified as discontinued operations and held for sale. Their combined discontinued-operations loss was $4.7 million, versus $12.7 million; the period included a $2.2 million DeVry asset impairment. Both divestitures were expected to close in mid-fiscal 2019, subject to their agreements and conditions. The DeVry transaction includes a $7.5 million minimum working-capital commitment and a potential earn-out of up to $20 million over ten years; the Carrington transaction includes an $11.5 million capital contribution, subject to adjustment.
  • The company repurchased 1.23 million shares for $59.2 million at an average $47.94 per share; $75.8 million remained under the authorization at quarter-end.
  • Goodwill was $805.3 million and intangible assets were $355.6 million, together approximately 49% of total assets. Management reported no impairment trigger for goodwill or indefinite-lived intangibles at September 30.

Outlook, risks, and unusual items

  • Management expected full-year fiscal 2019 capital spending of $70–$75 million, including approximately $25–$30 million for the RUSM relocation to Barbados. The January 2019 move was subject to final U.S. Department of Education approval. Additional relocation and restructuring costs were expected.
  • Management reported medical and veterinary school September enrollment up 9.5% for new students and 2.5% in total; Chamberlain enrollment rose 9.5% and 4.1%, respectively; and Adtalem Brazil enrollment rose 23.8% and 3.5%. Management cited longer-term low-single-digit new-enrollment growth expectations for its medical and veterinary schools, while noting competitive pressure.
  • In October 2018, Adtalem received final hurricane insurance proof-of-loss statements. It expected an additional $40.0 million of proceeds in fiscal Q2, to offset a recorded receivable and expected costs, with an estimated gain of approximately $15.2 million. These are post-quarter expectations, not amounts recognized in this quarter.
  • Risks include reliance on government student-aid programs and related regulatory requirements; Brazil’s economic conditions, currency volatility, discounting, and reduced FIES availability; and RUSM’s relocation and pending approvals. A 100-basis-point increase in short-term rates was estimated to add $3.0 million of annual interest expense.
  • The filing describes multiple pending securities, student, derivative, and other legal actions, including matters related to DeVry advertising claims. Management said it had reserved for potential losses, but could not predict the timing or outcome; adverse resolutions could materially affect results or cash flows. A $68.4 million letter of credit tied to the DeVry settlement reduces revolver capacity dollar-for-dollar and is expected to remain posted after the sale.
  • Management said disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter. It reported no material changes to the risk factors in its latest Form 10-K.

Important facts for investors to verify

  • Confirm issuer identity: the provided request says Covista Inc., while the filing identifies Adtalem Global Education Inc.
  • Track completion and terms of the DeVry and Carrington divestitures, including working-capital or capital-contribution commitments and any resulting cash needs.
  • Verify Barbados regulatory approval, the RUSM relocation timeline, and actual relocation and restructuring costs against management’s estimates.
  • Confirm receipt and accounting treatment of the expected $40.0 million hurricane insurance proceeds and estimated $15.2 million gain.
  • Monitor operating performance excluding restructuring, currency effects, hurricane comparisons, and discontinued operations; the reported loss and management’s adjusted results differ materially.
  • Review student-aid regulatory developments, Brazilian FIES exposure, litigation outcomes, debt covenant headroom, and the continuing $68.4 million letter-of-credit commitment.