Business context and reporting period
Issuer mismatch: The supplied filing is Adtalem Global Education Inc.’s Form 10-Q, not a filing identified as Covista Inc. It reports the quarter and nine months ended March 31, 2020 (fiscal Q3 2020); filed May 5, 2020.
Adtalem’s continuing businesses were Medical and Healthcare (Chamberlain, AUC, RUSM and RUSVM) and Financial Services (including ACAMS, Becker and OnCourse Learning). DeVry University, Carrington and Adtalem Brazil are presented as discontinued operations. Adtalem Brazil was sold on April 24, 2020, after quarter-end.
Financial performance and position
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding 2019 periods.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $271.5 | $258.7 | $792.3 | $749.6 |
| Operating income, continuing operations | $54.5 | $45.6 | $120.5 | $101.0 |
| Operating margin, continuing operations | 20.1% | 17.6% | 15.2% | 13.5% |
| Net income attributable to Adtalem | $150.8 | $37.9 | $170.7 | $45.7 |
| Diluted EPS | $2.83 | $0.64 | $3.13 | $0.76 |
| Net income from continuing operations attributable to Adtalem, excluding special items (non-GAAP) | $43.2 | $37.4 | $93.0 | $98.4 |
| Diluted EPS from continuing operations, excluding special items (non-GAAP) | $0.81 | $0.64 | $1.70 | $1.64 |
- Q3 revenue increased 4.9%; nine-month revenue increased 5.7%. Excluding OnCourse Learning, acquired in May 2019, revenue growth was 1.7% for Q3 and 2.5% for the nine-month period.
- Q3 reported net income included a $111.8 million unrealized gain on a deal-contingent foreign-exchange hedge tied to the Brazil sale; the nine-month gain was $83.8 million. The filing says this accounting gain did not change the expected sale proceeds net of hedge settlement. Reported net income and EPS therefore substantially overstate underlying operating-period growth.
- Nine-month operating income excluding special items fell 3.5%, to $126.1 million, despite higher GAAP operating income. Prior-year results included substantially higher restructuring charges and a $15.6 million insurance settlement gain.
- Cash flow: Nine-month cash from continuing operations was $91.7 million, down from $107.2 million. Capital expenditures were $31.9 million versus $45.3 million. Management estimated full-year fiscal 2020 capital spending of approximately $40 million.
- Liquidity and debt at March 31: Cash and cash equivalents were $167.8 million; principal debt was $454.8 million ($449.6 million carrying value after issuance costs). The $300 million revolver had $71.6 million availability, including the effect of a $68.4 million letter of credit. Operating lease liabilities totaled $231.1 million. Debt covenants were reported as compliant.
- After quarter-end, the Brazil sale generated $424.0 million net cash proceeds and made an additional $73.0 million of previously unavailable cash available for general use.
Material changes, outlook and risks
- Medical and Healthcare Q3 revenue rose 1.7%; segment operating income excluding special items rose 8.7%. For nine months, revenue rose 2.6%, while adjusted segment operating income fell 9.5%, reflecting higher bad-debt expense, marketing and Barbados campus costs, among other items.
- Financial Services Q3 revenue rose 22.8%, primarily reflecting the OnCourse Learning acquisition; organic revenue declined 0.8%. Adjusted segment operating income declined 17.6% in Q3 and 28.2% for nine months, with higher growth-support costs and OnCourse Learning operating losses cited.
- Management said COVID-19 did not significantly affect Q3 results, but expected more material effects in Q4 and potentially fiscal 2021. Risks included student deferrals, interruptions to clinical placements, and cancelled ACAMS conferences. Most instruction and administrative work shifted online or remote.
- There is no numerical consolidated earnings outlook in the supplied filing. Management said available cash, operating cash flow, Brazil-sale proceeds and credit-facility resources were expected to fund operations and growth plans for the foreseeable future. Management also cited longer-term low-single-digit new-enrollment growth expectations for the medical and veterinary schools, subject to competition and other uncertainties.
- Share repurchases were suspended March 12, 2020 due to pandemic-related uncertainty. The company had repurchased $136.9 million of shares during the first nine months and had $45.2 million remaining under the current program at March 31.
- Key additional risks include potential COVID-related impairment of goodwill and intangible assets, student-loan bad-debt exposure, dependence on Title IV and other financial aid, LIBOR transition, and ongoing litigation related to former DeVry operations. The filing says outcomes of pending matters cannot be predicted; the DOJ declined to intervene in two related False Claims Act actions, but relators’ next steps were unknown.
- Other unusual items included adoption of lease accounting (ASC 842), which added lease assets and liabilities to the balance sheet, and a new interest-rate swap fixing the Term B Loan rate at 3.946% for the applicable period.
Important facts for investors to verify
- Confirm the issuer and filing match the intended Covista Inc. request; this document identifies Adtalem Global Education Inc. and ticker ATGE.
- Review the Brazil-sale closing terms, post-closing adjustments and use of the $424.0 million proceeds and $73.0 million released cash.
- Assess underlying earnings using continuing operations and non-GAAP reconciliations, separating the Brazil hedge gain from recurring performance.
- Monitor COVID-19 effects on enrollment, clinical placements, conferences, collections and any resulting impairment assessments.
- Check revolver availability, covenant headroom, the outstanding letter of credit, debt maturities and the effect of leases on liquidity.
- Follow bad-debt reserves and aging of institutional loans, along with the status and potential exposure of DeVry-related litigation and regulatory matters.