Filing and reporting period
The supplied filing is Adtalem Global Education Inc.’s Form 10-Q for the quarter ended December 31, 2019 (fiscal 2020 second quarter), not a filing identified as Covista Inc. The company reported continuing operations in Medical and Healthcare and Financial Services; Adtalem Brazil, DeVry University, and Carrington were presented as discontinued operations. Dollar amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2019 | Prior-year quarter | Six months ended Dec. 31, 2019 | Prior-year period |
|---|---|---|---|---|
| Revenue, continuing operations | $266.2 | $254.0 | $520.8 | $490.9 |
| Operating income, continuing operations | $40.3 | $58.7 | $66.1 | $55.4 |
| Net income attributable to Adtalem | $5.5 | $17.3 | $19.9 | $7.8 |
| Diluted EPS | $0.10 | $0.29 | $0.36 | $0.13 |
- Quarterly operating margin was 15.1%, versus 23.1% a year earlier; six-month margin was 12.7%, versus 11.3%. Quarterly continuing-operations income attributable to Adtalem was $1.4 million, down from $41.9 million.
- Quarterly revenue increased 4.8%; six-month revenue increased 6.1%. Excluding OnCourse Learning (OCL), acquired in May 2019, reported revenue growth was 1.6% for the quarter and 2.9% for six months.
- Quarterly GAAP effective tax rate was 85.3%, principally affected by the inability to recognize a tax benefit on the $28.0 million hedge loss. The company reported a 20.5% adjusted rate excluding specified special items.
- Continuing-operations operating cash flow was negative $24.3 million for six months, versus positive $2.1 million a year earlier. Consolidated operating cash flow, including discontinued operations, was negative $13.7 million. Capital expenditures were $20.3 million.
- Cash and cash equivalents were $67.3 million at December 31, 2019, excluding $104.0 million of Brazil cash classified as held for sale. The cash-flow statement reports $70.7 million of cash, cash equivalents, and restricted cash excluding discontinued operations.
- Debt principal was $420.5 million ($295.5 million Term B loan and $125.0 million revolver); reported debt net of issuance costs was $415.1 million. The $300 million revolver had $106.6 million undrawn availability after the letter of credit. The company said it was compliant with covenants.
- Operating lease assets were $187.5 million and lease liabilities totaled $233.0 million at quarter-end, following adoption of the lease standard in July 2019. The adoption materially increased reported balance-sheet assets and liabilities without affecting the income statement.
Changes and operating drivers
- Medical and Healthcare revenue rose 3.6% to $220.2 million in the quarter; segment operating income excluding special items fell 12.5% to $41.6 million. Chamberlain enrollment supported growth, while medical and veterinary school enrollment was lower and competition remained elevated.
- Financial Services revenue rose 9.1% to $46.0 million, including OCL; excluding OCL, revenue declined 10.1%. The timing of the ACAMS annual conference reduced quarterly revenue by $5.3 million versus the prior-year quarter. Segment operating income excluding special items declined 41.0% to $5.7 million.
- Consolidated quarterly operating income excluding special items fell 9.4% to $42.3 million. Management cited higher student-loan bad-debt expense, investment in growth, and conference timing.
- The prior-year quarter included a $15.6 million hurricane-insurance settlement gain; the current quarter included a $28.0 million unrealized loss on the foreign-exchange hedge for the proposed Brazil sale. The hedge is not eligible for hedge accounting, so fair-value movements affect earnings, but management said the change does not alter expected sale proceeds net of hedge settlement.
- Six-month restructuring expense declined to $8.5 million from $43.0 million, largely because the prior year included impairment and severance related to the Dominica campus. The current period included a $4.8 million gain on the sale of a Columbus, Ohio campus facility.
- Share repurchases totaled $100.0 million in the six months. A further $82.1 million remained under the then-current authorization at December 31; the board authorized a new $300 million program on January 31, 2020, to begin after the current program is completed.
Outlook, risks, and contingencies
- Management forecast fiscal 2020 capital spending of $45–$50 million and said existing unrestricted cash, operating cash generation, and credit-facility capacity should fund operations, growth plans, and the current buyback program for the foreseeable future, absent significant investment opportunities.
- Management expects continued restructuring costs during the remainder of fiscal 2020. For the medical and veterinary schools, it cited a longer-term goal of low-single-digit new-enrollment growth, while warning that competition could hinder recruitment.
- The proposed sale of Adtalem Brazil for R$1.92 billion (approximately $465 million at the agreement-date exchange rate) remained subject to closing conditions, including Brazilian antitrust approval. Completion was expected in the first half of fiscal 2021; the filing warns a delayed or unsuccessful sale could adversely affect valuation, growth prospects, or financial resources.
- Brazil’s weaker economy, currency movements, lower enrollment, discounting, competition, and reduced availability of government student-loan contracts pressured the discontinued business. Brazil revenue declined 11.9% in the quarter, including currency effects.
- The company disclosed ongoing DeVry-related student litigation and a DOJ False Claims Act inquiry involving alleged recruitment practices and federal education benefits. Outcomes and potential impacts were not predictable; the filing says such matters could require significant resources and adversely affect results. The securities class-action settlement was finally approved and fully covered by insurance.
- Title IV funding and regulatory compliance remain important risks. The company reported that its participating institutions remained below its voluntary 85% federal-funding limit, and that its composite financial-responsibility score had exceeded the required 1.5 threshold in recent years.
Important facts for investors to verify
- Confirm the registrant identity: the supplied document names Adtalem Global Education Inc., whereas the request metadata names Covista Inc.
- Track Brazil-sale approvals, timing, cash proceeds, and the hedge’s subsequent mark-to-market effects; distinguish accounting losses from expected net transaction proceeds.
- Assess whether student-loan allowance growth and higher bad-debt expense persist; the allowance for bad debts was $17.0 million, versus $14.5 million at June 30, 2019.
- Monitor underlying segment trends excluding acquisition effects and ACAMS conference timing, including enrollment, margins, and OCL profitability.
- Review cash conversion, buybacks, debt and revolver capacity (including the $68.4 million letter of credit), and the impact of lease obligations.
- Follow DOJ and DeVry-related litigation developments, and verify the status of regulatory and Title IV requirements.