UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended: |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _____ to _____ |
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Commission file number: |
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(Exact name of registrant as specified in its charter)
DELAWARE | |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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(Address of principal executive offices) | (Zip Code) |
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(Registrant’s telephone number; including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
þ | Accelerated filer | ☐ | ||
Non-accelerated filer | ◻ | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
October 22, 2019 —
ADTALEM GLOBAL EDUCATION INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION | ||
Item 1 | Financial Statements (unaudited) | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 40 | |
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2
ADTALEM GLOBAL EDUCATION INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, | June 30, | September 30, | |||||||
| 2019 |
| 2019 |
| 2018 | ||||
(in thousands, except share and par value amounts) | |||||||||
ASSETS: | |||||||||
Current Assets: | |||||||||
Cash and Cash Equivalents | $ | | $ | | $ | | |||
Investments in Marketable Securities |
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Restricted Cash |
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Accounts Receivable, Net |
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Prepaid Expenses and Other Current Assets |
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Current Assets Held for Sale |
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Total Current Assets |
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Land, Building and Equipment: |
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Land |
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Building |
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Equipment |
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Construction in Progress |
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Accumulated Depreciation |
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Land, Building and Equipment Held for Sale, Net |
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Land, Building and Equipment, Net |
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Noncurrent Assets: |
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Operating Lease Assets |
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Deferred Income Taxes |
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Intangible Assets, Net |
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Goodwill |
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Other Assets, Net |
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Other Assets Held for Sale |
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Total Noncurrent Assets |
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TOTAL ASSETS | $ | | $ | | $ | | |||
LIABILITIES: |
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Current Liabilities: |
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Accounts Payable | $ | | $ | | $ | | |||
Accrued Salaries, Wages and Benefits |
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Accrued Liabilities |
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Deferred Revenue |
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Current Operating Lease Liabilities |
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Current Portion of Long-Term Debt |
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Current Liabilities Held for Sale |
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Total Current Liabilities |
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Noncurrent Liabilities: |
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Long-Term Debt |
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Long-Term Operating Lease Liabilities |
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Deferred Income Taxes |
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Other Liabilities |
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Noncurrent Liabilities Held for Sale |
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Total Noncurrent Liabilities |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (NOTE 14) |
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NONCONTROLLING INTEREST |
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SHAREHOLDERS’ EQUITY: |
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Common Stock, $ |
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Additional Paid-in Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Loss |
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Treasury Stock, at Cost, |
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TOTAL SHAREHOLDERS’ EQUITY |
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TOTAL LIABILITIES, NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY | $ | | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
3
ADTALEM GLOBAL EDUCATION INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
(in thousands, except per share amounts) | |||||||
REVENUE | $ | | $ | | |||
OPERATING COST AND EXPENSE: |
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Cost of Educational Services |
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Student Services and Administrative Expense |
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Restructuring Expense |
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Gain on Sale of Assets |
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Total Operating Cost and Expense |
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Operating Income (Loss) from Continuing Operations |
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OTHER INCOME (EXPENSE): |
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Interest and Dividend Income |
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Interest Expense |
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Investment Gain | | | |||||
Net Other Expense |
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Income (Loss) from Continuing Operations Before Income Taxes |
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Income Tax (Provision) Benefit |
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Income (Loss) from Continuing Operations |
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DISCONTINUED OPERATIONS (NOTE 2): |
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Loss from Discontinued Operations Before Income Taxes |
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Income Tax (Provision) Benefit |
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Loss from Discontinued Operations |
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NET INCOME (LOSS) |
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Net Loss Attributable to Noncontrolling Interest from Continuing Operations |
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Net Income Attributable to Noncontrolling Interest from Discontinued Operations |
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NET INCOME (LOSS) ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION | $ | | $ | ( | |||
AMOUNTS ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION: |
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Income (Loss) from Continuing Operations | $ | | $ | ( | |||
Loss from Discontinued Operations |
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NET INCOME (LOSS) ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION | $ | | $ | ( | |||
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION SHAREHOLDERS: |
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Basic: |
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Continuing Operations | $ | | $ | ( | |||
Discontinued Operations | $ | ( | $ | ( | |||
Total | $ | | $ | ( | |||
Diluted: |
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Continuing Operations | $ | | $ | ( | |||
Discontinued Operations | $ | ( | $ | ( | |||
Total | $ | | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
4
ADTALEM GLOBAL EDUCATION INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
(in thousands) | |||||||
NET INCOME (LOSS) | $ | | $ | ( | |||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
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Currency Translation Loss |
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Change in Fair Value of Available-For-Sale Securities |
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COMPREHENSIVE LOSS |
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COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST |
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COMPREHENSIVE LOSS ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION | $ | ( | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
5
ADTALEM GLOBAL EDUCATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended | ||||||
September 30, | ||||||
| 2019 |
| 2018 | |||
(in thousands) | ||||||
CASH FLOW FROM OPERATING ACTIVITIES: |
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Net Income (Loss) | $ | | $ | ( | ||
Loss from Discontinued Operations |
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Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: |
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Stock-Based Compensation Expense |
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Amortization and Adjustments to Operating Lease Assets | | | ||||
Depreciation |
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Amortization of Intangible Assets |
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Amortization of Deferred Debt Issuance Costs |
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Provision for Bad Debts | | | ||||
Deferred Income Taxes |
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Loss on Disposals, Accelerated Depreciation and Adjustments to Land, Building and Equipment |
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Realized Loss on Investments | | | ||||
Unrealized Gain on Investments | ( | | ||||
Realized Gain on Sale of Assets | ( | | ||||
Changes in Assets and Liabilities: |
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Accounts Receivable |
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Prepaid Expenses and Other Current Assets |
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Accounts Payable |
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Accrued Salaries, Wages, Benefits and Liabilities |
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Deferred Revenue |
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Operating Lease Liabilities | ( | | ||||
Other Assets and Liabilities |
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Net Cash Provided by Operating Activities-Continuing Operations |
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Net Cash Provided by Operating Activities-Discontinued Operations |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital Expenditures |
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Sales of Marketable Securities | | | ||||
Purchases of Marketable Securities |
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Proceeds from Sale of Assets |
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Net Cash Used in Investing Activities-Continuing Operations |
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Net Cash Used in Investing Activities-Discontinued Operations |
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NET CASH USED IN INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from Exercise of Stock Options |
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Employee Taxes Paid on Withholding Shares |
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Proceeds from Stock Issued Under Colleague Stock Purchase Plan |
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Repurchase of Common Stock for Treasury |
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Borrowings Under Credit Facility |
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Repayments Under Credit Facility |
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Proceeds from Down Payment on Seller Loan | | | ||||
Payment for Purchase of Noncontrolling Interest of Subsidiary |
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Net Cash Used in Financing Activities-Continuing Operations |
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Net Cash Used in Financing Activities-Discontinued Operations |
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NET CASH USED IN FINANCING ACTIVITIES |
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Effects of Exchange Rate Differences |
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NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
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Cash, Cash Equivalents and Restricted Cash at Beginning of Period |
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Cash, Cash Equivalents and Restricted Cash at End of Period |
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Less: Cash, Cash Equivalents and Restricted Cash of Discontinued Operations at End of Period |
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Cash, Cash Equivalents and Restricted Cash at End of Period | $ | | $ | | ||
Non-cash Investing and Financing Activity: |
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Decrease in Redemption Value of Noncontrolling Interest Put Option | $ | | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
6
ADTALEM GLOBAL EDUCATION INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Accumulated | ||||||||||||||||||
Additional | Other | |||||||||||||||||
Common | Paid-In | Retained | Comprehensive | Treasury | ||||||||||||||
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Three Months Ended | (in thousands) | |||||||||||||||||
Balance at June 30, 2019 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Net income |
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Foreign currency translation |
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Unrealized investment gains, net of tax |
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Stock-based compensation |
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Net activity from stock-based compensation awards |
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Repurchase of common shares for treasury |
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Balance at September 30, 2019 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Three Months Ended | ||||||||||||||||||
Balance at June 30, 2018 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Cumulative effect adjustment upon the adoption of ASU 2016-01 | | ( | | |||||||||||||||
Net loss |
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Foreign currency translation |
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Unrealized investment losses, net of tax |
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Change in noncontrolling interest put option |
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Stock-based compensation |
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Net activity from stock-based compensation awards |
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Proceeds from stock issued under Colleague Stock Purchase Plan |
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Repurchase of common shares for treasury |
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Balance at September 30, 2018 | $ | | $ | | $ | | $ | ( | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
ADTALEM GLOBAL EDUCATION INC.
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1: INTERIM FINANCIAL STATEMENTS
For purposes of this report, “Adtalem,” “we,” “our,” “us,” or similar references refers to Adtalem Global Education Inc. and its consolidated subsidiaries, unless the context requires otherwise. The interim Consolidated Financial Statements include accounts of Adtalem and its wholly-owned and majority-owned subsidiaries. Adtalem’s wholly-owned subsidiaries include:
● | Chamberlain University (“Chamberlain”) |
● | American University of the Caribbean School of Medicine (“AUC”) |
● | Ross University School of Medicine (“RUSM”) |
● | Ross University School of Veterinary Medicine (“RUSVM”) |
● | Association of Certified Anti-Money Laundering Specialists (“ACAMS”) |
● | Becker Professional Education (“Becker”) |
● | OnCourse Learning (“OCL”) |
In addition, Adtalem maintains a
In addition, Adtalem had a
On December 4, 2018, Adtalem completed the sale of its previously wholly-owned subsidiary Carrington College (“Carrington”). On December 11, 2018, Adtalem completed the sale of its previously wholly-owned subsidiary DeVry University. Carrington and DeVry University are presented as discontinued operations. See “Note 2: Discontinued Operations and Assets Held for Sale” for additional details.
These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition and results of operations of Adtalem.
The interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in Adtalem's Annual Report on Form 10-K for the fiscal year ended June 30, 2019, as filed with the Securities and Exchange Commission (“SEC”).
The results of operations for the three months ended September 30, 2019 are not necessarily indicative of results to be expected for the entire fiscal year.
NOTE 2: DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
On December 4, 2018, Adtalem completed the sale of Carrington to San Joaquin Valley College, Inc. (“SJVC”) for de minimis consideration. As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, Carrington is presented in Adtalem’s financial reporting as a discontinued operation. Adtalem has retained certain leases associated with the Carrington operations. Adtalem remains the primary lessee on these leases and subleases to Carrington. Adtalem records the proceeds from these subleases as an offset to operating costs. Adtalem also assigned certain leases to Carrington but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of $
8
On December 11, 2018, Adtalem completed the sale of DeVry University to Cogswell Education, LLC (“Cogswell”) for de minimis consideration. As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, DeVry University is presented in Adtalem’s financial reporting as a discontinued operation. The purchase agreement includes an earn-out entitling Adtalem to payments of up to $
On October 18, 2019, Adtalem entered into a Stock Purchase Agreement (“Purchase Agreement”) with Estácio Participações S.A. (“Estácio”) and Sociedade de Ensino Superior Estaćio de Sá Ltda, a wholly owned subsidiary of Estácio (“Purchaser”). Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, Adtalem will sell all of the issued and outstanding shares of Adtalem Brasil Holding S.A. (a/k/a Adtalem Brazil) to the Purchaser for approximately $
9
The following is a summary of balance sheet information of assets and liabilities reported as held for sale (in thousands).
September 30, | June 30, | September 30, | |||||||
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ASSETS: |
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Current Assets: |
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Cash and Cash Equivalents | $ | | $ | | $ | | |||
Restricted Cash |
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Accounts Receivable, Net |
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Prepaid Expenses and Other Current Assets |
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Total Current Assets Held for Sale |
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Land, Building and Equipment Held for Sale, Net | | | | ||||||
Noncurrent Assets: |
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Operating Lease Assets |
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Intangible Assets, Net |
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Goodwill |
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Perkins Program Fund, Net |
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Other Assets, Net |
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Total Noncurrent Assets Held for Sale |
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Total Assets Held for Sale | $ | | $ | | $ | | |||
LIABILITIES: |
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Current Liabilities: |
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Accounts Payable | $ | | $ | | $ | | |||
Accrued Salaries, Wages and Benefits |
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Accrued Liabilities |
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Deferred Revenue |
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Current Operating Lease Liabilities |
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Total Current Liabilities Held for Sale |
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Noncurrent Liabilities: |
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Long-Term Operating Lease Liabilities |
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Deferred Income Taxes |
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Other Liabilities |
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Total Noncurrent Liabilities Held for Sale |
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Total Liabilities Held for Sale | $ | | $ | | $ | |
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Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
REVENUE | $ | | $ | | |||
OPERATING COST AND EXPENSE: |
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Cost of Educational Services |
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Student Services and Administrative Expense |
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Restructuring Expense (Gain) |
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Asset Impairment Charge - Building and Equipment |
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Total Operating Cost and Expense |
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Operating Loss from Discontinued Operations |
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OTHER INCOME (EXPENSE): | |||||||
Interest and Dividend Income | | | |||||
Interest Expense | ( | ( | |||||
Net Other Expense |
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Loss from Discontinued Operations Before Income Taxes | ( | ( | |||||
Income Tax (Provision) Benefit |
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Loss from Discontinued Operations | ( | ( | |||||
Net Income Attributable to Noncontrolling Interest | — | ( | |||||
Loss from Discontinued Operations Attributable to Adtalem Global Education | $ | ( | $ | ( |
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Adtalem and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Where our ownership interest is less than 100%, but greater than 50%, the noncontrolling ownership interest is reported on our Consolidated Balance Sheets. The noncontrolling ownership interest earnings portion is classified as “Net Loss Attributable to Noncontrolling Interest from Continuing Operations” and “Net Income Attributable to Noncontrolling Interest from Discontinued Operations” in our Consolidated Statements of Income (Loss). Unless indicated, or the context requires otherwise, references to years refer to Adtalem’s fiscal years.
Investments in Equity Securities
For an investment in equity securities where we do not have the ability to influence the operating and financial decisions of the investee, the initially recorded cost basis is adjusted upon the occurrence of an observable transaction in the security. Generally, an investment in an equity security is defined as an ownership interest of less than 20%. The equity investment is classified as Other Assets, Net on the Consolidated Balance Sheets.
Cash and Cash Equivalents
Cash and cash equivalents can include time deposits, high-grade commercial paper, money market funds and bankers acceptances with original maturities of three months or less. Short-term investment objectives are to minimize risk and maintain liquidity. These investments are stated at cost (which approximates fair value) because of their short duration or liquid nature. Adtalem places its cash and temporary cash investments with high credit quality institutions. Cash and cash equivalent balances in U.S. bank accounts are generally in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. Adtalem has not experienced any losses on its cash and cash equivalents. Management periodically evaluates the creditworthiness of the security issuers and financial institutions with which it invests and maintains deposit accounts.
11
Financial Aid and Restricted Cash
A significant portion of cash is received from students who participate in government financial aid and assistance programs which are subject to political and governmental budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations in the U.S. govern all of the government financial assistance programs in which students participate. Administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for disciplinary action, which could include the suspension, limitation or termination from such financial aid programs.
Restricted cash represents amounts received from federal and state governments under various student aid grant and loan programs and such restricted funds are held in separate bank accounts. Once the financial aid authorization and disbursement process for the student has been completed, the funds are transferred to unrestricted accounts, and these funds then become available for use in Adtalem’s operations. This authorization and disbursement process that precedes the transfer of funds generally occurs within the period of the academic term for which such funds were authorized.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to our customers (students and members), in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.
The following tables disaggregate revenue by source (in thousands):
Three Months Ended September 30, 2019 | ||||||||||||
Medical and | Financial | Home Office | ||||||||||
| Healthcare |
| Services |
| and Other |
| Consolidated | |||||
Higher Education |
| $ | |
| $ | |
| $ | |
| $ | |
Test Preparation/Certifications | | | | | ||||||||
Conferences/Seminars | | | | | ||||||||
Memberships/Subscriptions | | | | | ||||||||
Other | | | | | ||||||||
Total |
| $ | |
| $ | |
| $ | |
| $ | |
Three Months Ended September 30, 2018 | ||||||||||||
Medical and | Financial | Home Office | ||||||||||
| Healthcare |
| Services |
| and Other |
| Consolidated | |||||
Higher Education |
| $ | |
| $ | |
| $ | |
| $ | |
Test Preparation/Certifications | | | ( | | ||||||||
Conferences/Seminars | | | | | ||||||||
Memberships/Subscriptions | | | | | ||||||||
Other | | | | | ||||||||
Total |
| $ | |
| $ | |
| $ | ( |
| $ | |
In addition, see “Note 15: Segment Information” for a disaggregation of revenue by geographical region.
Performance Obligations and Revenue Recognition
Higher Education: Higher education revenue consists of tuition, fees, books and other educational products. The majority of revenue is derived from tuition and fees, which is recognized on a straight-line basis over the term as instruction is delivered. Books and other educational product revenue is recognized when products are shipped or students receive access to electronic materials. Under certain circumstances, we report revenue from these transactions on a net basis because our performance obligation is to facilitate a transaction between the student and a vendor.
Test Preparation/Certifications: Test preparation revenue consists of test preparation course instruction and self-study materials sales. Becker test preparation revenue is recognized when access to the course materials is delivered to the customer. EduPristine test preparation course instruction revenue is recognized on a straight-line basis over the applicable
12
instruction delivery periods. Certification revenue consists of exam preparation guides, seminars, exam sitting fees and recertification fees. We recognize revenue for each of these items at a point in time when the applicable performance obligation is satisfied.
Conferences/Seminars: Conference revenue consists of revenue from attendees, sponsors and exhibitors. We recognize revenue for all items related to conferences at the time of the conference. Seminar revenue consists of seminars delivered in live, live-online, or on-demand online formats. We recognize revenue for live and live-online seminars on the day of the seminar. On-demand online seminars, in which customers have access to a webcast of a seminar, are recognized on the day the customer places the order.
Memberships/Subscriptions: Membership revenue is recognized on a straight-line basis over the membership period. Subscription revenue is recognized on a straight-line basis over the subscription period.
Other: Other revenue consists of housing and other miscellaneous services. Other revenue is recognized over the period in which the applicable performance obligation is satisfied.
Customer contracts generally have separately stated prices for each performance obligation contained in the contract. Therefore, each performance obligation generally has its own standalone selling price. For higher education students, arrangements for payment are agreed to prior to registration of the student’s first academic term. The majority of U.S. students obtain Title IV or other financial aid resulting in institutions receiving a significant amount of the transaction price at the beginning of the academic term. Students utilizing private funding or funding through Adtalem’s institutional loan programs (see “Note 6: Financing Receivables” for further discussion) generally pay during or after the academic term is complete. For non-higher education customers, payment is typically due and collected at the time a customer places an order.
Transaction Price
Revenue, or transaction price, is measured as the amount of consideration expected to be received in exchange for transferring goods or services.
For higher education, students may receive discounts, scholarships or refunds, which gives rise to variable consideration. The amounts of discounts or scholarships are applied to individual student accounts when such amounts are awarded. Therefore, the transaction price is reduced directly by these discounts or scholarships from the amount of the standard tuition rate charged. Upon withdrawal, a student may be eligible to receive a refund, or partial refund, the amount of which is dependent on the timing of the withdrawal during the academic term. If a student withdraws prior to completing an academic term, federal and state regulations and accreditation criteria permit Adtalem to retain only a set percentage of the total tuition received from such student, which varies with, but generally equals or exceeds, the percentage of the academic term completed by such student. Payment amounts received by Adtalem in excess of such set percentages of tuition are refunded to the student or the appropriate funding source. For contracts with similar characteristics and historical data on refunds, the expected value method is applied in determining the variable consideration related to refunds. Estimates of Adtalem’s expected refunds are determined at the outset of each academic term, based upon actual refunds in previous academic terms. Reserves related to refunds are presented as refund liabilities within Accrued Liabilities on the Consolidated Balance Sheets. All refunds are netted against revenue during the applicable academic term.
Management reassesses collectability throughout the period revenue is recognized by the Adtalem institutions, on a student-by-student basis. This reassessment is based upon new information and changes in facts and circumstances relevant to a student’s ability to pay. Management also reassesses collectability when a student withdraws from the institution and has unpaid tuition charges. Such unpaid charges do not meet the threshold of reasonably collectible and are recognized as revenue on a cash basis.
For test preparation and other Financial Services products, the transaction price is equal to the amount charged to the customer, which is the standard rate, less any discounts and an estimate for returns or refunds.
We believe it is probable that no significant reversal will occur in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. Therefore, the estimate of variable consideration is not constrained.
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Contract Balances
For higher education institutions, students are billed at the beginning of each academic term and payment is due at that time. Adtalem’s performance obligation is to provide educational services in the form of instruction during the academic term. As instruction is provided, deferred revenue is reduced. A significant portion of student payments are from Title IV financial aid and other programs and are generally received during the first month of the respective academic term. For students utilizing Adtalem’s institutional loan programs (see “Note 6: Financing Receivables”), payments are generally received after the academic term, and the corresponding performance obligation, is complete. When payments are received, accounts receivable is reduced.
For our Financial Services businesses, customers are billed and payment is due at the time of order placement. In most cases, performance obligations are delivered subsequent to payments received. Delivering our performance obligations reduces deferred revenue, and accounts receivable is reduced upon payments received. Becker offers flexible payment plans with terms of up to 18-months as a financing option for the Becker CPA Exam Review Course (see “Note 6: Financing Receivables”). In this case, payment is received after satisfying the performance obligation.
Revenue of $
The difference between the opening and closing balances of deferred revenue includes decreases from revenue recognized during the period and increases from charges and payments received related to the start of academic terms beginning during the period.
Allowance for bad debts as of September 30, 2019, June 30, 2019 and September 30, 2018 were $
Practical Expedients
As our performance obligations have an original expected duration of
Internal-Use Software Development Costs
Adtalem capitalizes certain internal-use software development costs that are amortized using the straight-line method over the estimated lives of the software, not to exceed
Impairment of Long-Lived Assets
Adtalem evaluates the carrying amount of its significant long-lived assets whenever changes in circumstances or events indicate that the value of such assets may not be fully recoverable. Events that may trigger an impairment analysis could include a decision by management to exit a market or a line of business or to consolidate operating locations. During the first quarter of fiscal year 2019, we recorded impairment charges of $
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relocate RUSM’s campus operations to Barbados and not return to RUSM’s Dominica campus. Adtalem recorded impairment charges of $
Foreign Currency Translation
The financial position and results of operations of the AUC, RUSM and RUSVM Caribbean operations are measured using the U.S. dollar as the functional currency. As such, there is no translation gain or loss associated with these operations. Adtalem Brazil’s and EduPristine’s operations and ACAMS international operations are measured using the local currency as the functional currency. Assets and liabilities of these entities are translated to U.S. dollars using exchange rates in effect at the balance sheet dates. Income and expense items are translated at monthly average exchange rates. The resulting translation adjustments are included in the component of Shareholders’ Equity designated as Accumulated Other Comprehensive Loss. Transaction gains or losses during each of the three-month periods ended September 30, 2019 and 2018 were not material.
Noncontrolling Interest
As of June 30, 2019, Adtalem maintained a
In addition, Adtalem currently maintains a
The adjustment to increase or decrease the Adtalem Brazil and EduPristine noncontrolling interests for their respective proportionate shares of Adtalem Brazil’s and EduPristine’s profit (loss) flows through the Consolidated Statements of Income (Loss) each reporting period based on Adtalem’s noncontrolling interest accounting policy.
Beginning on March 26, 2020, Adtalem will have the right to exercise a call option and purchase any remaining EduPristine stock from Kaizen. Likewise, Kaizen will have the right to exercise a put option and sell up to
Since the put options are out of the control of Adtalem, authoritative guidance requires the noncontrolling interests, which includes the value of the put options, to be displayed outside of the equity section of the Consolidated Balance Sheets.
On July 1, 2019, the Adtalem Brazil management noncontrolling members exercised their put option and sold their remaining ownership interest in Adtalem Brazil to Adtalem. In the first quarter of fiscal year 2020, $
Prior to July 1, 2019, the Adtalem Brazil management put option was being accreted to its fair value in accordance with the terms of the related stock purchase agreement. The adjustments to increase or decrease the put option to its expected redemption value each reporting period was recorded in retained earnings in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Adtalem has not adjusted the redemption value related to the Kaizen put option as management believes the redemption value has not materially changed since acquiring a majority stake in EduPristine.
15
The following is a reconciliation of the noncontrolling interest balance (in thousands):
Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
Balance at Beginning of Period | $ | | $ | | |||
Net Loss Attributable to Noncontrolling Interest |
| ( |
| ( | |||
Decrease in Redemption Value of Noncontrolling Interest Put Option |
| — |
| ( | |||
Payment for Purchase of Noncontrolling Interest of Subsidiary | ( | — | |||||
Balance at End of Period | $ | | $ | |
Earnings per Common Share
Basic earnings per share is computed by dividing net income or loss attributable to Adtalem by the weighted average number of common shares outstanding during the period plus unvested participating restricted stock units (“RSUs”). Diluted earnings per share is computed by dividing net income or loss attributable to Adtalem by the weighted average number of shares assuming dilution. As required by GAAP, because the three months ended September 30, 2018 resulted in a loss from continuing operations, diluted earnings per share was computed by dividing the net loss attributable to Adtalem by the weighted average number of basic shares. Diluted shares are computed using the Treasury Stock Method and reflect the additional shares that would be outstanding if dilutive stock-based grants were exercised during the period. Excluded from the computations of diluted earnings per share were outstanding stock-based grants representing
The following is a reconciliation of basic shares to diluted shares (in thousands):
Three Months Ended | |||||
September 30, | |||||
| 2019 |
| 2018 | ||
Weighted Average Shares Outstanding |
| |
| |
|
Unvested Participating RSUs |
| |
| |
|
Basic Shares |
| |
| |
|
Effect of Dilutive Stock Options |
| |
| |
|
Diluted Shares |
| |
| |
|
Treasury Stock
Adtalem’s Board of Directors (the “Board”) has authorized share repurchase programs on eleven occasions (see “Note 7: Share Repurchase Programs”). The eleventh share repurchase program was approved on November 7, 2018 and commenced in January 2019. Shares that are repurchased by Adtalem are recorded as Treasury Stock at cost and result in a reduction of Shareholders’ Equity.
From time to time, shares of our common stock are delivered back to Adtalem under a swap arrangement resulting from employees’ exercise of incentive stock options pursuant to the terms of the Adtalem Stock Incentive Plans (see “Note 4: Stock-Based Compensation”). In addition, shares of our common stock are delivered back to Adtalem for payment of withholding taxes from employees for vesting RSUs. These shares are recorded as Treasury Stock at cost and result in a reduction of Shareholders’ Equity.
Prior to March 2019, treasury shares were reissued on a monthly basis, at market value, less a
16
Paid-in Capital to the extent that previous net gains from reissuance are included therein, otherwise such losses are charged to Retained Earnings.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenue and expense reported during the period. Actual results could differ from those estimates.
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss is composed of the change in cumulative translation adjustment, primarily at Adtalem Brazil, and unrealized gains on available-for-sale marketable securities, net of the effects of income taxes.
The Accumulated Other Comprehensive Loss balance at September 30, 2019, consists of $
Advertising Expense
Advertising costs are recognized as expense in the period in which materials are purchased or services are performed. Advertising expense, which is included in Student Services and Administrative Expense in the Consolidated Statements of Income (Loss), was $
Hurricane Expense
In September 2017, Hurricanes Irma and Maria caused damage and disrupted operations at AUC and RUSM. Adtalem recorded expenses of $
Restructuring Charges
Adtalem’s financial statements include charges related to severance and related benefits for workforce reductions in staff. These charges also include early lease termination or cease-of-use costs, accelerated depreciation and losses on disposals of property and equipment related to campus and administrative office consolidations (see “Note 10: Restructuring Charges”). When estimating the costs of exiting lease space, estimates are made which could differ materially from actual results and result in additional restructuring charges or reversals in future periods.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13: “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This guidance was issued to provide financial statement users with more decision-useful information about the expected losses on financial instruments by replacing the incurred loss impairment methodology with a methodology that reflects expected credit losses by requiring a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for financial statements issued for fiscal years beginning after December 15,
17
2019, and interim periods within those fiscal years. Management is evaluating the impact the guidance will have on Adtalem’s Consolidated Financial Statements.
In February 2016, FASB issued ASU No. 2016-02: “Leases (Topic 842).” This guidance was issued to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We adopted this guidance, along with the related clarifications and improvements, effective July 1, 2019 using the modified retrospective approach without adjusting prior comparative periods. The adoption of this standard significantly impacts our Consolidated Balance Sheets, but did not impact our Consolidated Statements of Income (Loss). We elected the practical expedients package which allows us to forego reassessing (i) whether any expired or existing contracts are or contain leases; (ii) the lease classification for any expired or expiring leases; and (iii) initial direct costs for any existing leases. We did not elect the hindsight practical expedient, which permits the use of hindsight when determining the lease term and impairment of operating lease assets. See “Note 11: Leases” for the disclosures related to this new accounting standard.
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The impact on the Consolidated Balance Sheet upon adoption of ASC 842 is as follows:
June 30, | Adjustments due to | July 1, | |||||||
| 2019 |
| adoption of ASC 842 |
| 2019 | ||||
(in thousands, except share and par value amounts) | |||||||||
ASSETS: | |||||||||
Current Assets: | |||||||||
Cash and Cash Equivalents | $ | | $ | — | $ | | |||
Investments in Marketable Securities |
| |
| — |
| | |||
Restricted Cash |
| |
| — |
| | |||
Accounts Receivable, Net |
| |
| — |
| | |||
Prepaid Expenses and Other Current Assets |
| |
| ( |
| | |||
Total Current Assets |
| |
| ( |
| | |||
Land, Building and Equipment: |
|
|
|
|
|
| |||
Land |
| |
| — |
| | |||
Building |
| |
| — |
| | |||
Equipment |
| |
| — |
| | |||
Construction in Progress |
| |
| — |
| | |||
| |
| — |
| | ||||
Accumulated Depreciation |
| ( |
| — |
| ( | |||
Land, Building and Equipment, Net |
| |
| — |
| | |||
Noncurrent Assets: |
|
|
|
| |||||
Operating Lease Assets |
| — |
| |
| | |||
Deferred Income Taxes |
| |
| — |
| | |||
Intangible Assets, Net |
| |
| — |
| | |||
Goodwill |
| |
| — |
| | |||
Other Assets, Net |
| |
| — |
| | |||
Total Noncurrent Assets |
| |
| |
| | |||
TOTAL ASSETS | $ | | $ | | $ | | |||
LIABILITIES: |
|
|
|
|
|
| |||
Current Liabilities: |
|
|
|
|
|
| |||
Accounts Payable | $ | | $ | — | $ | | |||
Accrued Salaries, Wages and Benefits |
| |
| — |
| | |||
Accrued Liabilities |
| |
| ( |
| | |||
Deferred Revenue |
| |
| — |
| | |||
Current Operating Lease Liabilities |
| — |
| |
| | |||
Current Portion of Long-Term Debt |
| |
| — |
| | |||
Total Current Liabilities |
| |
| |
| | |||
Noncurrent Liabilities: |
|
|
|
|
|
| |||
Long-Term Debt |
| |
| — |
| | |||
Long-Term Operating Lease Liabilities |
| — |
| |
| | |||
Deferred Income Taxes |
| |
| — |
| | |||
Other Liabilities |
| |
| ( |
| | |||
Total Noncurrent Liabilities |
| |
| |
| | |||
TOTAL LIABILITIES |
| |
| |
| | |||
NONCONTROLLING INTEREST |
| |
| — |
| | |||
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
| |||
Common Stock, $ |
| |
| — |
| | |||
Additional Paid-in Capital |
| |
| — |
| | |||
Retained Earnings |
| |
| — |
| | |||
Accumulated Other Comprehensive Loss |
| ( |
| — |
| ( | |||
Treasury Stock, at Cost |
| ( |
| — |
| ( | |||
TOTAL SHAREHOLDERS’ EQUITY |
| |
| — |
| | |||
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY | $ | | $ | | $ | |
Upon the adoption of ASC 842, the following balances were removed from the Consolidated Balance Sheet as of July 1, 2019: (i) $
Reclassifications
Beginning in the first quarter of fiscal year 2020, Adtalem Brazil operations were classified as discontinued operations. See “Note 2: Discontinued Operations and Assets Held for Sale” for further information. Prior period amounts have been revised to conform to the current classification. Certain expenses in prior periods previously allocated to Adtalem Brazil within our former Business and Law segment have been reclassified to the Home Office and Other segment based on
19
discontinued operation reporting guidance regarding allocation of corporate overhead. See “Note 15: Segment Information” for additional information.
NOTE 4: STOCK-BASED COMPENSATION
Adtalem maintains
Stock-based compensation expense is measured at the grant date based on the fair value of the award. Adtalem accounts for stock-based compensation granted to retirement eligible employees that fully vests upon an employee’s retirement under the non-substantive vesting period approach. Under this approach, the entire stock-based compensation expense is recognized at the grant date for stock-based grants issued to retirement eligible employees. For non-retirement eligible employees, stock-based compensation expense is recognized as expense over the employee requisite service period. We account for forfeitures of outstanding but unvested grants in the period they occur.
As of September 30, 2019,
The following is a summary of options activity for the three months ended September 30, 2019:
Weighted | ||||||||||
|
| Weighted |
| Average |
| Aggregate | ||||
Average | Remaining | Intrinsic | ||||||||
Number of | Exercise | Contractual | Value | |||||||
Options | Price | Life (in Years) | (in thousands) | |||||||
Outstanding at July 1, 2019 |
| | $ | |
|
|
|
| ||
Granted |
| |
| |
|
|
|
| ||
Exercised |
| ( |
| |
|
|
|
| ||
Forfeited |
| ( |
| |
|
|
|
| ||
Expired |
| ( |
| |
|
|
|
| ||
Outstanding at September 30, 2019 |
| |
| |
| $ | | |||
Exercisable at September 30, 2019 |
| | $ | |
| $ | |
The total intrinsic value of options exercised for the three months ended September 30, 2019 and 2018 was $
The fair value of Adtalem’s stock option awards was estimated using a binomial model. This model uses historical cancellation and exercise experience of Adtalem to determine the option value. It also takes into account the illiquid nature of employee options during the vesting period.
20
The weighted average estimated grant date fair value of options granted at market price under Adtalem’s stock-based incentive plans during the first three months of fiscal years 2020 and 2019 was $
Fiscal Year | |||||
| 2019 |
| 2018 | ||
Expected Life (in Years) |
|
|
| ||
Expected Volatility |
| | % | | % |
Risk-free Interest Rate |
| | % | | % |
Dividend Yield |
| | % | | % |
The expected life of the options granted is based on the weighted average exercise life with age and salary adjustment factors from historical exercise behavior. Adtalem’s expected volatility is computed by combining and weighting the implied market volatility, the most recent volatility over the expected life of the option grant and Adtalem’s long-term historical volatility.
If factors change and different assumptions are employed in the valuation of stock-based grants in future periods, the stock-based compensation expense that Adtalem records may differ significantly from what was recorded in previous periods.
During the first three months of fiscal year 2020, Adtalem granted
|
| Weighted | |||
Average | |||||
Number of | Grant Date | ||||
RSUs | Fair Value | ||||
Outstanding at July 1, 2019 |
| | $ | | |
Granted |
| |
| | |
Vested |
| ( |
| | |
Forfeited |
| ( |
| | |
Outstanding at September 30, 2019 |
| | $ | |
The weighted average estimated grant date fair value of RSUs granted at market price under Adtalem’s stock-based incentive plans during the first three months of fiscal years 2020 and 2019 was $
21
The following table shows total stock-based compensation expense included in the Consolidated Statements of Income (Loss) (in thousands):
Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
Cost of Educational Services | $ | | $ | | |||
Student Services and Administrative Expense |
| |
| | |||
| |
| | ||||
Income Tax Benefit |
| ( |
| ( | |||
Net Stock-Based Compensation Expense | $ | | $ | |
As of September 30, 2019, $
There was
Adtalem has an established practice of issuing new shares of common stock to satisfy stock-based grant exercises. However, Adtalem also may issue treasury shares to satisfy stock-based grant exercises under certain of its stock-based incentive plans.
NOTE 5: FAIR VALUE MEASUREMENTS
Adtalem has elected not to measure any assets or liabilities at fair value other than those required to be measured at fair value on a recurring basis. Assets measured at fair value on a nonrecurring basis include goodwill, intangible assets and assets of businesses where the long-term value of the operations have been impaired.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The guidance specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The guidance establishes fair value measurement classifications under the following hierarchy:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Observable inputs other than prices included in Level 1, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
Level 3 –Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
When available, Adtalem uses quoted market prices to determine fair value, and such measurements are classified within Level 1. In cases where market prices are not available, Adtalem makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates and yield curves. These measurements are classified within Level 3.
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
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The carrying value of our Cash and Cash Equivalents approximates fair value because of their short-term nature.
Adtalem maintains a rabbi trust to fund obligations under a non-qualified deferred compensation plan. Amounts in the rabbi trust are invested in stock and bond mutual funds, which are designated as available-for-sale securities carried at fair value, and are included in Investments in Marketable Securities on the Consolidated Balance Sheets. All Investments in Marketable Securities are recorded at fair value based upon quoted market prices using Level 1 inputs.
As of September 30, 2019, June 30, 2019 and September 30, 2018, there were no assets or liabilities measured at fair value using Level 2 or Level 3 inputs.
Assets measured at fair value on a nonrecurring basis include goodwill and indefinite-lived intangibles arising from a business combination. These assets are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. This impairment review was most recently completed as of May 31, 2019. See “Note 9: Intangible Assets” for further discussion on the impairment review including valuation techniques and assumptions.
NOTE 6: FINANCING RECEIVABLES
Adtalem’s financing receivables consist of trade receivables related to institutional loan programs available to students at Chamberlain, AUC, RUSM and RUSVM. These loan programs are designed to assist students who are unable to completely cover educational costs consisting of tuition, books and fees and are available only after all other student financial assistance has been applied toward those purposes. In addition, AUC, RUSM and RUSVM loans may be used for students’ living expenses. Repayment plans for institutional loan program balances are developed to address the financial circumstances of the particular student. Interest charges at rates from
Reserves for uncollectible loans are determined by analyzing the current aging of institutional loans and historical loss rates of loans at each institution. Management performs this analysis periodically throughout the year. Loans are considered nonperforming if they are more than 90 days past due. Since all of Adtalem’s institutional loans are generated through the extension of credit to fund educational costs, all such receivables are considered part of the same loan portfolio.
The following table details the institutional loan balances along with the related allowances for credit losses (in thousands).
September 30, 2019 | June 30, 2019 | September 30, 2018 | ||||||||||||||||
Gross Institutional Loans |
|
| $ | |
|
| $ | |
|
| $ | | ||||||
Allowance for Credit Losses: | ||||||||||||||||||
Balance at July 1 |
| $ | ( |
| $ | ( |
| $ | ( | |||||||||
Charge-offs and Adjustments | | | | |||||||||||||||
Recoveries | ( | ( | ( | |||||||||||||||
Additional Provision | ( | ( | ( | |||||||||||||||
Balance at End of Period | ( | ( | ( | |||||||||||||||
Net Institutional Loans |
| $ | |
| $ | |
| $ | |
Of the net balances above, $
23
$
The following tables detail the credit risk profiles of the institutional loan balances based on payment activity and an aging of past due institutional loans (in thousands).
September 30, | June 30, | September 30, | |||||||
| 2019 |
| 2019 |
| 2018 | ||||
Institutional Loans: |
|
|
|
|
| ||||
Performing | $ | | $ | | $ | | |||
Nonperforming |
| |
| |
| | |||
Total Institutional Loans | $ | | $ | | $ | |
|
|
|
| Greater |
|
|
| ||||||||||||||
30-59 | 60-89 | Than 90 | Total | ||||||||||||||||||
1-29 Days | Days Past | Days Past | Days Past | Total | Institutional | ||||||||||||||||
Past Due | Due | Due | Due | Past Due | Current | Loans | |||||||||||||||
Institutional Loans: |
|
|
|
|
|
|
| ||||||||||||||
September 30, 2019 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
June 30, 2019 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
September 30, 2018 | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
Allowances for credit losses on nonperforming loans as of September 30, 2019, June 30, 2019 and September 30, 2018 were $
In connection with the completion of the sale of DeVry University, Adtalem loaned $
On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (“DePaul College Prep”). In connection with the sale, Adtalem holds a mortgage from DePaul College Prep for $
NOTE 7: SHARE REPURCHASE PROGRAMS
On November 7, 2018, the Board authorized Adtalem’s eleventh share repurchase program, which allows Adtalem to repurchase up to $
Shares of stock repurchased under the programs are held as treasury shares. These repurchased shares have reduced the weighted average number of shares of common stock outstanding for basic and diluted earnings per share calculations.
24
NOTE 8: BUSINESS COMBINATIONS
OnCourse Learning
On May 31, 2019, Adtalem completed the acquisition of
The operations of OCL are included in Adtalem’s Financial Services segment. The results of OCL’s operations have been included in the Consolidated Financial Statements of Adtalem since the date of acquisition.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
| May 31, | ||
2019 | |||
Current Assets | $ | | |
Property and Equipment |
| | |
Intangible Assets |
| | |
Goodwill |
| | |
Total Assets Acquired |
| | |
Liabilities Assumed |
| | |
Net Assets Acquired | $ | |
Goodwill, which represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, was all assigned to the Financial Services reporting unit and reportable segment. Factors that contributed to a purchase price resulting in the recognition of goodwill include OCL’s strategic fit into Adtalem’s expanding presence in financial services, the reputation of the OCL brand as a leader in the industry and potential future growth opportunity. Of the $
| May 31, 2019 | ||||
Value | Estimated | ||||
| Assigned |
| Useful Life | ||
Customer Relationships | $ | | |||
Curriculum |
| |
| ||
Course Delivery Technology |
| |
|
There is no proforma presentation of operating results for this acquisition due to the insignificant effect on consolidated operations.
NOTE 9: INTANGIBLE ASSETS
Intangible assets relate mainly to acquired business operations. These assets consist of the acquisition fair value of certain identifiable intangible assets acquired and goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.
25
Intangible assets consist of the following (in thousands):
September 30, 2019 | ||||||||
| Gross |
|
| Weighted Average | ||||
Carrying | Accumulated | Amortization | ||||||
Amount | Amortization | Period | ||||||
Amortizable Intangible Assets: |
|
|
|
|
|
| ||
Customer Relationships | $ | | $ | ( |
| |||
Curriculum/Software |
| |
| ( |
| |||
Course Delivery Technology |
| |
| ( |
| |||
Total | $ | | $ | ( |
|
| ||
Indefinite-Lived Intangible Assets: |
|
|
|
|
|
| ||
Trade Names | $ | |
|
|
|
| ||
Chamberlain Title IV Eligibility and Accreditations |
| |
|
|
|
| ||
AUC Title IV Eligibility and Accreditations |
| |
|
|
|
| ||
Ross Title IV Eligibility and Accreditations |
| |
|
|
|
| ||
Intellectual Property |
| |
|
|
|
| ||
Total | $ | |
|
|
|
|
June 30, 2019 | ||||||
| Gross |
| ||||
Carrying | Accumulated | |||||
Amount | Amortization | |||||
Amortizable Intangible Assets: |
|
| ||||
Customer Relationships |
| $ | |
| $ | ( |
Curriculum/Software |
| |
| ( | ||
Course Delivery Technology |
| |
| ( | ||
Total | $ | | $ | ( | ||
Indefinite-Lived Intangible Assets: |
|
|
|
| ||
Trade Names | $ | |
|
| ||
Chamberlain Title IV Eligibility and Accreditations |
| |
|
| ||
AUC Title IV Eligibility and Accreditations |
| |
|
| ||
Ross Title IV Eligibility and Accreditations |
| |
|
| ||
Intellectual Property |
| |
|
| ||
Total | $ | |
|
|
September 30, 2018 | ||||||
| Gross | |||||
| Carrying |
| Accumulated | |||
| Amount |
| Amortization | |||
Amortizable Intangible Assets: |
|
|
|
| ||
Customer Relationships | $ | | $ | ( | ||
Curriculum/Software | | ( | ||||
Proprietary Technology | | ( | ||||
Total |
| $ | |
| $ | ( |
Indefinite-Lived Intangible Assets: | ||||||
Trade Names |
| $ | | |||
Chamberlain Title IV Eligibility and Accreditations | | |||||
AUC Title IV Eligibility and Accreditations | | |||||
Ross Title IV Eligibility and Accreditations | | |||||
Intellectual Property | | |||||
Total |
| $ | |
26
Amortization expense for amortized intangible assets was $
| Financial |
| ||
Fiscal Year | Services | |||
2020 (Remaining) | $ | | ||
2021 |
| | ||
2022 |
| | ||
2023 |
| | ||
2024 |
| | ||
Thereafter |
| | ||
Total | $ | |
All amortizable intangible assets except ACAMS customer relationships are being amortized on a straight-line basis. The amount being amortized for customer relationships related to ACAMS is based on the estimated retention of the customers, giving consideration to the revenue and cash flow associated with these existing customers.
Indefinite-lived intangible assets related to trade names, Title IV eligibility, accreditations and intellectual property are not amortized, as there are no legal, regulatory, contractual, economic or other factors that limit the useful life of these intangible assets to the reporting entity.
In accordance with GAAP, goodwill and indefinite-lived intangibles arising from a business combination are not amortized and charged to expense over time. Instead, these assets must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. Adtalem’s annual impairment review was most recently completed as of May 31, 2019, at which time there was
Adtalem has
Adtalem has
These interim triggering event conclusions were based on the fact that the annual impairment review of Adtalem’s reporting units and indefinite-lived intangible assets resulted in
In January 2019, Adtalem relocated RUSM to Barbados from its temporary locations in Knoxville, Tennessee at facilities owned by Lincoln Memorial University (“LMU”) and at a facility in St Kitts. Management believes the values of RUSM’s goodwill and indefinite-lived intangible assets are not affected by this move. The Trade Name will continue to be used and the U.S. Department of Education (“ED”) has provided approval for RUSM to operate in Barbados. No new accreditation is necessary, as RUSM’s secondary accreditor, the Caribbean Accreditation Authority for Education in Medicine and other Health Professions (“CAAM-HP”), is now its primary accreditor as of the start of the January 2019 semester. CAAM-HP is authorized by the government of Barbados to accredit medical programs.
27
Determining the fair value of a reporting unit or an intangible asset involves the use of significant estimates and assumptions. Management bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates, which could lead to additional impairments of intangible assets or goodwill.
As of September 30, 2019, intangible assets from business combinations totaled $
The table below summarizes goodwill balances by reporting unit (in thousands):
| September 30, |
| June 30, |
| September 30, | ||||
Reporting Unit | 2019 | 2019 | 2018 | ||||||
Chamberlain | $ | | $ | | $ | | |||
AUC |
| |
| |
| | |||
RUSM and RUSVM |
| |
| |
| | |||
Financial Services |
| |
| |
| | |||
Total | $ | | $ | | $ | |
The table below summarizes goodwill balances by reportable segment (in thousands):
| September 30, |
| June 30, |
| September 30, | ||||
Reportable Segment | 2019 | 2019 | 2018 | ||||||
Medical and Healthcare | $ | | $ | | $ | | |||
Financial Services |
| |
| |
| | |||
Total | $ | | $ | | $ | |
The table below summarizes the changes in goodwill balances by reportable segment (in thousands):
| Medical and |
| Financial |
| |||||
Healthcare | Services | Total | |||||||
Balance at June 30, 2018 | $ | | $ | | $ | | |||
Foreign exchange rate changes |
| |
| ( |
| ( | |||
Balance at September 30, 2018 | | | | ||||||
Acquisitions | | | | ||||||
Foreign exchange rate changes |
| |
| |
| | |||
Balance at June 30, 2019 | | | | ||||||
Foreign exchange rate changes |
| |
| ( |
| ( | |||
Balance at September 30, 2019 | $ | | $ | | $ | |
The decrease in the goodwill balance from June 30, 2019 in the Financial Services segment is the result of a change in the value of the Indian Rupee compared to the U.S. dollar. Since EduPristine’s goodwill is recorded in local currency, fluctuations in the values of the Indian Rupee in relation to the U.S. dollar will cause changes in the balance of this asset.
The table below summarizes the indefinite-lived intangible asset balances by reportable segment (in thousands):
| September 30, |
| June 30, |
| September 30, | ||||
Reportable Segment | 2019 | 2019 | 2018 | ||||||
Medical and Healthcare | $ | | $ | | $ | | |||
Financial Services |
| |
| |
| | |||
Total | $ | | $ | | $ | |
28
NOTE 10: RESTRUCTURING CHARGES
During the first quarter of fiscal year 2020, Adtalem recorded restructuring charges primarily related to the sale of Becker’s courses for healthcare students and Adtalem’s home office real estate consolidations. During the first quarter of fiscal year 2019, Adtalem recorded restructuring charges primarily related to the impairment of the land, buildings and equipment at the Dominica campus of RUSM and severance related to workforce reductions in Dominica. In January 2019, RUSM relocated its campus operations to Barbados with no plans to return to Dominica. The land, buildings and equipment in Dominica have been fully impaired as management determined the market value less the costs to sell the facilities or move the equipment is
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | |||||||||||||||||
| Real Estate |
| Termination |
|
| Real Estate |
| Termination |
| |||||||||
and Other | Benefits | Total | and Other | Benefits | Total | |||||||||||||
Medical and Healthcare | $ | | $ | — | $ | | $ | | $ | | $ | | ||||||
Financial Services | | | | — | — | — | ||||||||||||
Home Office and Other |
| |
| |
| |
| |
| ( |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | |
The following table summarizes the separation and restructuring plan activity for the fiscal years 2020 and 2019, for which cash payments are required (in thousands):
Liability balance at June 30, 2018 |
| $ | |
Increase in liability (separation and other charges) |
| | |
Reduction in liability (payments and adjustments) |
| ( | |
Liability balance at June 30, 2019 |
| | |
ASC 842 (Leases) Adjustment (1) | ( | ||
Liability balance at July 1, 2019 |
| | |
Increase in liability (separation and other charges) |
| | |
Reduction in liability (payments and adjustments) |
| ( | |
Liability balance at September 30, 2019 | $ | |
(1) Reflects amounts reclassified out of the opening balance of restructuring reserve accruals as of June 30, 2019, to operating lease assets that was recorded with the adoption of ASC 842. See “Note 3: Summary of Significant Accounting Policies” for further details.
The liability balance of $
NOTE 11: LEASES
Management determines if a contract contains a lease at inception. Adtalem has entered into operating leases for academic sites, housing facilities and office space which expire at various dates through February 2030, most of which include options to terminate for a fee or extend the leases for an additional
29
leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Adtalem has not entered into any financing leases.
Operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets represent our right to use an underlying asset during the lease term. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. Operating lease assets are adjusted for any prepaid or accrued lease payments, lease incentives, initial direct costs and impairments. Adtalem’s incremental borrowing rate is utilized in determining the present value of the lease payments when the implicit rate is not readily determinable based upon the information available at the commencement date. Adtalem’s incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease. Operating lease expense is recognized on a straight-line basis over the lease term.
As of September 30, 2019, an additional operating lease that has not yet commenced will result in an additional operating lease asset and lease liability of $
The components of lease cost were as follows (in thousands):
Three Months Ended | |||
| September 30, | ||
2019 | |||
Operating Lease Cost | $ | | |
Sublease Income |
| ( | |
Total Lease Cost | $ | |
Maturities of lease liabilities by fiscal year were as follows as of September 30, 2019 (in thousands):
| Operating | ||
Fiscal Year | Leases | ||
2020 (Remaining) | $ | | |
2021 | | ||
2022 | | ||
2023 | | ||
2024 | | ||
Thereafter | | ||
Total lease payments |
| | |
Less: imputed interest | ( | ||
Present value of lease liabilities | $ | |
Lease term and discount rate were as follows:
| September 30, | ||
2019 | |||
Weighted-average remaining operating lease term (years) | |||
Weighted-average operating lease discount rate |
Supplemental disclosures of cash flow information related to leases were as follows (in thousands):
| September 30, | ||
2019 | |||
Cash paid for amounts in the measurement of operating lease liabilities (net of sublease receipts) | $ | | |
Operating lease assets obtained in exchange for operating lease liabilities | $ | |
Adtalem maintains agreements to lease
30
lease activities at DeVry University and Carrington prior to their divestitures during fiscal year 2019. All sublease expirations with DeVry University and Carrington coincide with Adtalem’s original head lease expiration dates. At that time, Adtalem will be relieved of its obligations. In addition, Adtalem has entered into subleases with non-affiliated entities for vacated or partially vacated space from restructuring activities. Adtalem sublease agreements expire at various dates through December 2025. Adtalem records sublease income as an offset against its lease expense recorded on the head lease. For leases which Adtalem vacated or partially vacated space, Adtalem recorded estimated restructuring charges in prior periods. Actual results may differ from these estimates, which could result in additional restructuring charges or reversals.
Fiscal Year |
| Amount | |
2020 (Remaining) | $ | | |
2021 | | ||
2022 |
| | |
2023 |
| | |
2024 |
| | |
Thereafter | | ||
Total | $ | |
As previously disclosed in our 2019 Annual Report on Form 10-K and under the previous lease accounting, future minimum rental commitments for all noncancelable operating leases, adjusted to exclude Adtalem Brazil, having a remaining term in excess of one year at June 30, 2019, were as follows (in thousands):
Fiscal Year | Amount | ||
2020 | $ | | |
2021 | | ||
2022 | | ||
2023 | | ||
2024 | | ||
Thereafter | | ||
Total minimum lease payments | $ | |
Rent expense, adjusted to exclude Adtalem Brazil, for the years ended June 30, 2019 and 2018 was $
NOTE 12: INCOME TAXES
The effective tax rate on income from continuing operations was
31
NOTE 13: DEBT
Long-term debt consists of the following (in thousands):
| September 30, |
| June 30, |
| September 30, | ||||
2019 | 2019 | 2018 | |||||||
Total Debt: |
|
|
|
|
|
| |||
Term B Loan | $ | | $ | | $ | | |||
Revolver |
| |
| |
| — | |||
Total Principal Payments Due |
| |
| |
| | |||
Deferred Debt Issuance Costs |
| ( |
| ( |
| ( | |||
Total Amount Outstanding |
| |
| |
| | |||
Less Current Portion: |
|
|
|
|
|
| |||
Term B Loan |
| ( |
| ( |
| ( | |||
Noncurrent Portion | $ | | $ | | $ | |
Scheduled future maturities of long-term debt for the next five fiscal years ending June 30 and in the aggregate are as follows (in thousands):
| Maturity | ||
Fiscal Year | Payments | ||
2020 (Remaining) | $ | | |
2021 |
| | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
Thereafter |
| | |
Total | $ | |
Senior Secured Credit Facilities
On
Interest on the Term B Loan and the Revolver is set based on the London Interbank Offered Rate (“LIBOR”) based on observable market transactions. The U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced that it has commitments from panel banks to continue to contribute to LIBOR through the end of 2021, but that it will not use its powers to compel contributions beyond such date. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. Management is monitoring their efforts, and evaluating the need for an amendment to the Credit Agreement to accommodate a replacement rate.
Term B Loan
For Eurocurrency rate loans, Term B Loan interest is equal to LIBOR or a
32
Revolver
Revolver interest is equal to LIBOR or a LIBOR-equivalent rate for Eurocurrency rate loans or a base rate, plus an applicable rate based on Adtalem’s consolidated leverage ratio, as defined in the Credit Agreement. The applicable rate ranges from
Adtalem had a letter of credit outstanding of $
Debt Issuance Costs
Adtalem incurred $
| Term B Loan |
| Revolver |
| Total | ||||
Deferred Debt Issuance Costs at June 30, 2019 | $ | | $ | | $ | | |||
Amortization of Deferred Debt Issuance Costs |
| ( |
| ( |
| ( | |||
Deferred Debt Issuance Costs at September 30, 2019 | $ | | $ | | $ | |
Covenants and Guarantees
The Credit Agreement contains customary covenants, including restrictions on our restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interest on assets, make acquisitions, loans, advances or investments, or sell or otherwise transfer assets.
The Credit Agreement contains covenants that, among other things, require maintenance of certain financial ratios, as defined in the agreement. Maintenance of these financial ratios could place restrictions on Adtalem’s ability to pay dividends. These financial ratios include a consolidated fixed charge coverage ratio, a consolidated leverage ratio and a U.S. Department of Education financial responsibility ratio based upon a composite score of an equity ratio, a primary reserve ratio and a net income ratio. Failure to maintain any of these ratios or to comply with other covenants contained in the Credit Agreement would constitute an event of default and could result in termination of the Credit Agreement and require payment of all outstanding borrowings and replacement of outstanding letters of credit. Adtalem was in compliance with the debt covenants as of September 30, 2019.
The stock of all U.S. and certain foreign subsidiaries of Adtalem is pledged as collateral for borrowings under the Credit Agreement.
The Term B Loan requires mandatory prepayments equal to a percentage of Excess Cash Flow, which is defined within the Credit Agreement, subject to incremental step-downs, depending on the consolidated leverage ratio. Beginning in
33
fiscal year 2019, the Excess Cash Flow payment is due in the first quarter of each year and is based on the Excess Cash Flow and leverage ratio for the prior year.
Our borrowings under the Credit Facility are guaranteed by us and all of our domestic subsidiaries (subject to certain exceptions) and secured by a first lien on our assets and the assets of our guarantor subsidiaries (excluding real estate), including capital stock of the subsidiaries.
NOTE 14: COMMITMENTS AND CONTINGENCIES
Adtalem is subject to lawsuits, administrative proceedings, regulatory reviews and investigations associated with financial assistance programs and other matters arising in the normal conduct of its business. As of September 30, 2019, Adtalem believes it has adequately reserved for potential losses. The following is a description of pending legal and regulatory matters that may be considered other than ordinary, routine and incidental to the business. Descriptions of certain matters from prior SEC filings may not be carried forward in this report to the extent we believe such matters no longer are required to be disclosed or there has not been, to our knowledge, significant activity relating to them. The timing or outcome of the following matters, or their possible impact on Adtalem’s business, financial condition or results of operations, cannot be predicted at this time. The continued defense, resolution or settlement of any of the following matters could require us to expend significant resources and could have a material adverse effect on our business, financial condition, results of operations and cash flows and result in the imposition of significant restrictions on us and our ability to operate.
On May 13, 2016, a putative class action lawsuit was filed by the Pension Trust Fund for Operating Engineers, individually and on behalf of others similarly situated, against Adtalem, Daniel Hamburger, Richard M. Gunst, and Timothy J. Wiggins in the United States District Court for the Northern District of Illinois. The complaint was filed on behalf of a putative class of persons who purchased Adtalem common stock between February 4, 2011 and January 27, 2016. The complaint cites the January 27, 2016 Notice of Intent to Limit (the “January 2016 Notice”) and a civil complaint (the “FTC lawsuit”) filed by the FTC on January 27, 2016 against Adtalem, DeVry University, Inc., and DeVry/New York Inc. (collectively, the “Adtalem Parties”), which was resolved with the FTC in 2017, that alleged that certain of DeVry University’s advertising claims were false or misleading or unsubstantiated at the time they were made in violation of Section 5(a) of the FTC Act, as the basis for claims that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and the earnings of DeVry University graduates relative to the graduates of other universities and colleges. As a result of these alleged false or misleading statements, the plaintiff alleged that defendants overstated Adtalem’s growth, revenue and earnings potential and made false or misleading statements about Adtalem’s business, operations and prospects. The plaintiff alleged direct liability against all defendants for violations of §10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (the “Exchange Act”) and asserted liability against the individual defendants pursuant to § 20(a) of the Exchange Act. The plaintiff sought monetary damages, interest, attorneys’ fees, costs and other unspecified relief. On July 13, 2016, the Utah Retirement System (“URS”) moved for appointment as lead plaintiff and approval of its selection of counsel, which was not opposed by the Pension Trust Fund for Operating Engineers. URS was appointed as lead plaintiff on August 24, 2016. URS filed a second amended complaint (“SAC”) on December 23, 2016. The SAC sought to represent a putative class of persons who purchased Adtalem common stock between August 26, 2011 and January 27, 2016 and named an additional individual defendant, Patrick J. Unzicker, Adtalem’s former Chief Financial Officer. Like the original complaint, the SAC asserted claims against all defendants for alleged violations of §10(b) and Rule 10b-5 of the Exchange Act and asserted liability against the individual defendants pursuant to § 20(a) of the Exchange Act for alleged material misstatements or omissions regarding DeVry University graduate outcomes. On January 27, 2017, defendants moved to dismiss the SAC, which motion was granted on December 6, 2017, without prejudice. The plaintiffs filed a third amended complaint (“TAC”) on January 29, 2018. The defendants moved to dismiss the TAC on March 30, 2018. The court denied the motion to dismiss the TAC on December 20, 2018. On February 8, 2019, defendants filed their answer to the TAC wherein defendants denied all material allegations in the TAC. The parties engaged in mediation and reached a tentative resolution. On September 5, 2019, the court granted preliminary approval of the class action settlement. The final approval hearing is set for December 6, 2019.
On October 14, 2016, a putative class action lawsuit was filed by Debbie Petrizzo and
34
who were unable to find employment within their chosen field of study within six months of graduation. Citing the FTC lawsuit, the plaintiffs claimed that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and asserted claims for unjust enrichment and violations of
On October 28, 2016, a putative class action lawsuit was filed by Jairo Jara and
By order dated November 28, 2016, the district court ordered the Petrizzo Case and the Jara Case be consolidated under the Petrizzo caption for all further purposes. On December 5, 2016, plaintiffs filed an amended consolidated complaint on behalf of
On April 12, 2018, the Petrizzo plaintiffs refiled their complaint with a new lead plaintiff, Renee Heather Polly. The plaintiffs’ refiled complaint is nearly identical to the complaint previously dismissed by the court on February 12, 2018. The Adtalem Parties moved to dismiss this refiled complaint on May 14, 2018. The court granted defendants’ motion and dismissed the amended complaint with prejudice on February 13, 2019. On March 15, 2019, plaintiffs filed a notice of appeal and this matter is currently pending on appeal before the Seventh Circuit.
On January 17, 2017, Harriet Myers filed a complaint derivatively on behalf of Adtalem in the United States District Court for the Northern District of Illinois against individual defendants Daniel M. Hamburger, Timothy J. Wiggins, Richard M. Gunst, Patrick J. Unzicker, Christopher B. Begley, David S. Brown, Lisa W. Wardell, Ann Weaver Hart, Lyle Logan, Alan G. Merten, Fernando Ruiz, Ronald L. Taylor and James D. White. Adtalem was named as a nominal defendant only. The plaintiff agreed to a stipulated order moving the case to the United States District Court for the District of Delaware. Citing the FTC lawsuit and settlement, the January 2016 Notice, the negotiated agreement reached by DeVry University and ED on October 13, 2016 (the “ED Settlement”), and the allegations in the lawsuit filed by the Pension Trust Fund for Operating Engineers, each referenced above, the plaintiff has alleged that the individual defendants have breached their fiduciary duties and violated federal securities law since at least 2011. The plaintiff has asserted that the individual defendants permitted Adtalem to engage in unlawful conduct, failed to correct misconduct or prevent its recurrence, and failed to ensure the accurate dissemination of information to shareholders. The complaint attempts to state
On June 20, 2017, the City of Hialeah Employees Retirement System filed a complaint derivatively on behalf of Adtalem in the Court of Chancery of the State of Delaware against individual defendants Daniel M. Hamburger,
35
Christopher B. Begley, Lisa W. Wardell, Lyle Logan, Fernando Ruiz, Ronald L. Taylor and James D. White. Adtalem was named as a nominal defendant only. Citing the FTC lawsuit and settlement, the January 2016 Notice and ED Settlement, and documents produced in response to plaintiff’s request under Section 220 of the Delaware General Corporation Law, the plaintiff alleges that the individual defendants have breached their fiduciary duties. The plaintiff asserts that the individual defendants permitted Adtalem and DeVry University to make, and failed to stop, false and misleading advertisements in breach of their fiduciary duties and in bad faith. The plaintiff seeks on behalf of Adtalem monetary and other unspecified relief. A motion to dismiss the complaint was filed by the Adtalem Parties on September 1, 2017, which was partially granted as to one count and partially denied as to another count on April 20, 2018. The parties reached an agreement to settle this matter along with the Myers matter (described above). The settlement approval hearing for the City of Hialeah matter was held on May 17, 2019. The court approved the settlement and the matter was dismissed.
On April 13, 2018, a putative class action lawsuit was filed by Nicole Versetto, individually and on behalf of other similarly situated, against the Adtalem Parties in the Circuit Court of Cook County, Illinois, Chancery Division. The complaint was filed on behalf of herself and
On May 8, 2018, the Carlson Law Firm (“Carlson”) filed a lawsuit against Adtalem and DeVry University, Inc., on behalf of
On April 4, 2019, the Carlson Law Firm sent notice pursuant to California Legal Remedies Act, Civil Code § 1750, of
36
misrepresented the benefits of graduating from DeVry University and falsely and misleadingly advertised the employment rate and income rate of their graduates to induce potential students to purchase educational products and services, and to remain students through graduation. The lawsuit seeks exemplary damages, restitution, economic damages, punitive damages, pre- and post-judgment interest, attorneys’ fees and the cost of suit. The plaintiffs brought claims for fraud by misrepresentation, fraud by concealment, negligent misrepresentation, civil theft, violation of the California Consumer Legal Remedies Act, violation of California’s Unfair Competition Law, and violation of California’s False Advertising Law. Defendants filed a motion to dismiss the complaint on October 1, 2019, and are awaiting Plaintiffs’ response to that motion.
On August 13, 2019, a plaintiff, Magana, filed a putative class action lawsuit against Adtalem and DeVry University, Inc. in the United States District Court for the Eastern District of California, alleging damages based on allegedly deceptive statements made about the benefits of obtaining a DeVry University degree. Plaintiffs assert claims under the California Unfair Competition Law, California False Advertising Law, and claims of fraud/material misrepresentation, fraudulent concealment/intentional omission of material facts, negligent misrepresentation, breach of contract, breach of fiduciary duty, conversion, unjust enrichment, and declaratory relief. Defendants intend to file a motion to dismiss plaintiffs’ complaint.
On June 21, 2018, Stoltmann Law Offices filed a lawsuit against Adtalem in Cook County Circuit Court, alleging that Adtalem breached a contract with Stoltmann Law Offices to pay filing fees associated with arbitration claims Stoltmann Law Offices has filed with the Judicial Arbitration and Mediation Services, Inc. (“JAMS”). Stoltmann Law Offices is seeking specific performance from the court. Adtalem moved to dismiss this complaint on August 3, 2018. Prior to the court ruling on Adtalem’s motion to dismiss, Stoltmann Law Offices and
On June 7, 2019, Stoltmann Law Offices filed a complaint in the Northern District of Illinois on behalf of Michael Forsythe seeking to compel arbitration of his consumer claims before JAMS. Adtalem moved to dismiss the complaint on July 1, 2019. The motion to dismiss is fully briefed, however, a hearing date has not yet been set.
Stoltmann Law Offices is representing hundreds of individuals who have filed claims with JAMS alleging fraud-based claims based on DeVry University’s graduate employment statistics. Stoltmann Law Offices has paid the filing fees for
On March 29, 2019, a putative class action lawsuit was filed by Robby Brown, individually and on behalf of all others similarly situated, against Adtalem and DeVry University, Inc., in the Western District of Missouri. The complaint was filed on behalf of himself and
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complaint on May 31, 2019. On October 9, 2019, the court granted in part and denied in part the motion to dismiss. The court dismissed plaintiffs’ claims for unjust enrichment and conversion, allowing the remaining claims to proceed.
On or about April 1, 2019, Adtalem, Chamberlain and DeVry University received similar Civil Investigative Demands (“CID”) from the U.S. Department of Justice (the “DOJ”). The CIDs were issued pursuant to a False Claims Act inquiry concerning allegations that Adtalem, in particular Chamberlain and Adtalem’s former subsidiary DeVry University, submitted or caused the submission of false claims to the U.S. Department of Defense and U.S. Department of Veteran Affairs for federal funds under the GI Bill Programs and Tuition Assistance Program from 2011 to the date of the CIDs. It is specifically alleged that Chamberlain and DeVry University engaged in unlawful recruitment tactics, and provided incentive payments based directly or indirectly on securing federal financial aid. At this time, we cannot predict the duration or outcome of this investigation, but Adtalem is cooperating fully with this DOJ inquiry and is providing documents and other information requested by the DOJ.
On April 3, 2019, a putative class action lawsuit was filed by T’Lani Robinson, individually and on behalf of all others similarly situated, against Adtalem and DeVry University, Inc., in the Northern District of Georgia. The complaint was filed on behalf of herself and
NOTE 15: SEGMENT INFORMATION
During the fourth quarter of fiscal year 2019, Adtalem renamed
Beginning in the first quarter of fiscal year 2020, Adtalem Brazil operations were classified as discontinued operations. See “Note 2: Discontinued Operations and Assets Held for Sale” for further information. Segment information presented excludes the results of Adtalem Brazil. Adtalem eliminated its Business and Law reportable segment during the first quarter of fiscal year 2020 when Adtalem Brazil was classified as discontinued operations. Discontinued operations assets are included in the table below to reconcile to Total Consolidated Assets presented on the Consolidated Balance Sheets. In addition, certain expenses previously allocated to Adtalem Brazil within our former Business and Law segment have been reclassified to the Home Office and Other segment based on discontinued operations reporting guidance regarding allocation of corporate overhead.
Adtalem presents
These segments are consistent with the method by which the Chief Operating Decision Maker (Adtalem’s Chairman, President and Chief Executive Officer) evaluates performance and allocates resources. Performance evaluations are based, in part, on each segment’s operating income. Intersegment sales are accounted for at amounts comparable to sales to nonaffiliated customers and are eliminated in consolidation. “Home Office and Other” includes activity not allocated to a reportable segment and is included to reconcile segment results to the Consolidated Financial Statements. Segments may have allocated depreciation expense related to depreciable assets reported as an asset in a different segment. The accounting policies of the segments are the same as those described in “Note 3: Summary of Significant Accounting Policies.”
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Summary financial information by reportable segment is as follows (in thousands):
Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
Revenue: |
|
|
|
|
| ||
Medical and Healthcare | $ | | $ | | |||
Financial Services |
| |
| | |||
Home Office and Other |
| |
| ( | |||
Total Consolidated Revenue | $ | | $ | | |||
Operating Income (Loss) from Continuing Operations: |
|
|
|
| |||
Medical and Healthcare | $ | | $ | | |||
Financial Services |
| |
| | |||
Home Office and Other |
| ( |
| ( | |||
Total Consolidated Operating Income (Loss) from Continuing Operations | $ | | $ | ( | |||
Segment Assets: |
|
|
|
| |||
Medical and Healthcare | $ | | $ | | |||
Financial Services |
| |
| | |||
Home Office and Other |
| |
| | |||
Discontinued Operations |
| |
| | |||
Total Consolidated Assets | $ | | $ | | |||
Additions to Long-Lived Assets: |
|
|
|
| |||
Medical and Healthcare | $ | | $ | | |||
Financial Services |
| |
| | |||
Home Office and Other |
| |
| | |||
Total Consolidated Additions to Long-Lived Assets | $ | | $ | | |||
Reconciliation to Consolidated Financial Statements: |
|
|
|
| |||
Capital Expenditures | $ | | $ | | |||
Total Consolidated Additions to Long-Lived Assets | $ | | $ | | |||
Depreciation Expense: |
|
|
|
| |||
Medical and Healthcare | $ | | $ | | |||
Financial Services |
| |
| | |||
Home Office and Other |
| |
| | |||
Total Consolidated Depreciation Expense | $ | | $ | | |||
Intangible Asset Amortization Expense: |
|
|
|
| |||
Financial Services | $ | | $ | | |||
Total Consolidated Intangible Asset Amortization Expense | $ | | $ | |
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Adtalem conducts its educational and financial services operations in the U.S., Barbados, St. Kitts, St. Maarten, India, Europe, China, Canada, and the Middle East. Other international revenue was
Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
Revenue from Unaffiliated Customers: |
|
|
|
|
| ||
Domestic Operations | $ | | $ | | |||
International Operations: |
|
|
|
| |||
Barbados, Dominica, St. Kitts and St. Maarten |
| |
| | |||
Other |
| |
| | |||
Total International |
| |
| | |||
Total Consolidated Revenue | $ | | $ | | |||
Long-Lived Assets: |
|
|
|
| |||
Domestic Operations | $ | | $ | | |||
International Operations: |
|
|
|
| |||
Barbados, Dominica, St. Kitts and St. Maarten |
| |
| | |||
Other |
| |
| | |||
Total International |
| |
| | |||
Total Consolidated Long-Lived Assets | $ | | $ | |
No one customer accounted for more than
NOTE 16: REAL ESTATE TRANSACTIONS
On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep for $
On September 27, 2019, Adtalem closed on the sale of its Columbus, Ohio, campus facility. Net proceeds from the sale of $
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Through its website, Adtalem Global Education Inc. (“Adtalem,” “we,” “our,” or “us”) offers its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed with the Securities and Exchange Commission (“SEC”). Adtalem’s website is http://www.adtalem.com. Except as otherwise stated in these reports, the information contained on our website or available by hyperlink from our website is not incorporated into our Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, or other documents we file with, or furnish to, the SEC.
The following discussion of Adtalem’s results of operations and financial condition should be read in conjunction with Adtalem’s Consolidated Financial Statements and the related Notes thereto in “Item 1 – Financial Statements” in this Quarterly Report on Form 10-Q and Adtalem’s Consolidated Financial Statements and related Notes thereto in “Item 8 –
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Financial Statements and Supplementary Data” in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019. Adtalem’s Annual Report on Form 10-K includes a description of critical accounting policies and estimates and assumptions used in the preparation of Adtalem’s financial statements. These assumptions include, but are not limited to, the use of estimates and assumptions that affect the reported amounts of assets and liabilities; revenue and expense recognition; allowance for uncollectible accounts; internal-use developed software; land, building and equipment; stock-based compensation; valuation of goodwill and other intangible assets; valuation of long-lived assets; and income taxes.
The seasonal pattern of Adtalem’s enrollments and its educational programs’ starting dates affect the results of operations and the timing of cash flows. Therefore, management believes that comparisons of its results of operations should primarily be made to the corresponding period in the preceding year. Comparisons of financial position should be made to both the end of the previous fiscal year and to the end of the corresponding quarterly period in the preceding year.
Unless indicated, or the context requires otherwise, references to “net income” refers to “net income attributable to Adtalem Global Education.”
During the fourth quarter of fiscal year 2019, Adtalem renamed two of its segments to better reflect our focus on growth strategies: Professional Education was renamed Financial Services, and Technology and Business was renamed Business and Law. As of September 30, 2019, Adtalem eliminated its Business and Law reportable segment when Adtalem Education of Brazil (“Adtalem Brazil”) was classified as discontinued operations and assets held for sale (see further details below under the heading "Divestitures"). As a result, Adtalem now has two reportable segments: "Medical and Healthcare," which includes the operations of Chamberlain University ("Chamberlain") and the medical and veterinary schools (which include American University of the Caribbean School of Medicine ("AUC"), Ross University School of Medicine ("RUSM") and Ross University School of Veterinary Medicine ("RUSVM")); and "Financial Services," which includes the operations of the Association of Certified Anti-Money Laundering Specialists ("ACAMS"), Becker Professional Education ("Becker"), OnCourse Learning (“OCL”) and EduPristine. “Home Office and Other” includes activity not allocated to a reportable segment. Financial and descriptive information about Adtalem’s reportable segments is presented in “Note 15: Segment Information” to the Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q, including those statements concerning Adtalem’s expectations or plans, may constitute forward-looking statements subject to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. These forward-looking statements generally can be identified by phrases such as Adtalem or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “could,” or other words or phrases of similar import which predict or indicate future events or trends or that are not statements of historical matters. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.
These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference are described throughout this report and from time to time in our filings with the SEC, including those in this Quarterly Report on Form 10-Q: “Note 14: Commitments and Contingencies” to the Consolidated Financial Statements, Part II, Item 1 “Legal Proceedings,” and in the subsection of Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” titled “Liquidity and Capital Resources” and in our most recent Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the SEC on August 28, 2019: in the subsections of Item 1 “Business” titled “Market Trends and Competition,” “Student Admissions,” “Accreditation,” “Financial Aid and Financing Student Education,” “Legislative and Regulatory Requirements,” “Seasonality” and “Employees” and in Item 1A “Risk Factors.” Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. All forward-looking statements set forth in this Quarterly Report on Form 10-Q are qualified by these cautionary statements, and should be considered in the context of the risk factors referred to above and discussed elsewhere in this Quarterly Report on Form 10-Q. There can
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be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to or effects on us or our business or operations. Forward-looking statements set forth in this Quarterly Report on Form 10-Q speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by law or the rules and regulations of the SEC.
OVERVIEW
Adtalem’s financial results for the first quarter of fiscal year 2020 reflect revenue growth of $17.7 million, or 7.5%, compared to the year-ago quarter, driven by increased revenue in both Medical and Healthcare and Financial Services segments. Net income from continuing operations increased to $17.5 million compared to a net loss of $4.8 million in the year ago quarter. Excluding special items, net income from continuing operations decreased 29.2% in the first quarter of fiscal year 2020 compared to the year-ago quarter (see “Use of Non-GAAP Financial Information and Supplemental Reconciliation Schedule” below). Operational and financial highlights for the first quarter of fiscal year 2020 include:
● | For the September 2019 session, new and total student enrollment at Chamberlain increased 2.9% and 1.4%, respectively, compared to the same term last year. Chamberlain continues to invest in its programs, student services and campus locations. Chamberlain’s newest campus in San Antonio, Texas, began instruction in October 2019. |
● | The addition of OCL and the shift of revenue from the largest annual ACAMS conference to the first quarter of fiscal year 2020 from the second quarter of fiscal year 2019, contributed to revenue growth in the Financial Services segment of 32.2% in the first quarter of fiscal year 2020 compared to the year-ago quarter. ACAMS memberships have increased to more than 75,000 as of September 30, 2019. |
● | Adtalem continued its eleventh share repurchase program by repurchasing a total of 918,807 shares of Adtalem’s common stock at an average cost of $43.81 per share during the first quarter of fiscal year 2020. |
● | Adtalem’s financial position remains strong. Operating cash flows were $47.5 million during the first quarter of fiscal year 2020. As of September 30, 2019, cash and cash equivalents totaled $121.1 million and outstanding borrowings totaled $336.3 million. |
DIVESTITURES
On October 18, 2019, Adtalem entered into a Stock Purchase Agreement (“Purchase Agreement”) with Estácio Participações S.A. (“Estácio”) and Sociedade de Ensino Superior Estaćio de Sá Ltda, a wholly owned subsidiary of Estácio (“Purchaser”). Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, Adtalem will sell all of the issued and outstanding shares of Adtalem Brasil Holding S.A. (a/k/a Adtalem Brazil) to the Purchaser for approximately $465 million in cash. In addition, Adtalem expects to receive approximately $74 million in settlement of cash balances as of June 30, 2019 of $89 million, net of indebtedness of $15 million, resulting in total proceeds of $539 million. This transaction is expected to be completed in the first half of fiscal year 2021. This sale advances Adtalem’s strategy to become a leading workforce solutions provider in the medical and healthcare and financial services industries, aligning Adtalem’s portfolio to better address the global workforce skills gap and serve its markets in a more competitive and comprehensive way. In connection with the announced proposed sale of Adtalem Brazil, Adtalem entered into certain deal contingent foreign exchange forward contracts to economically hedge the Brazilian Real denominated purchase price through mitigation of the currency exchange rate risk. Management does not expect this contract to qualify for hedge accounting treatment under Accounting Standards Codification (“ASC”) 815, and as a result, all changes in fair value will be recorded to the income statement.
Adtalem Brazil was an operating segment and was the only component of the former Business and Law reportable segment. Subject to the terms and conditions of the Purchase Agreement, Adtalem Brazil will be sold in its entirety. The potential strategic sale of Adtalem Brazil is expected to have a significant effect on the operations and financial results of Adtalem (See “Note 2: Discontinued Operations and Assets Held for Sale” to the Consolidated Financial Statements).
In addition to the potential sale of Adtalem Brazil, during the second quarter of fiscal year 2019, Adtalem divested DeVry University and Carrington College (“Carrington”). In accordance with U.S. Generally Accepted Accounting
42
Principles (“GAAP”), we have classified the DeVry University, Carrington and Adtalem Brazil entities as “Held for Sale” and “Discontinued Operations” in all periods presented as applicable. As a result, all financial results, disclosures and discussions of continuing operations in this Quarterly Report on Form 10-Q exclude DeVry University, Carrington and Adtalem Brazil operations, unless otherwise noted.
USE OF NON-GAAP FINANCIAL INFORMATION AND SUPPLEMENTAL RECONCILIATION SCHEDULE
During the first quarter of fiscal year 2020, Adtalem recorded special items related to the following:
● | Gain on the sale of Adtalem’s Columbus, Ohio, campus facility. |
● | Restructuring charges at Becker related to the sale of Becker’s courses for healthcare students and at Adtalem’s home office related to real estate consolidations. |
During the first quarter of fiscal year 2019, Adtalem recorded special items relating to the following:
● | Restructuring charges related to the closing of the RUSM campus in Dominica and real estate consolidations at Adtalem’s home office. |
The following table illustrates the effects of discontinued operations and special items on Adtalem’s net income (loss). Management believes that the non-GAAP disclosure of net income from continuing operations excluding special items and adjusted earnings per share excluding discontinued operations and special items provides investors with useful supplemental information regarding the underlying business trends and performance of Adtalem’s ongoing operations and is useful for period-over-period comparisons of such operations given the nature of discontinued operations, gain on sale of assets and restructuring charges. Adtalem uses these supplemental financial measures internally in its management and budgeting process. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, Adtalem’s reported results prepared in accordance with GAAP. The following table reconciles these non-GAAP measures to the most directly comparable GAAP information (in thousands, except per share amounts):
Three Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 | ||||
(in thousands, except per share amounts) | |||||||
Net Income (Loss) | $ | 14,361 | $ | (9,530) | |||
Earnings (Loss) per Share (diluted-2019, basic-2018) | $ | 0.26 | $ | (0.16) | |||
Continuing Operations: | |||||||
Restructuring Expense | $ | 6,530 | $ | 39,473 | |||
Effect on Earnings per Share (diluted) | $ | 0.12 | $ | 0.64 | |||
Gain on Sale of Assets | $ | (4,779) | $ | — | |||
Effect on Earnings per Share (diluted) | $ | (0.09) | $ | — | |||
Income Tax Impact on Non-GAAP Adjustments (1) | $ | (343) | $ | (7,952) | |||
Effect on Earnings per Share (diluted) | $ | (0.01) | $ | (0.13) | |||
Discontinued Operations, net of tax | $ | 3,156 | $ | 4,743 | |||
Effect on Earnings per Share (diluted) | $ | 0.06 | $ | 0.08 | |||
Net Income from Continuing Operations Excluding Special Items, net of tax | $ | 18,925 | $ | 26,734 | |||
Earnings per Share from Continuing Operations Excluding Special Items, net of tax (diluted) | $ | 0.34 | $ | 0.44 | |||
Shares used in Basic EPS Calculation | NA | 60,328 | |||||
Shares used in Diluted EPS Calculation | 56,140 | 61,202 |
(1) | Represents the income tax impact of non-GAAP continuing operations adjustments that is recognized in our GAAP financial statements. |
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RESULTS OF OPERATIONS
The following table presents information with respect to the relative size to revenue of certain items in the Consolidated Statements of Income (Loss) for the three months ended September 30, 2019 and 2018. Percentages may not add because of rounding.
Three Months Ended | |||||||
September 30, | |||||||
2019 |
| 2018 | |||||
Revenue | 100.0 | % | 100.0 | % | |||
Cost of Educational Services | 50.3 | % | 47.1 | % | |||
Student Services and Administrative Expense | 38.9 | % | 37.6 | % | |||
Restructuring Expense | 2.6 | % | 16.7 | % | |||
Gain on Sale of Assets | (1.9) | % | 0.0 | % | |||
Total Operating Cost and Expense | 89.9 | % | 101.4 | % | |||
Operating Income (Loss) from Continuing Operations | 10.1 | % | (1.4) | % | |||
Net Other Expense | (1.8) | % | (1.7) | % | |||
Income (Loss) from Continuing Operations Before Income Taxes | 8.3 | % | (3.0) | % | |||
Income Tax (Provision) Benefit | (1.5) | % | 1.0 | % | |||
Income (Loss) from Continuing Operations | 6.8 | % | (2.0) | % | |||
Loss from Discontinued Operations, Net of Tax | (1.2) | % | (2.0) | % | |||
Net Income (Loss) | 5.6 | % | (4.0) | % | |||
Net Loss Attributable to Noncontrolling Interest | 0.0 | % | 0.0 | % | |||
Net Income (Loss) Attributable to Adtalem Global Education | 5.6 | % | (4.0) | % |
REVENUE
All discussions of the results of operations exclude the results of DeVry University, Carrington and Adtalem Brazil, which are included in the discontinued operations section of the Consolidated Statements of Income (Loss) for all periods presented.
The following table presents revenue by segment detailing the changes from the year-ago period including disclosures of the effect of the acquisition of OCL. Total consolidated revenue for the first quarter of fiscal year 2020 of $254.6 million increased 7.5%, or $17.7 million, compared to the year-ago quarter. Excluding the revenue added from OCL, which was acquired in the fourth quarter of fiscal year 2019, revenue grew 4.2% or $10.1 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Revenue results by segment are discussed in more detail in the sections below.
Three Months Ended September 30, 2019 |
| ||||||||||||
(in thousands) |
| ||||||||||||
Revenue: | Medical and |
| Financial |
| Home Office | Consolidated |
| ||||||
Fiscal Year 2019 as Reported | $ | 202,100 | $ | 35,646 | $ | (807) | $ | 236,939 | |||||
Organic Growth | 5,387 | 3,867 | 807 | 10,061 | |||||||||
Effect of Acquisitions | — | 7,613 | — | 7,613 | |||||||||
Fiscal Year 2020 as Reported | $ | 207,487 | $ | 47,126 | $ | — | $ | 254,613 | |||||
Fiscal Year 2020 % Change: |
|
|
|
| |||||||||
Organic Growth | 2.7 | % | 10.8 | % | NM | 4.2 | % | ||||||
Effect of Acquisitions | — | 21.4 | % | NM | 3.2 | % | |||||||
Fiscal Year 2020 % Change as Reported | 2.7 | % | 32.2 | % | NM | 7.5 | % |
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Medical and Healthcare
Revenue in the Medical and Healthcare segment increased 2.7%, or $5.4 million, to $207.5 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Revenue in the first quarter of fiscal year 2020 increased at Chamberlain driven primarily by increasing total student enrollment and increased revenue at the medical and veterinary schools primarily driven by increased housing revenue at RUSM from its Barbados campus. Key trends for Chamberlain and the medical and veterinary schools are set forth below.
Chamberlain
Chamberlain Student Enrollment:
Fiscal Year 2020 |
| ||||||||||||
Term |
| July 2019 |
| Sept. 2019 |
| ||||||||
New Students | 2,396 | 5,595 | |||||||||||
% Change from Prior Year | (5.0) | % | 2.9 | % | |||||||||
Total Students | 28,691 | 31,736 | |||||||||||
% Change from Prior Year | 2.3 | % | 1.4 | % |
Fiscal Year 2019 | |||||||||||||
Term |
| July 2018 |
| Sept. 2018 |
| Nov. 2018 |
| Jan. 2019 |
| Mar. 2019 |
| May 2019 |
|
New Students | 2,523 | 5,435 | 2,617 | 4,759 | 2,726 | 3,997 | |||||||
% Change from Prior Year | 1.0 | % | 9.5 | % | (6.7) | % | 6.4 | % | (3.7) | % | 2.6 | % | |
Total Students | 28,037 | 31,295 | 30,833 | 32,354 | 32,104 | 30,867 | |||||||
% Change from Prior Year | 4.6 | % | 4.1 | % | 3.7 | % | 3.3 | % | 3.4 | % | 1.8 | % |
Chamberlain revenue increased 2.5%, or $2.9 million, to $116.5 million in the first quarter of fiscal year 2020 compared to the year-ago quarter, driven by increases in total student enrollment in the July 2019 and September 2019 sessions. Chamberlain admitted its largest class of campus students in September 2019.
Chamberlain currently operates 22 campuses in 15 states. Chamberlain’s newest campus in San Antonio, Texas, began instruction in October 2019.
Tuition Rates:
Tuition is $675 per credit hour for the Bachelor of Science in Nursing (“BSN”) onsite degree program. Tuition for the Registered Nurse to BSN (“RN-to-BSN”) online degree program is $590 per credit hour. Tuition for the online Master of Science in Nursing (“MSN”) degree program is $650 per credit hour. For students enrolled in the Family Nurse Practitioner (“FNP”) degree program, tuition is $665 per credit hour. Tuition for the online Doctor of Nursing Practice (“DNP”) degree program is $750 per credit hour. Tuition for the Master of Public Health (“MPH”) degree program is $550 per credit hour. Tuition for the online Master of Social Work (“MSW”) degree program that began in September 2019 is $695 per credit hour. All of these tuition rates are unchanged from the prior year. These tuition rates do not include the cost of books, supplies, transportation or living expenses.
Medical and Veterinary Schools
Medical and Veterinary Schools Student Enrollment:
Fiscal Year 2020 | Fiscal Year 2019 | ||||||||
Term |
| Sept. 2019 |
| Sept. 2018 |
| Jan. 2019 |
| May 2019 |
|
New Students | 872 | 889 | 471 | 496 | |||||
% Change from Prior Year | (1.9) | % | 9.5 | % | (8.5) | % | (0.6) | % | |
Total Students | 5,608 | 5,887 | 5,548 | 5,220 | |||||
% Change from Prior Year | (4.7) | % | 2.5 | % | (6.6) | % | (6.0) | % |
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The medical and veterinary schools’ revenue increased 2.9%, or $2.5 million, to $91.0 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. The principal driver of the increase was higher housing revenue at the new Barbados campus of RUSM. This increase was partially offset by lower tuition revenue at AUC and RUSM driven by lower enrollment and increased discounts and scholarships from listed tuition rates.
In the September 2019 semester, total student enrollment declined at AUC, RUSM and RUSVM, and new student enrollment increased at AUC and RUSVM and declined at RUSM. The lower enrollment is the result of heightened competition. Management is executing its plan to differentiate the medical and veterinary schools from the competition, with a core goal of increasing international students, increasing RUSM affiliations with historically black colleges and universities (“HBCU”) and Hispanic-serving institutions (“HSI”), expanding AUC’s medical education program based in the U.K. in partnership with the University of Central Lancashire (“UCLAN”), and improving the effectiveness of marketing investments. Management believes the demand for medical and veterinary education remains strong and can support management’s longer-term expectations to grow new enrollments in the low-single digit range; however, heightened competition may continue to adversely affect the medical and veterinary schools’ ability to continue to attract qualified students to its programs resulting in lower tuition revenue.
In September 2019, AUC opened its medical education program in the U.K. in partnership with UCLAN. The program offers students a postgraduate diploma in International Medical Sciences (“PGIMS”) from UCLAN, followed by their Doctor of Medicine degree with AUC. Students will then be eligible to do clinical rotations at AUC’s clinical sites, which include hospitals in the U.S., the U.K. and Canada. This program is aimed at preparing students for the U.S. Medical Licensing Examination (“USMLE”).
In January 2019, RUSM moved its basic science instruction to a new location in Barbados. The academic facility is located in Bridgetown and student housing is located close to the academic facility in the parish of Christ Church and includes amenities, student services and convenient transportation to campus.
Tuition Rates:
● | Effective for semesters beginning in September 2019, tuition rates for the beginning basic sciences and final clinical rotation portions of AUC’s medical program are $23,240 and $26,000, respectively, per semester. These tuition rates represent a 3.5% increase over the prior academic year. |
● | Effective for semesters beginning in September 2019, tuition rates for the beginning basic sciences and Internal Medicine Foundations/final clinical portion of the programs at RUSM are $24,170 and $26,676, respectively, per semester. These tuition rates represent a 4.0% increase over the prior academic year. |
● | For students who entered the RUSVM program in September 2018 or later, the tuition rate for the pre-clinical (Semesters 1-7) and clinical curriculum (Semesters 8-10) is $20,873 per semester effective September 2019. For students who entered RUSVM before September 2018, tuition rates for the pre-clinical and clinical curriculum are $19,387 and $24,339, respectively, per semester effective September 2019. The tuition rates effective September 2019 represent a 2.8% increase over the prior academic year. |
The respective tuition rates for AUC, RUSM and RUSVM do not include the cost of transportation, living expenses or health insurance.
Financial Services
Revenue in the Financial Services segment increased 32.2%, or $11.5 million, to $47.1 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Excluding the revenue added from OCL, which was acquired in the fourth quarter of fiscal year 2019, revenue grew 10.8% or $3.9 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. The increase is driven by revenue growth at ACAMS, partially due to the timing of their largest conference of the year taking place in the first quarter of fiscal year 2020 compared to it taking place in the second quarter of fiscal year 2019. The increase was partially offset with revenue declines related to Becker’s courses for healthcare students, which were divested in August 2019. ACAMS memberships have increased to more than 75,000
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as of September 30, 2019, driven by strong domestic growth as well as expansion in the Asia Pacific and European regions.
COSTS AND EXPENSES
Cost of Educational Services
The largest component of Cost of Educational Services is the cost of faculty and staff who support educational operations. This expense category also includes the costs of facilities, adjunct faculty, supplies, housing, bookstore and other educational materials, student education-related support activities and the provision for bad debts.
Three Months Ended September 30, 2019 |
| ||||||||||||
(in thousands) |
| ||||||||||||
Cost of Educational Services: |
| Medical and |
| Financial |
| Home Office | Consolidated | ||||||
Fiscal Year 2019 as Reported |
| $ | 105,640 | $ | 5,944 |
| $ | (50) |
| $ | 111,534 | ||
Cost Increase |
|
| 11,099 |
| 3,095 |
|
| 667 |
|
| 14,861 | ||
Effect of Acquisitions |
|
| — |
| 1,639 |
|
| — |
|
| 1,639 | ||
Fiscal Year 2020 as Reported |
| $ | 116,739 | $ | 10,678 |
| $ | 617 |
| $ | 128,034 | ||
Fiscal Year 2020 % Change: |
|
|
|
|
|
|
|
|
| ||||
Cost Increase |
| 10.5 | % |
| 52.1 | % |
| NM |
| 13.3 | % | ||
Effect of Acquisitions |
| — |
| 27.6 | % |
| NM |
| 1.5 | % | |||
Fiscal Year 2020 % Change as Reported |
| 10.5 | % |
| 79.6 | % |
| NM |
| 14.8 | % |
Cost of Educational Services increased 14.8%, or $16.5 million, to $128.0 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Excluding the costs added with the acquisition of OCL, which occurred in the fourth quarter of fiscal year 2019, Cost of Educational Services increased 13.3% or $14.9 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Cost increased in the first quarter of fiscal year 2020 due to increased housing costs at RUSM’s Barbados campus, increased institutional loan program bad debt expense resulting from increased aging of balances, primarily at the medical and veterinary schools, costs associated with the largest ACAMS conference of the year taking place in the first quarter of fiscal year 2020 compared to it taking place in the second quarter of fiscal year 2019, and increased investment in growth across all reportable segments.
As a percentage of revenue, Cost of Educational Services was 50.3% in the first quarter of fiscal year 2020 compared to 47.1% in the year-ago quarter. The increase in the percentage was primarily the result of revenue growth in the lower margin sources of RUSM housing and ACAMS conferences.
Student Services and Administrative Expense
The Student Services and Administrative Expense category includes expenses related to sales, student admissions, marketing and advertising, general and administrative, curriculum development and amortization expense of finite-lived intangible assets related to acquisitions of businesses.
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Three Months Ended September 30, 2019 |
| ||||||||||||
(in thousands) |
| ||||||||||||
Student Services and Administrative Expense: |
| Medical and |
| Financial |
| Home Office | Consolidated | ||||||
Fiscal Year 2019 as Reported | $ | 55,789 | $ | 24,952 | $ | 8,423 | $ | 89,164 | |||||
Cost Increase (Reduction) |
| 6,331 |
| 1,234 |
| (3,797) |
| 3,768 | |||||
Effect of Acquisitions |
| — |
| 6,155 |
| — |
| 6,155 | |||||
Fiscal Year 2020 as Reported | $ | 62,120 | $ | 32,341 | $ | 4,626 | $ | 99,087 | |||||
Fiscal Year 2020 % Change: |
|
|
|
|
|
|
|
| |||||
Cost Increase (Reduction) | 11.3 | % |
| 4.9 | % |
| NM |
| 4.2 | % | |||
Effect of Acquisitions |
| — |
| 24.7 | % |
| NM |
| 6.9 | % | |||
Fiscal Year 2020 % Change as Reported |
| 11.3 | % |
| 29.6 | % |
| NM |
| 11.1 | % |
Student Services and Administrative Expense increased 11.1%, or $9.9 million, to $99.1 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Excluding the costs added with the acquisition of OCL, which occurred in the fourth quarter of fiscal year 2019, Student Services and Administrative Expense increased 4.2% or $3.8 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Cost increases to support future enrollment growth at the medical and veterinary schools, Chamberlain, ACAMS and Becker were the main drivers of the increase in costs. Amortization of finite-lived intangible assets increased $0.9 million in the first quarter of fiscal year 2020 compared to the year-ago quarter, driven by OCL intangible asset amortization. Amortization expense is included entirely in the Student Services and Administrative Expense category.
As a percentage of revenue, Student Services and Administrative Expense was 38.9% in the first quarter of fiscal year 2020 compared to 37.6% in the year-ago quarter. Amortization expense for OCL intangible assets and costs to support enrollment growth caused the increase in this percentage.
Restructuring Expense
During the first quarter of fiscal year 2020, Adtalem recorded restructuring charges primarily related to the sale of Becker’s courses for healthcare students and Adtalem’s home office real estate consolidations. During the first quarter of fiscal year 2019, Adtalem recorded restructuring charges primarily related to the impairment of the land, buildings and equipment at the Dominica campus of RUSM and severance related to workforce reductions in Dominica. In January 2019, RUSM relocated its campus operations to Barbados with no plans to return to Dominica. The land, buildings and equipment in Dominica have been fully impaired as management determined the market value less the costs to sell the facilities or move the equipment is zero (see “Note 3: Summary of Significant Accounting Policies” to the Consolidated Financial Statements). In addition, during the first quarter of fiscal year 2019, Adtalem recorded restructuring charges primarily related to real estate consolidations at Adtalem’s home office. When estimating costs of exiting lease space, estimates are made which could differ materially from actual results and result in additional restructuring charges or reversals in future periods. Termination benefit charges, resulting from reducing Adtalem’s workforce by 15 and 176 positions in the first quarter of fiscal year 2020 and 2019, respectively, represented severance pay and benefits for these employees. Adtalem’s home office is classified as “Home Office and Other” in “Note 15: Segment Information” to the Consolidated Financial Statements. Pre-tax restructuring charges by segment were as follows (in thousands):
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | |||||||||||||||||
| Real Estate |
| Termination |
|
| Real Estate |
| Termination |
| |||||||||
and Other | Benefits | Total | and Other | Benefits | Total | |||||||||||||
Medical and Healthcare | $ | 127 | $ | — | $ | 127 | $ | 37,753 | $ | 1,262 | $ | 39,015 | ||||||
Financial Services | 1,690 | 289 | 1,979 | — | — | — | ||||||||||||
Home Office and Other |
| 4,122 |
| 302 |
| 4,424 |
| 509 |
| (51) |
| 458 | ||||||
Total | $ | 5,939 | $ | 591 | $ | 6,530 | $ | 38,262 | $ | 1,211 | $ | 39,473 |
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Additional restructuring expense is expected to be recorded in the remainder of fiscal year 2020 as Adtalem plans to continue to reduce home office costs.
Gain on Sale of Assets
On September 27, 2019, Adtalem closed on the sale of its Columbus, Ohio, campus facility. Net proceeds from the sale of $6.4 million resulted in a gain on the sale of $4.8 million. This gain was recorded at Adtalem’s home office, which is classified as “Home Office and Other” in “Note 15: Segment Information” to the Consolidated Financial Statements. There is no corresponding gain in the first quarter of fiscal year 2019.
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS
Total consolidated operating income from continuing operations increased $29.0 million, to $25.7 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Excluding the decrease in restructuring expense of $32.9 million and the gain on sale of assets of $4.8 million, consolidated operating income from continuing operations decreased 24.1% or $8.8 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. The primary drivers of this decrease were an increase in bad debt expense at the medical and veterinary schools and costs of returning to a normal level of expense at AUC and RUSM as operations returned to St. Maarten and moved to Barbados, respectively.
Three Months Ended September 30, 2019 | ||||||||||||
(in thousands) | ||||||||||||
Operating Income (Loss): | Medical and |
| Financial |
| Home Office | Consolidated | ||||||
Fiscal Year 2019 as Reported | $ | 1,656 | $ | 4,750 | $ | (9,638) | $ | (3,232) | ||||
Organic Change | (12,044) | (462) | 3,938 | (8,568) | ||||||||
Effect of Acquisitions |
| — |
| (181) |
| — |
| (181) | ||||
Restructuring Expense Change | 38,888 | (1,979) | (3,966) | 32,943 | ||||||||
Gain on Sale of Assets Change | — | — | 4,779 | 4,779 | ||||||||
Fiscal Year 2020 as Reported | $ | 28,500 | $ | 2,128 | $ | (4,887) | $ | 25,741 |
Medical and Healthcare
Medical and Healthcare segment operating income increased $26.8 million, to $28.5 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Excluding restructuring charges, segment operating income decreased 29.6%, or $12.0 million, in the first quarter of fiscal year 2020 compared to the year-ago quarter. The primary drivers of the decrease in operating income relate to increased marketing expense to drive future enrollment growth, increased bad debt expense for the institutional loan programs, primarily at the medical and veterinary schools, costs of returning to a normal level of expense at AUC and RUSM as post-hurricane operations returned to St. Maarten and moved to Barbados, respectively, and an increase of approximately $3.8 million in home office costs reallocated from Home Office and Other to the Medical and Healthcare segment in the first quarter of fiscal year 2020 compared to the year-ago quarter.
Financial Services
Financial Services segment operating income decreased 55.2%, or $2.6 million, to $2.1 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Excluding restructuring charges, segment operating income decreased 13.5%, or $0.6 million, to $4.1 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Operating income decreased at Becker driven by increased costs to support future growth. In addition, approximately $0.9 million in home office costs were reallocated from Home Office and Other to the Medical and Healthcare segment in the first quarter of fiscal year 2020 compared to the year-ago quarter. The decreases in operating income were partially offset by increased operating income at ACAMS driven by an increase in revenue.
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NET OTHER EXPENSE
Net other expense in the first quarter of fiscal year 2020 was $4.6 million compared to $3.9 million in the year-ago quarter. The net other expense increase was primarily the result of increased borrowings under Adtalem’s Credit Facility (as discussed in “Note 13: Debt” to the Consolidated Financial Statements).
INCOME TAXES
The effective tax rate on income from continuing operations was 17.6% in the first quarter of fiscal year 2020 compared to 32.4% on loss from continuing operations in the first quarter of fiscal year 2019. The effective tax rate in the first quarter of fiscal year 2019 included a pre-tax income special item of $39.0 million related to the write-offs of assets and restructuring charges in Dominica. The effective tax rates on income from continuing operations excluding this non-recurring special item was 16.4% in the first quarter of fiscal year 2019. The increase in the first quarter of fiscal year 2020 primarily reflects a decrease in the percentage of earnings from foreign operations, which are taxed at lower rates than domestic earnings. The provisions from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) impacting the first quarter of fiscal year 2020 effective tax rate include a tax on global intangible low-taxed income (“GILTI”), a deduction for foreign derived intangible income (“FDII”), and a limitation of certain executive compensation. Our estimates may be revised in future periods as we obtain additional data and any new regulations or guidance is released.
Three of Adtalem’s operating units benefit from local tax incentives: AUC, which operates in St. Maarten, RUSM, which operates in Barbados, and RUSVM, which operates in St. Kitts. AUC’s effective tax rate reflects benefits derived from investment incentives. RUSM and RUSVM each have agreements with their respective domestic governments that exempt them from local income taxation. RUSM has an exemption in Barbados until 2039. RUSVM has an exemption in St. Kitts until 2037.
As of June 30, 2019, Adtalem had an indefinite reinvestment assertion with respect to accumulated and future earnings in Brazil. Beginning in the first quarter of fiscal year 2020, Adtalem Brazil operations were classified as discontinued operations. As such, Adtalem no longer maintains this assertion. The tax impact of the reversal of the assertion is immaterial.
DISCONTINUED OPERATIONS
Loss from discontinued operations includes $4.2 million in costs associated with the divested DeVry University operations, primarily consisting of ongoing litigation costs and settlements. In addition, beginning in the first quarter of fiscal year 2020, Adtalem Brazil operations were classified as discontinued operations. See “Note 2: Discontinued Operations and Assets Held for Sale” to the Consolidated Financial Statements for further information. Management will continue to disclose and discuss Adtalem Brazil operations in its public filings until the period in which the sale closes as Adtalem Brazil operations continue to have an effect on Adtalem’s reported net income.
Adtalem Brazil
Revenue at Adtalem Brazil decreased 3.4%, or $1.6 million, to $45.7 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. The decrease in value of the Brazilian Real compared to the U.S. dollar decreased reported revenue in the first quarter of fiscal year 2020 by $0.6 million compared to the year-ago quarter. Constant currency calculations assume conversions of local currency amounts at exchange rates in effect in the year-ago period compared to those conversions at exchange rates in effect during the current fiscal year period. On a constant currency basis, revenue decreased 2.2% in the first quarter of fiscal year 2020 compared to the year-ago quarter. Declines in enrollment at Wyden Educational institutions (“Wyden”) and in law exam test preparation courses, along with increased discounting were the primary drivers of the revenue decrease.
Brazil’s economy presented challenges for enrollment growth and created pricing pressures in the education sector. Adtalem Brazil’s revenue results have been negatively impacted by these conditions as well as reductions in Brazil’s government-funded loan program, “Fundo de Financiamento Estudantil” or “Students Financing Fund” (“FIES”) and increased competition. Adtalem Brazil students are eligible for loans under the FIES program, which is financed by the Brazilian government. As of September 30, 2019, approximately 16% of Adtalem Brazil’s degree-seeking students have obtained financing under the FIES program. This represents approximately 18% of Adtalem Brazil’s revenue. The
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Brazilian government has stated that it is supportive of the FIES program, which is an important factor in helping to increase the number of college graduates. However, the changes enacted during fiscal year 2018 reducing the number of contracts available for grant under the FIES program by approximately 31% to all higher education institutions in Brazil, have impacted Adtalem Brazil’s growth. Adtalem Brazil institutions have increased efforts to attract more non-FIES program students in order to diversify their payer mix. Also, Adtalem Brazil is working with private lenders to increase funding sources for prospective students. Management believes Adtalem Brazil institutions offer programs of study and operate in areas of the country that the Brazilian government favors in issuing loans under the FIES program. Should economic conditions continue to weaken and additional austerity measures be instituted by the Brazilian government, Adtalem Brazil’s ability to grow its student enrollment may be further impacted.
Key trends for Adtalem Brazil are set forth below.
Adtalem Brazil Student Enrollment:
Fiscal Year 2020 | Fiscal Year 2019 |
| |||||
Term |
| Sept. 2019 |
| Sept. 2018 |
| Mar. 2019 |
|
New Students | 17,588 | 17,956 | 27,505 | ||||
% Change over Prior Year | (2.0) | % | 23.8 | % | 17.7 | % | |
Total Students | 76,904 | 81,088 | 79,919 | ||||
% Change over Prior Year | (5.2) | % | 3.5 | % | 5.6 | % |
These enrollment figures include students enrolled in degree-granting programs and exclude students enrolled in test preparation programs at Damásio Educacional (“Damasio”). The decrease in enrollment in the September 2019 term is driven by a decline in new and continuing onsite enrollment at Wyden and the degree granting operations of Damasio, partially offset with increases in new and continuing online enrollment and enrollment increases at Grupo Ibmec Educacional S.A. (“Ibmec”). Enrollment increases in online students are less beneficial to revenue growth due to lower tuition pricing of the online programs.
Adtalem Brazil operating income increased $2.6 million to $3.3 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Operating income was reduced by the effect of exchange rate changes by $0.3 million in the first quarter of fiscal year 2020. Excluding the effect of the exchange rate changes and restructuring charges, Adtalem Brazil operating income increased $2.9 million in the first quarter of fiscal year 2020 compared to the year-ago quarter, primarily driven by cost reduction measures implemented to offset declining enrollment and the need for higher discounting. These operating income amounts in fiscal years 2020 and 2019 have been adjusted for the reduction in home office expenses allocated to Adtalem Brazil within discontinued operations and now allocated to continuing operations. For fiscal year 2020, these costs are being allocated to the Medical and Healthcare and Financial Services segments. For fiscal year 2019, these costs were allocated to Home Office and Other. See “Note 15: Segment Information” to the Consolidated Financial Statements for further details.
Beginning in the second quarter of fiscal year 2018, DeVry University operations were classified as discontinued operations. In addition, beginning in the fourth quarter of fiscal year 2018, Carrington operations were classified as discontinued operations. See “Note 2: Discontinued Operations” to the Consolidated Financial Statements in Item 8 of Adtalem's Annual Report on Form 10-K for the fiscal year ended June 30, 2019 for further information. The divestiture of both of these operations was completed in the second quarter of fiscal year 2019. As a result, management discontinued discussion of the DeVry University and Carrington operating results beginning with the second quarter of fiscal year 2019 Quarterly Report on Form 10-Q as comparable results are no longer meaningful.
LIQUIDITY AND CAPITAL RESOURCES
Student Payments
Adtalem’s primary source of liquidity is the cash received from payments for student tuition, books, other educational materials and fees. These payments include funds originating as financial aid from various federal and state loan and grant programs, student and family educational loans (“private loans”), employer educational reimbursements, scholarships and
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student and family financial resources. Adtalem continues to provide financing options for its students, including Adtalem’s institutional loan programs.
The following table, which excludes DeVry University, Carrington and Adtalem Brazil revenue, summarizes Adtalem’s revenue by fund source as a percentage of total revenue for fiscal years 2018 and 2017. Final data for fiscal year 2019 is not yet available.
Fiscal Year |
| ||||
Funding Source: |
| 2018 |
| 2017 |
|
Federal Assistance (Title IV) Program Funding (Grants and Loans) |
| 59 | % | 60 | % |
Private Loans |
| 2 | % | 2 | % |
Student accounts, cash payments, private scholarships, employer and military provided tuition assistance and other |
| 39 | % | 38 | % |
Total |
| 100 | % | 100 | % |
The pattern of cash receipts during the year is seasonal. Adtalem’s cash collections on accounts receivable peak at the start of each institution’s term. Accounts receivable reach their lowest level at the end of each term, dropping to the lowest point at the end of December.
Financial Aid
Like other higher education institutions, Adtalem is highly dependent upon the timely receipt of federal financial aid funds. All financial aid and assistance programs are subject to political and governmental budgetary considerations. In the U.S., the Higher Education Act (“HEA”) guides the federal government’s support of postsecondary education. If there are changes to financial aid programs that restrict student eligibility or reduce funding levels, Adtalem’s financial condition and cash flows could be materially and adversely affected. See “Item 1A – Risk Factors” in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the SEC on August 28, 2019, for a discussion of student financial aid related risks.
In addition, government-funded financial assistance programs are governed by extensive and complex regulations in the U.S. Like any other educational institution, Adtalem’s administration of these programs is periodically reviewed by various regulatory agencies and is subject to audit or investigation by other governmental authorities. Any violation could be the basis for penalties or other disciplinary action, including initiation of a suspension, limitation or termination proceeding.
If the U.S. Department of Education (“ED”) determines that we have failed to demonstrate either financial responsibility or administrative capability in any pending program review, or otherwise determines that an institution has violated the terms of its Program Participation Agreement (“PPA”), we could be subject to sanctions including: fines, penalties, reimbursement for discharged loan obligations, a requirement to post a letter of credit and/or suspension or termination of our eligibility to participate in the Title IV programs.
On October 13, 2016, DeVry University and ED reached a negotiated agreement (the “ED Settlement”) to settle the claims asserted in a Notice of Intent to Limit from the Multi-Regional and Foreign School Participation Division of the Federal Student Aid office of the Department of Education (“ED FSA”). Under the terms of the ED Settlement, among other things, without admitting wrongdoing, DeVry University agreed to certain compliance requirements regarding its past and future advertising, that DeVry University’s participation in Title IV programs is subject to provisional certification for five years and that DeVry University is required to post a letter of credit equal to the greater of 10% of DeVry University’s annual Title IV disbursements or $68.4 million for a five-year period. The posted letter of credit continues to be posted by Adtalem following the closing of the sale of DeVry University and reduces Adtalem’s borrowing capacity dollar-for-dollar under its Credit Facility.
An ED regulation known as the “90/10 Rule” affects only proprietary postsecondary institutions, such as Chamberlain, AUC, RUSM and RUSVM. Under this regulation, an institution that derives more than 90% of its revenue on a cash basis from Title IV student financial assistance programs in two consecutive fiscal years loses eligibility to participate in these programs for at least two fiscal years. The following table details the percentage of revenue on a cash basis from federal
52
financial assistance programs (excluding the U.S. Department of Veterans Affairs and military tuition assistance benefits) for each of Adtalem’s Title IV-eligible institutions for fiscal years 2018 and 2017. Final data for fiscal year 2019 is not yet available.
Fiscal Year |
| ||||
| 2018 |
| 2017 |
| |
Chamberlain University |
| 62 | % | 63 | % |
American University of the Caribbean School of Medicine |
| 74 | % | 80 | % |
Ross University School of Medicine |
| 81 | % | 82 | % |
Ross University School of Veterinary Medicine |
| 82 | % | 83 | % |
In September 2016, Adtalem committed to voluntarily limit to 85% the amount of revenue that each of its four Title IV-eligible institutions derive from federal funding, including the U.S. Department of Veterans Affairs and military tuition assistance benefits. As disclosed in the third party review report that has been made publicly available, Adtalem’s institutions have met this lower threshold for fiscal year 2018. Final data for fiscal year 2019 is not yet available. Adtalem is committed to implementing measures to promote responsible recruitment and enrollment, successful student outcomes, and informed student choice. Management believes students deserve greater transparency to make informed choices about their education. This commitment builds upon a solid foundation and brings Adtalem to a new self-imposed level of public accountability and transparency.
Under the terms of Adtalem institutions’ participation in financial aid programs, certain cash received from state governments and ED is maintained in restricted bank accounts. Adtalem receives these funds either after the financial aid authorization and disbursement process for the benefit of the student is completed, or just prior to that authorization. Once the authorization and disbursement process for a particular student is completed, the funds may be transferred to unrestricted accounts and become available for Adtalem to use in operations. This process generally occurs during the academic term for which such funds have been authorized. Cash in the amount of $0.7 million, $1.0 million and $0.9 million was held in restricted bank accounts at September 30, 2019, June 30, 2019 and September 30, 2018, respectively.
A financial responsibility test is required for continued participation by an institution’s students in U.S. federal financial assistance programs. For Adtalem’s participating institutions, this test is calculated at the consolidated Adtalem level. The test is based upon a composite score of three ratios: an equity ratio that measures the institution’s capital resources; a primary reserve ratio that measures an institution’s ability to fund its operations from current resources; and a net income ratio that measures an institution’s ability to operate profitably. A minimum score of 1.5 is necessary to meet ED’s financial standards. Institutions with scores of less than 1.5 but greater than or equal to 1.0 are considered financially responsible, but require additional oversight. These schools are subject to heightened cash monitoring and other participation requirements. An institution with a score of less than 1.0 is considered not financially responsible. However, a school with a score of less than 1.0 may continue to participate in the Title IV programs under provisional certification. In addition, this lower score typically requires that the school be subject to heightened cash monitoring requirements and post a letter of credit (equal to a minimum of 10% of the Title IV aid it received in the institution's most recent fiscal year).
For the past several years, Adtalem’s composite score has exceeded the required minimum of 1.5. If Adtalem becomes unable to meet requisite financial responsibility standards or otherwise demonstrate, within the regulations, its ability to continue to provide educational services, then Adtalem could be subject to heightened cash monitoring or be required to post a letter of credit to enable its students to continue to participate in federal financial assistance programs.
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Cash Provided by Operating Activities
The following table provides a summary of cash flows from operations (in thousands):
Three Months Ended | ||||||
September 30, | ||||||
| 2019 |
| 2018 | |||
Net Income (Loss) from Continuing Operations | $ | 17,408 | $ | (4,851) | ||
Non-cash Items |
| 34,143 |
| 60,963 | ||
Changes in Assets and Liabilities |
| (18,250) |
| (2,595) | ||
Net Cash Provided by Operating Activities-Continuing Operations | $ | 33,301 | $ | 53,517 |
Cash generated from operating activities by continuing operations in the first three months of fiscal year 2020 was $33.3 million compared to $53.5 million in the year-ago period. Net income from continuing operations increased by $22.3 million in the first three months of fiscal year 2020 compared to the year-ago period.
The decrease in non-cash items of $26.8 million in the first three months of fiscal year 2020 compared to the year-ago period was the result of the following:
● | A decrease of $36.3 million in depreciation and write-offs of building, building improvements, leasehold improvements, furniture and equipment. This was primarily the result of recording $37.8 million in impairment write-downs of land, buildings and equipment at RUSM’s Dominica campus in the first three months of fiscal year 2019. |
● | An increase of $12.8 million in amortization and adjustments to operating lease assets which results from the implementation of ASC 842 on July 1, 2019. |
● | An increase of $4.4 million in provision for bad debts due to increases in reserves for institutional student loans. |
● | An increase of $1.1 million in stock-based compensation expense. |
● | An increase of $0.9 million in amortization expense of intangible assets. |
● | A decrease of $4.9 million in the deferred income tax provision related to the timing of deductions. |
● | An increase in realized gain on the sale of assets of $4.8 million from the sale of the Columbus, Ohio, campus facility. |
Changes in Assets and Liabilities from June 30, 2019 reduced operating cash flow by $18.3 million, driven by the following:
● | A $38.2 million decrease resulting from an increase in accounts receivable balances (excluding provisions for bad debts) due to higher accounts receivable balances at the Medical and Healthcare segment. These balances are seasonally higher at September 30, 2019 compared to June 30, 2019 due to the timing of cash receipts at Chamberlain, AUC, RUSM and RUSVM resulting from the timing of academic terms. |
● | A $72.6 million increase resulting from an increase in deferred revenue balances due to the timing of the Chamberlain, AUC, RUSM and RUSVM academic terms at September 30, 2019 compared to June 30, 2019. |
● | A $13.7 million decrease in operating lease liabilities which results from the payments under operating lease liabilities recorded upon the implementation of ASC 842 on July 1, 2019. |
● | A $40.2 million decrease resulting from a change in prepaid expense and other current assets, accounts payable and accrued salaries, wages, benefits and liabilities balances due to the timing of disbursements in the normal processing cycles. |
Cash Used in Investing Activities
Capital expenditures in the first three months of fiscal year 2020 were $10.4 million compared to $13.3 million in the year-ago period. The capital expenditures in fiscal year 2020 include spending for Chamberlain new campus development, maintenance and Adtalem’s home office reorganization.
Capital spending for the remainder of fiscal year 2020 will support continued investment for new campus development at Chamberlain and maintenance at the medical and veterinary schools. Management anticipates full fiscal year 2020
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capital spending to be in the $45 to $50 million range, including $10.4 million spent during the first quarter of fiscal year 2020.
On September 27, 2019, Adtalem closed on the sale of its Columbus, Ohio, campus facility. Net proceeds from the sale of $6.4 million resulted in a gain on the sale of $4.8 million. This gain was recorded at Adtalem’s home office, which is classified as “Home Office and Other” in “Note 15: Segment Information” to the Consolidated Financial Statements.
Cash Used in Financing Activities
The following table provides a summary of cash flows from financing activities (in thousands):
Three Months Ended | ||||||
September 30, | ||||||
| 2019 |
| 2018 | |||
Proceeds from Exercise of Stock Options | $ | 828 | $ | 10,492 | ||
Repurchase of Common Stock for Treasury |
| (40,255) |
| (59,175) | ||
Net Payments Under Credit Facility |
| (70,750) |
| (750) | ||
Payment for Purchase of Noncontrolling Interest of Subsidiary | (6,247) | — | ||||
Other |
| 155 |
| (5,029) | ||
Net Cash Used in Financing Activities-Continuing Operations | $ | (116,269) | $ | (54,462) |
Proceeds from Exercise of Stock Options - Cash received from option holders for price paid at time of exercise.
Repurchase of Common Stock for Treasury - Cash paid for the repurchase of Adtalem’s common stock.
Net Payments Under Credit Facility - Net borrowings and repayments under its Credit Facility (see “Note 13: Debt” to the Consolidated Financial Statements).
Payment for Purchase of Noncontrolling Interest of Subsidiary - On July 1, 2019, the Adtalem Brazil management noncontrolling interest members exercised their put option and sold their remaining ownership interests in Adtalem Brazil to Adtalem.
Historically, Adtalem has produced positive cash flows from operating activities sufficient to fund the delivery of its educational programs and services as well as to fund capital investment and share repurchases. Adtalem’s consolidated cash balances of $121.1 million as of September 30, 2019 included $102.1 million of cash held at Adtalem’s international operations, which is available to Adtalem for general company purposes. As of September 30, 2019, the cash balance attributable to Adtalem Brazil was $96.9 million, which is excluded from the balances above as they are classified as assets held for sale and are not available for Adtalem general company purposes. In accordance with the terms of the Adtalem Brazil Purchase Agreement (see “Note 2: Discontinued Operations and Assets Held for Sale”), Adtalem expects to receive approximately $89 million in settlement of cash balances as of June 30, 2019 upon the close of the sale transaction.
Management believes current balances of unrestricted cash, cash generated from operations and the Credit Facility will be sufficient to fund both Adtalem’s current domestic and international operations, growth plans and current share repurchase program for the foreseeable future unless significant investment opportunities should arise.
Other Contractual Arrangements
Adtalem’s long-term contractual obligations consist of its $600 million Credit Facility (discussed in “Note 13: Debt” to the Consolidated Financial Statements), operating leases on facilities and agreements for various services.
In fiscal year 2018, Adtalem recorded a liability of $96.3 million for the one-time transition tax on the deemed repatriation of foreign earnings, pursuant to the Tax Act. This amount was reduced to $8.7 million after utilization of tax credits and current and prior year tax losses, and is payable over eight years. The first installment will be required in fiscal year 2021.
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On December 11, 2018, Adtalem completed the sale of DeVry University to Cogswell Education, LLC (“Cogswell”). In connection with the closing of the sale, Adtalem loaned to DeVry University $10.0 million under the terms of the promissory note, dated as of December 11, 2018 (the “Note”). The Note bears interest at a rate of 4% per annum, payable annually in arrears and has a maturity date of January 1, 2022. DeVry University may make prepayments on the Note.
On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (“DePaul College Prep”) for $52.0 million. Adtalem received $5.2 million of cash at the time of closing and holds a mortgage, secured by the property, from DePaul College Prep for $46.8 million. The mortgage is due on July 31, 2024 as a balloon payment and bears interest at a rate of 4% per annum, payable monthly. The buyer has an option to make prepayments.
Adtalem is leasing space to DeVry University at four facilities owned by Adtalem and subleasing space, in full or in part, at an additional 25 facilities, of which 17 are subleased to DeVry University and/or Carrington. Adtalem remains the primary lessee on the 25 underlying leases. These lease and sublease agreements were entered into at comparable market rates and the terms range from one to six years. Future minimum lease and sublease rental income under these agreements at September 30, 2019, are as follows (in thousands):
Fiscal Year |
| Amount | |
2020 (Remaining) | $ | 18,608 | |
2021 | 20,099 | ||
2022 |
| 17,103 | |
2023 |
| 16,368 | |
2024 |
| 10,523 | |
Thereafter | 7,308 | ||
Total | $ | 90,009 |
Adtalem also assigned certain leases to DeVry University and Carrington but remains contingently liable under these leases.
OFF-BALANCE SHEET ARRANGEMENTS
Adtalem is not a party to any off-balance sheet financing or contingent payment arrangements, nor are there any unconsolidated subsidiaries. Adtalem has not extended any loans to any officer, director or other affiliated person. Adtalem has not entered into any synthetic leases, and there are no residual purchase or value commitments related to any facility lease. Adtalem did not enter into any derivatives, swaps, futures contracts, calls, hedges or non-exchange traded contracts during the first three months of fiscal year 2020. Adtalem had no open derivative positions at September 30, 2019.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes in the Company’s Critical Accounting Estimates, as disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2019.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting pronouncements, see “Note 3: Summary of Significant Accounting Policies” to the Consolidated Financial Statements.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Adtalem is not dependent upon the price levels, nor affected by fluctuations in pricing, of any particular commodity or group of commodities. However, more than 50% of Adtalem’s costs are in the form of wages and benefits. Changes in employment market conditions or escalations in employee benefit costs could cause Adtalem to experience cost increases at levels beyond what it has historically experienced.
The financial position and results of operations of AUC, RUSM and RUSVM Caribbean operations are measured using the U.S. dollar as the functional currency. Substantially all of these financial transactions are denominated in U.S. dollars.
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The assets and liabilities held for sale and results of discontinued operations of Adtalem Brazil are measured using the Brazilian Real as the functional currency. Adtalem Brazil has not entered into any material long-term contracts to purchase or sell goods and services, other than the lease agreements on teaching facilities and contingencies relating to prior acquisitions. As of September 30, 2019, Adtalem did not have any foreign exchange contracts or derivative financial instruments designed to mitigate changes in the value of the Brazilian Real. Brazilian-based assets held for sale constitute 24.8% of Adtalem’s overall assets, and Adtalem’s Brazilian liabilities held for sale constitute 11.2% of overall liabilities. The value of the Brazilian Real has been volatile in relation to the U.S. dollar over the past several years. The value during the first quarter of fiscal year 2020 averaged roughly 1% lower compared to the year-ago quarter. Based upon the current value of the net assets in Adtalem Brazil’s operations, a change of $0.01 in the value of the U.S. dollar relative to the Brazilian Real results in a translation adjustment to Accumulated Other Comprehensive Loss of approximately $17.5 million.
The interest rate on Adtalem’s Credit Facility is based upon LIBOR or a LIBOR-equivalent rate for Eurocurrency rate loans or a base rate for periods typically ranging from one to three months. As of September 30, 2019, Adtalem had $336.3 million in outstanding borrowings under the Term B Loan and Revolver with a weighted average interest rate of 4.94%. Based upon borrowings of $336.3 million, a 100 basis point increase in short-term interest rates would result in $3.4 million of additional annual interest expense.
Adtalem’s customers are principally individual students enrolled in its various educational programs. Accordingly, concentration of accounts receivable credit risk is small relative to total revenue and accounts receivable. However, the Adtalem Brazil FIES accounts receivable balance has remained elevated for the past several years due to changes in government funding of the program. As of September 30, 2019, June 30, 2019 and September 30, 2018, the FIES accounts receivable balance was $17.8 million, $26.2 million and $22.8 million, respectively. These accounts receivable balances are classified as held for sale.
Adtalem’s cash is held in accounts at various large, financially secure depository institutions. Although the amount on deposit at a given institution typically will exceed amounts subject to guarantee, Adtalem has not experienced any deposit losses to date, nor does management expect to incur such losses in the future.
ITEM 4 – CONTROLS AND PROCEDURES
Principal Executive and Principal Financial Officer Certificates
The required compliance certificates signed by Adtalem’s Chief Executive Officer and Chief Financial Officer are included as Exhibits 31 and 32 of this Quarterly Report on Form 10-Q.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to help ensure that all the information required to be disclosed in Adtalem’s reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the applicable rules and forms.
Adtalem’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that Adtalem’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective to ensure that information required to be disclosed in the reports that Adtalem files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to Adtalem’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting that occurred during our latest fiscal quarter that materially affected, or are reasonably likely to materially affect, Adtalem’s internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
For a discussion of legal proceedings, see “Note 14: Commitments and Contingencies” to the Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
ITEM 1A – RISK FACTORS
In addition to the other information set forth in this report, the factors discussed in “Item 1A – Risk Factors” in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019, which could materially affect Adtalem’s business, financial condition or future results, should be carefully considered. Such risks are not the only risks facing Adtalem. Additional risks and uncertainties not currently known to Adtalem or that management currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results. Except for the risk factor discussed below, there have been no material changes to Adtalem’s risk factors since its Annual Report on Form 10-K for the fiscal year ended June 30, 2019.
A delayed or unsuccessful sale of Adtalem Brazil could have a material adverse effect on the stock valuation of Adtalem or may impact the growth prospects or financial resources of Adtalem.
Adtalem has entered into a binding stock purchase agreement to sell its Brazilian portfolio, Adtalem Brazil, to Estácio Participações S.A. (“Estácio”) and Sociedade de Ensino Superior Estaćio de Sá Ltda, a wholly owned subsidiary of Estácio (“Purchaser”) (the “Transaction”). Adtalem’s transfer of ownership to the Purchaser is subject to numerous closing conditions, including the approval by Brazil’s Administrative Council of Economic Defense (“CADE”), the Brazilian antitrust authority. Additionally, the Purchaser is not required to close the Transaction in certain circumstances, including in the event that the closing has not occurred by 270 days following the filing with CADE of all required notification and report forms (subject to each party’s right to extend for an additional 90 days under certain conditions. There is no assurance that the conditions to closing will be satisfied in a timely manner or at all. If the Transaction is not completed, the valuation of Adtalem common stock may materially and adversely decline.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
|
|
| Total Number of Shares |
| Approximate Dollar | |||||
Purchased as Part of | Value of Shares that May | |||||||||
Total Number of | Average Price Paid | Publicly Announced | Yet Be Purchased Under | |||||||
Period | Shares Purchased | per Share | Plans or Programs (1) | the Plans or Programs (1) | ||||||
July 2019 | 240,714 | $ | 46.69 | 240,714 | $ | 170,881,305 | ||||
August 2019 | 253,302 | $ | 46.66 | 253,302 | $ | 159,062,529 | ||||
September 2019 | 424,791 | $ | 40.49 | 424,791 | $ | 141,864,748 | ||||
Total | 918,807 | $ | 43.81 | 918,807 | $ | 141,864,748 |
(1) On November 7, 2018, the Board of Directors of Adtalem authorized a share repurchase program to repurchase up to $300 million of Adtalem common stock through December 31, 2021. The eleventh share repurchase program commenced in January 2019. The timing and amount of any repurchases will be determined based on an evaluation of the market and other factors. The total remaining authorization under this share repurchase program was $141,864,748 as of September 30, 2019.
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Other Purchases of Equity Securities
|
|
| Total Number of Shares |
| Approximate Dollar | ||||
Purchased as Part of | Value of Shares that May | ||||||||
Total Number of | Average Price Paid | Publicly Announced | Yet Be Purchased Under | ||||||
Period | Shares Purchased (1) | per Share | Plans or Programs | the Plans or Programs | |||||
July 2019 | 947 | $ | 44.98 | NA | NA | ||||
August 2019 | 112,572 | $ | 44.80 | NA | NA | ||||
September 2019 | 66 | $ | 41.70 | NA | NA | ||||
Total | 113,585 | $ | 44.80 | NA | NA |
(1) | Represents shares delivered back to Adtalem for payment of withholding taxes from employees for vesting restricted stock units and shares swapped for payment on exercise of incentive stock options pursuant to the terms of Adtalem's stock incentive plans. |
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 – OTHER INFORMATION
None.
ITEM 6 – EXHIBITS
Exhibit 10 | ||
Exhibit 31 | ||
|
| |
Exhibit 32 | Certification Pursuant to Title 18 of the United States Code Section 1350** | |
|
| |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Designates management contract and compensatory plan or arrangement.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Adtalem Global Education Inc. | ||
Date: October 29, 2019 |
| /s/ Michael Randolfi |
Michael Randolfi | ||
Senior Vice President and Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
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