SEC Filing Summary
Entity and period: The request metadata names Covista Inc., but the supplied Form 10-Q is for Adtalem Global Education Inc. (NYSE: ATGE). It covers the quarter and six months ended December 31, 2020—Adtalem’s fiscal 2021 second quarter and first half. The filing was signed February 2, 2021.
Business context and reporting period
Adtalem reported two continuing-operation segments: Medical and Healthcare, including Chamberlain University and its medical and veterinary schools; and Financial Services, including ACAMS, Becker, OnCourse Learning, and EduPristine. Adtalem Brazil, Carrington College, and DeVry University are presented as discontinued operations. Amounts below are in U.S. dollars; financial-statement figures are converted from thousands to millions where applicable.
Financial performance and position
| Metric | Q2 FY2021 | Q2 FY2020 | First half FY2021 | First half FY2020 |
|---|---|---|---|---|
| Revenue | $283.1M | $266.2M | $551.4M | $520.8M |
| Operating income (GAAP) | $40.3M | $40.3M | $77.0M | $66.1M |
| Operating margin (calculated) | 14.2% | 15.1% | 14.0% | 12.7% |
| Income from continuing operations | $31.6M | $1.3M | $59.0M | $18.7M |
| Net income attributable to Adtalem | $23.3M | $5.5M | $43.2M | $19.9M |
| Diluted EPS | $0.44 | $0.10 | $0.82 | $0.36 |
| Net cash from continuing operations | Not presented by quarter | Not presented by quarter | $85.3M | $(24.2)M |
Q2 revenue grew 6.4%; Medical and Healthcare revenue rose 6.5% to $234.4M and Financial Services revenue rose 5.9% to $48.7M. For the first half, revenue increased 5.9%. Segment operating income excluding special items, a non-GAAP measure, was $52.6M for Q2, up 24.4%, and $106.9M for the first half, up 53.3%. These adjusted figures exclude specified items, including restructuring and Walden acquisition and integration costs.
Q2 GAAP operating margin declined year over year despite higher adjusted operating income. Q2 included $11.1M of Walden-related acquisition and integration expense; first-half expense was $24.5M. First-half FY2020 also included a $4.8M gain on sale of a campus.
At December 31, 2020, cash and cash equivalents were $449.3M, restricted cash was $39.4M, marketable securities were $10.5M, and total assets were $2.245B. Current assets were $680.4M versus current liabilities of $340.7M. Long-term debt had $292.5M principal outstanding ($287.1M net of debt issuance costs, including current portion). The revolver had no borrowings; stated availability was $231.6M after letters of credit. A $68.4M letter of credit related to the DeVry/Department of Education settlement reduces revolver availability. The company said it was in compliance with debt covenants.
First-half operating cash flow from continuing operations was $85.3M, versus cash used of $24.2M a year earlier. Management attributed the improvement partly to higher continuing income, the timing of $35.5M in federal aid receipts, and timing of payables and accrued expenses. Capital expenditures were $24.2M; management estimated full-year FY2021 capital spending of $50M–$55M. Cash used in financing activities from continuing operations was $52.1M, including $45.0M of share repurchases.
Material changes versus prior comparable periods
- Revenue increased in both segments, supported notably by Chamberlain enrollment growth and Financial Services growth, including OnCourse Learning.
- Q2 net income increased substantially year over year, but comparison is affected by the prior-year $28.0M unrealized loss on a Brazil-sale currency hedge. That loss was recorded in continuing operations and was not repeated in FY2021.
- Continuing income improved, while discontinued operations reported a Q2 loss of $8.4M versus income of $4.1M in the prior-year quarter; first-half discontinued-operations loss was $16.0M versus income of $1.0M.
- Cash and cash equivalents were $449.3M, down from $500.5M at June 30, 2020, but above $67.3M at December 31, 2019. Debt principal fell from $420.5M at December 31, 2019, mainly reflecting repayment of revolver borrowings.
- Shares repurchased in the first half totaled $45.0M, compared with $100.0M a year earlier. Repurchases resumed in November 2020 after suspension in March.
Outlook, risks, contingencies, and unusual items
- Walden acquisition: Adtalem agreed to acquire Walden University for $1.48B cash, subject to adjustments and regulatory and other closing conditions; closing was expected around mid-calendar 2021. Financing commitments included a $1B term facility, a $400M revolver, and up to $650M of bridge financing if planned notes were not issued. The filing does not provide a clear updated earnings or revenue guidance range.
- Walden investigation and approval risk: The DOJ and other agencies were investigating allegations concerning Walden’s nursing program representations and clinical placements. The Higher Learning Commission designated Walden “Under Governmental Investigation” in November 2020. Adtalem said this could delay or prevent HLC approval of the acquisition and that it was conducting its own review.
- COVID-19: Management estimated Q2 revenue and operating-income impacts of approximately $7M each and an EPS impact of approximately $0.11; first-half estimates were $22M revenue, $14M operating income, and $0.22 EPS. Lost clinical, housing, transportation, and live-conference activity were key effects. Management expected further impacts and higher costs as in-person instruction resumed; magnitude and duration remained uncertain.
- Liquidity outlook: Management believed cash, operating cash flow, and available credit would fund existing operations and growth plans for the foreseeable future, apart from the Walden acquisition financing. The $35.5M of early-received federal aid included in restricted cash was normally received in early January.
- Legal matters: The company had recorded a $44.95M contingency and placed that amount in escrow for a DeVry-related class settlement. The court approved the settlement, but objectors appealed. Other DeVry-related student claims and a separate False Claims Act matter remained in various stages; management said it had reserved for potential losses it considered probable and reasonably estimable.
- Other exposures: AUC, RUSM, and RUSVM had provisional Title IV recertifications following compliance audit findings. Adtalem reported no financial restrictions imposed on those institutions, but loss or restriction of Title IV eligibility could materially affect results. LIBOR-based debt and the interest-rate swap also require attention as LIBOR transition approaches.
- Shareholder activism: Activist investors urged the Board to reconsider the Walden deal and pursue other strategic and governance changes. The filing warned that responding could consume management resources and create uncertainty.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is Adtalem Global Education Inc., not Covista Inc.; confirm whether this is the intended company and filing.
- Track Walden acquisition approvals, the DOJ investigation, HLC designation, final financing terms, transaction costs, and any change to the expected closing date or purchase price.
- Assess the underlying earnings trend separately from the prior-year $28.0M hedge loss, current acquisition costs, discontinued-operation losses, and the company’s non-GAAP adjustments.
- Monitor COVID-related clinical placement and housing recovery, ACAMS conference revenue, enrollment trends, and the potential return of associated costs.
- Review cash availability after restricted funds and letters of credit, revolver capacity, debt covenant headroom, and the planned acquisition’s effect on leverage and interest expense.
- Follow the DeVry settlement appeal and remaining litigation, Title IV compliance status, and any resulting accruals or restrictions.