Business context and reporting period
The supplied filing identifies the registrant as Adtalem Global Education Inc., not Covista Inc. It is a Form 10-Q for the quarter and nine months ended March 31, 2018 (Adtalem fiscal Q3 and first nine months of fiscal 2018). DeVry University is presented as discontinued operations; continuing-operations comparisons exclude it.
Key financial metrics
Amounts below are in millions of U.S. dollars except per-share figures. Figures may not sum due to rounding.
| Metric | Quarter ended Mar. 31, 2018 | Prior-year quarter | Nine months ended Mar. 31, 2018 | Prior-year nine months |
|---|---|---|---|---|
| Revenue, continuing operations | $342.2 | $332.7 | $1,004.7 | $995.7 |
| Operating income, continuing operations | $53.8 | $44.0 | $134.9 | $77.2 |
| Operating margin | 15.7% | 13.2% | 13.4% | 7.8% |
| Income from continuing operations | $44.5 | $36.3 | $11.5 | $69.6 |
| Net income (loss) attributable to Adtalem | $39.3 | $39.9 | $(29.0) | $79.4 |
| Diluted EPS, continuing operations | $0.72 | $0.56 | $0.18 | $1.08 |
- Quarterly revenue rose 2.9%; nine-month revenue rose 0.9%. Quarterly operating income increased 22.3%. The reported nine-month operating-income increase of 74.7% was largely affected by the prior-year $52.2 million regulatory-settlement charge; excluding settlements and restructuring, nine-month operating income grew 1.4%.
- Quarterly continuing-operations income improved 23.3%, supported by revenue growth and cost controls. The nine-month attributable net loss principally reflects a $101.2 million Tax Act charge and a $40.0 million after-tax loss from discontinued operations.
- Operating cash flow was $183.3 million for the nine months, including $148.0 million from continuing operations and $35.3 million from discontinued operations. Capital expenditures were $52.7 million. Investing activities used $49.4 million; financing activities used $107.9 million, including $111.6 million of share repurchases.
- At March 31, cash and cash equivalents were $265.3 million; revolving-facility borrowings were $120.0 million. Current assets were $539.3 million and current liabilities $378.6 million. The company reported compliance with debt covenants. Cash included $69.3 million held in Brazil, which management said was not available for general corporate use.
Material changes versus prior comparable periods
- Medical and Healthcare revenue increased 5.7% in the quarter and 0.9% for nine months. Professional Education revenue increased 5.7% and 10.9%, respectively, led by ACAMS growth. Technology and Business revenue fell 4.5% in the quarter but rose 1.6% for nine months; currency movements affected the quarterly comparison. Carrington revenue declined 4.2% and 9.4%, respectively, amid enrollment pressure.
- Quarterly cost of educational services fell 1.4%, helping lift its ratio to revenue to 52.5% from 54.8%. Student services and administrative expense rose 4.2% in the quarter; its revenue ratio increased to 31.6% from 31.2%.
- DeVry revenue, reported in discontinued operations, declined 24.1% in the quarter and 23.6% for nine months. Nine-month discontinued-operations results included $53.0 million of asset impairment charges; DeVry assets held for sale were $41.0 million at March 31, 2018.
- The company repurchased 3.0 million shares for $111.6 million during the first nine months. No cash dividends were paid; the board discontinued dividends in February 2017.
Outlook, commentary, risks and unusual items
- Management expected fourth-quarter fiscal 2018 revenue to increase 1%–2% year over year and operating costs to be flat to up 1%. The outlook excluded potential restructuring and DeVry-sale charges and the timing of hurricane-insurance reimbursements.
- Management cited Chamberlain enrollment growth and strong ACAMS membership, while noting pressure at Becker, Carrington and Adtalem Brazil. Brazil faces economic uncertainty, competition, and changes to the government FIES student-loan program; about 22% of Brazil degree-seeking students used FIES, representing about 21% of that segment’s revenue.
- Hurricanes Irma and Maria disrupted AUC and RUSM operations. Nine-month hurricane-related costs and impairment charges were partly offset by insurance proceeds; the filing reports $13.4 million of net hurricane expense for the period. Management expected most repair costs to be covered by insurance, subject to deductibles.
- The Tax Act generated a $101.2 million special tax charge, including a provisional $96.3 million transition-tax liability payable over eight years. The company had not completed its tax accounting or GILTI analysis, so estimates could change.
- Adtalem had agreed to sell DeVry to Cogswell for de minimis consideration, with closing expected in early fiscal 2019, subject to closing conditions. Adtalem committed to transfer at least $7.5 million of working capital, potentially up to $20.1 million, and could receive up to $20 million in earn-out payments over ten years. The filing warns that a delayed or unsuccessful sale could adversely affect valuation, cash and growth prospects.
- On April 13, 2018, after quarter-end, Adtalem replaced its prior facility with a $300 million revolver maturing in 2023 and a $300 million secured Term B loan maturing in 2025. Term-loan proceeds repaid $140 million of prior borrowings, paid $8.4 million of transaction costs and left $151.6 million for general corporate purposes. The $68.4 million DeVry-related letter of credit remained outstanding.
- Risks include ongoing securities, student and derivative litigation related to DeVry advertising; Title IV and accreditation requirements; possible regulatory changes to gainful-employment rules; foreign-exchange exposure; and potential impairment of goodwill and intangible assets, which together were about 55% of total assets.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for Adtalem Global Education Inc., despite request metadata naming Covista Inc.
- Track the DeVry sale’s closing conditions, working-capital commitment, separation costs and continuing letter-of-credit obligation.
- Assess whether operating cash generation and liquidity remain adequate after share repurchases, hurricane repairs, tax payments and the new debt financing.
- Monitor final Tax Act accounting, the transition-tax payment schedule and any GILTI-related impact.
- Verify hurricane insurance recoveries and repair spending, and monitor enrollment, FIES collections and regulatory exposure across the operating segments.