ADTALEM GLOBAL EDUCATION INC.
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A"), Adtalem Global Education Inc. , together with its
subsidiaries, is collectively referred to as "Adtalem," "we," "our," "us," or
similar references.
Discussions within this MD&A may contain forward-looking statements. See the
"Forward-Looking Statements" section for details about the uncertainties that
could cause our actual results to be materially different than those expressed
in our forward-looking statements.
Throughout this MD&A, we sometimes use information derived from the Consolidated
Financial Statements and the notes thereto but not presented in accordance with
U.S. generally accepted accounting principles ("GAAP"). Certain of these items
are considered "non-GAAP financial measures" under the Securities and Exchange
Commission ("SEC") rules. See the "Non-GAAP Financial Measures and
Reconciliations" section for the reasons we use these non-GAAP financial
measures and the reconciliations to their most directly comparable GAAP
financial measures.
Certain items presented in tables may not sum due to rounding. Percentages
presented are calculated from the underlying numbers in thousands. Discussions
throughout this MD&A are based on continuing operations unless otherwise noted.
The MD&A should be read in conjunction with the Consolidated Financial
Statements and the notes thereto.
Available Information
We use our website (www.adtalem.com) as a routine channel of distribution of company information, including press releases, presentations, and supplemental information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases,SEC filings, and public conference calls and webcasts. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts. 38
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You may also access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as well as other reports relating to us that are filed with or furnished to theSEC , free of charge in the investor relations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to theSEC . TheSEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with theSEC at www.sec.gov. The content of the websites mentioned above is not incorporated into and should not be considered a part of this report. Segments
During the first quarter of fiscal year 2022, Adtalem made a change to its reportable segments to align with current strategic priorities and resource allocation. We present four reportable segments as follows:
Chamberlain - Offers degree and non-degree programs in the nursing postsecondary
education industry. This segment includes the operations of
Medical and Veterinary - Offers degree and non-degree programs in the medical and veterinary postsecondary education industry. This segment includes the operations of theAmerican University of theCaribbean School of Medicine ("AUC"),Ross University School of Medicine ("RUSM"), andRoss University School of Veterinary Medicine ("RUSVM"), which are collectively referred to as the "medical and veterinary schools." Financial Services - Offers test preparation, certifications, conferences, seminars, memberships, and subscriptions to business professionals in the areas of accounting, anti-money laundering, banking, and mortgage lending. This segment includes the operations of theAssociation of Certified Anti-Money Laundering Specialists ("ACAMS"), Becker Professional Education ("Becker"),OnCourse Learning ("OCL"), and EduPristine. OnAugust 4, 2021 , Adtalem announced we are exploring strategic alternatives for the Financial Services segment.
"Home Office and Other" includes activities not allocated to a reportable segment. Financial and descriptive information about Adtalem's reportable segments is presented in Note 20 "Segment Information" to the Consolidated Financial Statements.
We continue to incur costs associated with ongoing litigation and settlements related to theDeVry University divestiture, which was completed during fiscal year 2019, and are classified as expense within discontinued operations. See Note 4 "Discontinued Operations and Assets Held for Sale" to the Consolidated Financial Statements for additional discontinued operations information.
Walden University Acquisition
OnAugust 12, 2021 , Adtalem completed the acquisition of all the issued and outstanding equity interest inWalden e-Learning, LLC , aDelaware limited liability company ("e-Learning"), and its subsidiary,Walden University, LLC , aFlorida limited liability company, from Laureate Education, Inc. ("Laureate" or "Seller") in exchange for a purchase price of$1.48 billion in cash, subject to certain adjustments set forth in the Membership Interest Purchase Agreement (the "Agreement) (the "Acquisition"). See the "Liquidity and Capital Resources" section of this MD&A for a discussion on the financing used to fund the Acquisition. The risks and uncertainties related to the Acquisition are described in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 ("2021 Form 10-K").
First Quarter Highlights
Financial and operational highlights for the first quarter of fiscal year 2022 include:
Adtalem revenue grew
? year 2022 compared to the year-ago quarter. Excluding the effect of the
acquisition, Adtalem revenue grew$11.5 million , or 4.3%, in the first 39 Table of Contents
quarter of fiscal year 2022 compared to the year-ago quarter. The Chamberlain
and Financial Services segments saw increased revenue.
Net loss attributable to Adtalem of
share) decreased
year 2022 compared to net income attributable to Adtalem of
the year-ago quarter. This decrease was primarily driven by an increase of
amortization expense, and
? expense recorded in the first quarter of fiscal year 2022 compared to the
year-ago quarter. Net income from continuing operations attributable to Adtalem
excluding special items of
decreased
fiscal year 2022 compared to the year-ago quarter. This decrease was driven
principally by increased interest expense, partially offset by a decrease in
income tax expense driven by lower pre-tax income.
For the
decreased 13.4% and 2.8%, respectively, compared to the same session last year.
? Chamberlain experienced declining enrollment in several programs, with the most
pronounced being in the Registered Nurse to Bachelor of Science in Nursing
("RN-to-BSN") online degree program.
On
?
of 8,413 and 44,886 students, respectively.
For the
? veterinary schools decreased 4.6% and 6.9%, respectively, compared to the same
semester last year.
? ACAMS memberships have increased to more than 86,000 as of
compared to more than 82,000 as of
Overview of the Impact of COVID-19
OnMarch 11, 2020 , the novel coronavirus ("COVID-19") outbreak was declared a pandemic by theWorld Health Organization . COVID-19 has had tragic consequences across the globe and altered business and consumer activity across many industries. Management initiated several changes to the operations of our institutions and administrative functions in order to protect the health of Adtalem employees, students, and customers and to mitigate the financial effects of COVID-19 and its resultant economic slowdown. We will continue to evaluate, and if appropriate, adopt other measures in the future required for the ongoing safety of our students, customers, and employees.
Results of Operations
COVID-19 did not result in any significant revenue, operating income, or
earnings per share losses in the first quarter of fiscal year 2022. Management
anticipates COVID-19 could still negatively affect consolidated revenue,
operating income, net income, and earnings per share during the remainder of
fiscal year 2022 and beyond or as long as social distancing and other measures
established to combat COVID-19 continue to disrupt the normal business
operations of our convention providers and Financial Services customers. In the
first quarter of fiscal year 2022, we experienced higher variable expenses
associated with bringing students back to campus and providing a safe
environment in the context of COVID-19 as we continue to move back to in-person
instruction at Chamberlain and the medical and veterinary schools. These higher
variable expenses are expected to continue during the remainder of fiscal year
2022; however, these are expenses incurred in the normal course of on campus
operations and will not be categorized as COVID-19 expenses. COVID-19 effects on
the first quarter of fiscal year 2022 and 2021 results of operations of the
Adtalem institutions are described below.
?Chamberlain: Approximately 30% of Chamberlain's students are based at campus
locations and pursuing their Bachelor of Science in Nursing ("BSN") degree; at
the onset of the COVID-19 outbreak, all campus-based students transitioned to
online learning for didactic and select clinical experiences. The remaining 70%
of Chamberlain's students are enrolled in online programs that may or may not
have clinical components and those programs continued to successfully operate.
For the September 2021 session, students and employees returned to several
Chamberlain campuses
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for onsite instruction. Management believes that COVID-19 disruptions in the
healthcare industry may have driven the enrollment decisions of potential
students in the September 2021 session; however, COVID-19 did not result in
measurable revenue losses or increased costs at Chamberlain in the first
quarters of fiscal year 2022 or 2021. The extent of the impact during the
remainder of fiscal year 2022 and beyond will be determined based on the length
and severity of the effects of COVID-19, the efficacy and distribution of the
vaccines, and whether any pandemic surge affects healthcare facilities' ability
to continue to provide clinical experiences, all of which have resumed.
Chamberlain has clinical partnerships with healthcare facilities across the
U.S. , minimizing the risk of suspension of all onsite clinical education
experiences.
?Walden : Management believes that COVID-19 disruptions in the healthcare
industry may have driven the enrollment decisions of potential students in the
September 2021 session; however, COVID-19 did not result in measurable revenue
losses or increased costs at Walden in the first quarter of fiscal year 2022.
The extent of the impact during the remainder of fiscal year 2022 and beyond
will be determined based on the length and severity of the effects of COVID-19
and the efficacy and distribution of the vaccines.
?AUC and RUSM: Medical students enrolled in the basic science portion of their
program transitioned to online learning at the onset of the COVID-19 outbreak.
Many students left St. Maarten and Barbados to continue their studies remotely
from other locations. AUC and RUSM were able to provide remote learning and have
students remain eligible for U.S. federal financial aid assistance under a
waiver provided by the U.S. Secretary of Education that was included in the
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into
law in March 2020 . The waiver was dependent upon the host country's coronavirus
state of emergency declaration. The nation of St. Maarten lifted their
declaration in June 2020 , and as a result, AUC's ability to offer distance
education ended after the September 2020 semester, requiring all AUC students to
return to St. Maarten for basic science instruction effective January 2021 . A
limited number of RUSM students began returning to Barbados in January and May
2021 with a full return occurring for the September 2021 semester. The
Consolidated Appropriates Act, 2021 (the "Appropriations Act") was signed into
law in December 2020 , and corrected technical errors in the CARES Act, which
clarified the authority to operate via distance learning due to a declaration of
an emergency in an applicable country or a qualifying emergency in the U.S. This
section also extends these flexibilities through the end of the qualifying
emergency or June 30, 2022 , whichever is later. The Appropriations Act provides
Adtalem's foreign institutions the ability to continue distance education
without disruption to their students' Title IV federal financial aid. COVID-19
did not result in significant revenue losses or increased costs within the basic
science programs at the medical schools in the first quarters of fiscal year
2022 or 2021, except with respect to housing operations, as discussed below.
COVID-19 will likely have minimal impact on basic science program revenue in
fiscal year 2022, unless students choose to not continue or start their studies
during this time of uncertainty. The extent of the impact during the remainder
of fiscal year 2022 and beyond will be determined based on the length and
severity of the effects of COVID-19 and the efficacy and distribution of the
vaccines. Students who have completed their basic science education progress to
clinical rotations in the U.S. and the U.K. Clinical rotations for all students
were temporarily suspended in March 2020 ; however, some students were able to
participate in online clinical elective courses during this transition period
and beyond. The COVID-19 surge experienced during the winter in fiscal year 2021
across the U.S. caused many partner hospitals to again reduce the hours
available for clinical experiences. As a result, although many students were
able to resume their clinical education during the second quarter of fiscal year
2021, management estimates that not being able to offer a full clinical program
reduced combined revenue of AUC and RUSM by approximately $4 million and
operating income losses by approximately $2 million in the first quarter of
fiscal year 2021. As of June 2021 , all clinical partners of AUC and RUSM have
resumed their clinical programs. As a result, COVID-19 did not result in any
lost clinical revenue in the first quarter of fiscal year 2022. Should future
surges in COVID-19 again restrict the number of clinical hours available to our
students, we could experience negative effects on revenue and operating income
in future periods. Adtalem has clinical partnerships with hospitals across the
U.S. and the U.K. , minimizing the risk of suspension of all onsite clinical
education experiences. In addition to the loss of clinical revenue and operating
income at AUC and RUSM, management estimates losses of housing and student
transportation revenue and operating income of approximately $5 million and $3
million , respectively, in the first quarter of fiscal year 2021 due to students
not returning to the St. Maarten and Barbados campuses. All students were back
on the two campuses in the first quarter of fiscal year 2022, and therefore,
COVID-19 did not result in lost housing and student transportation revenue in
the first quarter of fiscal year 2022.
?RUSVM: All basic science veterinary students transitioned to online learning
beginning in March 2020 . Many students left St. Kitts in March 2020 to continue
their studies remotely from other locations. As of May 2021 , all basic
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science students have returned toSt. Kitts where lectures continue to be delivered remotely and labs are in-person. COVID-19 did not result in significant revenue losses or increased costs within the basic science program in the first quarters of fiscal year 2022 or 2021. We do not expect a significant impact from COVID-19 on the basic science program in fiscal year 2022, unless students choose to not continue or start their studies during this time of uncertainty. RUSVM continued to provide remote learning during the pandemic and students remained eligible forU.S. federal financial aid assistance under a waiver provided by the CARES Act and the Appropriations Act. The Appropriations Act extends through the end of the qualifying emergency orJune 30, 2022 , whichever is later, as described above. Studentswho have completed their basic science education progress to clinical rotations at select universities in theU.S. ,Canada ,Australia ,Ireland ,New Zealand , and theU.K. A few universities initially suspended onsite clinical experiences and transitioned students to online education. All universities have since resumed onsite clinical courses. The initial suspensions did not significantly reduce revenue or operating income in the first quarters of fiscal year 2022 or 2021. While we do not expect a significant impact from COVID-19 at RUSVM, the extent of the impact on clinical experiences during the remainder of fiscal year 2022 and beyond will be determined based on the length and severity of the effects of COVID-19 and the efficacy and distribution of the vaccines. ?Financial Services: Most Financial Services content, including exam preparation, certification training, continuing education, and subscriptions is delivered online. Any classroom-based learning was moved to online. COVID-19 did not result in significant revenue or operating income losses in the first quarter of fiscal year 2022. No significant COVID-19 related cost increases were realized in Financial Services in the first quarters of fiscal year 2022 or 2021. COVID-19 did result in estimated revenue and operating income losses of approximately$5 million and$3 million , respectively, in first quarter of fiscal year 2021, primarily driven by the replacement of theLas Vegas live conference with a virtual conference. ACAMS was able to offer a hybrid (live and virtual)Las Vegas conference inSeptember 2021 ; however, live conference revenue is not expected to return to pre-pandemic levels until COVID-19 restrictions are fully lifted across the world and customer apprehension dissipates. Virtual conferences were conducted throughout the pandemic, and additional conference revenue will be generated with virtual or hybrid events in the future; however, virtual conferences are unlikely to generate the same level of revenue and operating income as live conferences. Management believes that other than the ACAMS conferences, longer-term operating results in the Financial Services segment will not be significantly affected by COVID-19 unless there are major employment losses with accounting professionals and recent accounting graduates, or in the banking and mortgage sectors. This is not known and cannot be predicted at this time. At Becker, CPA testing sites are operating with available capacity; however, management believes hiring at CPA firms has not yet fully recovered. ?Administrative Operations: Most institution and home office administrative operations continue to principally be performed remotely. This includes operations in both theU.S. and all foreign locations. These remote work arrangements have not adversely affected Adtalem's ability to maintain operations, financial reporting systems, internal control over financial reporting, or disclosure controls and procedures. The effectiveness of our remote technology enables our ability to maintain these systems and controls. Management does not anticipate Adtalem will be materially impacted by any constraints or other impacts on our human capital resources and productivity. Travel restrictions and border closures are not expected to have a material impact on our ability to operate and achieve operational goals. While recent travel expenditures have decreased, we would expect these costs to increase as the effects of COVID-19 dissipate. No significant home office costs were incurred related to COVID-19 in the first quarters of fiscal year 2022 or 2021 and no such costs are anticipated during the remainder of fiscal year 2022 and beyond. Although COVID-19 has had a negative effect on the operating results of all five reporting units that contain goodwill and indefinite-lived intangible assets as ofSeptember 30, 2021 , at this time none of the effects are considered significant enough to create an impairment triggering event since our annual goodwill impairment assessment onMay 31, 2021 . While management has considered the effects of the COVID-19 pandemic in evaluating the existence of an impairment triggering event, it is possible that effects to revenue and cash flows will be more significant than currently expected if the effects of the COVID-19 pandemic and social distancing measures established to combat the virus continue for an extended period of time. Should economic conditions deteriorate beyond expectations during the remainder of fiscal year 2022, an impairment triggering event could arise and require reassessment of the fair values of goodwill and intangible assets.
Liquidity
Adtalem's cash and cash equivalents balance as ofSeptember 30, 2021 was$360.1 million . Adtalem generated$40.9 million in operating cash flow from continuing operations in the first three months of fiscal year 2022. In the event of 42
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unexpected market conditions or negative economic changes, including those caused by COVID-19, that could negatively affect Adtalem's earnings and/or operating cash flow, Adtalem maintains a$400 million revolving credit facility with availability of$246.6 million as ofSeptember 30, 2021 . Management currently projects that COVID-19 will continue to have an effect on operations; however, we believe the current balances of cash, cash generated from operations, and our credit facility will be sufficient to fund both Adtalem's current domestic and international operations and growth plans in the foreseeable future. See further discussion on the new financing executed to close the Acquisition in the section of this MD&A titled "Liquidity and Capital Resources." Results of Operations
The following table presents selected Consolidated Statements of Income (Loss) data as a percentage of revenue:
Three Months Ended
September 30,
2021 2020
Revenue 100.0 % 100.0 %
Cost of educational services 46.8 % 42.4 %
Student services and administrative expense 45.8 % 37.3 %
Restructuring expense 1.1 % 1.6 %
Business acquisition and integration expense 7.6 % 5.0 %
Total operating cost and expense 101.4 % 86.3 %
Operating (loss) income (1.4) % 13.7 %
Net other expense (13.4) % (0.8) %
(Loss) income from continuing operations before
income taxes (14.7) % 12.9 %
Benefit from (provision for) income taxes 3.0 % (2.6) %
(Loss) income from continuing operations (11.7) % 10.2 %
Loss from discontinued operations, net of tax (5.0) % (2.8) %
Net (loss) income (16.7) % 7.4 % Net loss attributable to redeemable noncontrolling interest
0.0 % 0.0 %
Net (loss) income attributable to Adtalem (16.7) % 7.4 %
Revenue
The following table presents revenue by segment detailing the changes from the year-ago period (in thousands):
Three Months Ended September 30, 2021
Medical and Financial
Chamberlain Walden Veterinary Services Consolidated
Fiscal year 2021 as reported $ 133,764 $ - $ 85,062 $ 49,415 $ 268,241
Organic growth (decline) 1,875 - (248) 9,842 11,469
Effect of acquisitions - 68,617 - - 68,617
Fiscal year 2022 as reported $ 135,639 $ 68,617 $ 84,814 $ 59,257 $ 348,327
Fiscal year 2022 % change:
Organic growth (decline) 1.4 % NM (0.3) % 19.9 % 4.3 %
Effect of acquisitions - NM - - 25.6 %
Fiscal year 2022 % change as
reported 1.4 % NM (0.3) % 19.9 % 29.9 %
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Chamberlain
Chamberlain Student Enrollment:
Fiscal Year 2022
Session July 2021 Sept. 2021
New students 2,810 5,487
% change from prior year 1.5 % (13.4) %
Total students 32,729 34,539
% change from prior year 1.6 % (2.8) %
Fiscal Year 2021
Session July 2020 Sept. 2020 Nov. 2020 Jan. 2021 Mar. 2021 May 2021
New students 2,768 6,333 2,931 5,202 3,283 4,363
% change from prior year 15.5 % 13.2 % 8.1 % (1.7) % 6.8 % 3.6 %
Total students 32,198 35,525 34,387 35,750 35,702 34,930
% change from prior year 12.2 % 11.9 % 10.2 % 5.6 % 5.8 % 4.6 % Chamberlain revenue increased 1.4%, or$1.9 million , to$135.6 million in the first quarter of fiscal year 2022 compared to the year-ago period, driven by an increase in total student enrollment during theJuly 2021 session compared to the same session from the prior year. The July session contributes two-thirds of the revenue for the first quarter. Management believes that the launch of new programs, the addition of weekend and evening classes, the scaling provided by our multi-campus model, and the effectiveness of recent marketing investments have contributed to the enrollment increase and will drive future enrollment growth. Chamberlain admitted its largest class of campus students inSeptember 2020 , which partially explains the decline in theSeptember 2021 comparable session, as enrollment returns to historical levels. Management believes that a decrease in new and total student enrollment in several programs, with the most pronounced being in the RN-to-BSN online degree program, may partially be driven by prolonged COVID-19 pandemic disruptions in the healthcare industry.
Chamberlain currently operates 23 campuses in 15 states, including Chamberlain's
newest campus in
Tuition Rates:
Tuition for the Bachelor of Science in Nursing ("BSN") onsite degree program
ranges from $675 to $730 per credit hour. 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. Tuition for the online Family Nurse Practitioner ("FNP") degree program is
$665 per credit hour. Tuition for the online Doctor of Nursing Practice ("DNP")
degree program is $775 per credit hour. Tuition for the online Master of Public
Health ("MPH") degree program is $550 per credit hour. Tuition for the online
Master of Social Work ("MSW") degree program is $695 per credit hour. These
tuition rates do not include the cost of course fees, books, supplies,
transportation, clinical fees, living expenses, or other fees as listed in the
catalog.
Walden
Walden Student Enrollment:
Fiscal Year 2022
Term Sept. 2021
New students 8,413
Total students 44,886
Walden new and total student enrollment represents those students attending instructional sessions as ofSeptember 30, 2021 .Walden revenue was$68.6 million in the first quarter of fiscal year 2022, which includes the deferred revenue purchase accounting adjustment. There was no comparable revenue in the year-ago period as Adtalem acquiredWalden 44
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onAugust 12, 2021 . Management believes new and total enrollment was possibly negatively affected by COVID-19 disruptions in the healthcare industry and the negative publicity surrounding the now concludedU.S. Department of Justice inquiry into potential false representations and false advertising to students. This inquiry ultimately concluded favorably, with no findings of misconduct byWalden . In addition, the uncertainty from potential students around the change in control and theWalden acquisition may have negatively affected enrollment.
Tuition Rates:
On a per credit hour basis, tuition forWalden programs range from$120 per credit hour to$995 per credit hour, with the wide range due to the nature of the programs. General education courses are charged at$325 per credit hour. Other subscription based learning modalities are billed on a subscription or term basis and range from$1,500 to$6,800 per term. Students are charged a technology fee that ranges from$75 to$210 per term as well as a clinical fee of$150 per course for specific programs. Some programs require students to attend residencies, skills labs and pre-practicum labs which are charged at a range of$975 to$2,475 per event. These tuition rates, event charges, and fees do not include the cost of books or personal technology, supplies, transportation, or living expenses.
Medical and Veterinary
Medical and Veterinary Student Enrollment:
Fiscal Year 2022
Semester Sept. 2021
New students 878
% change from prior year (4.6) %
Total students 5,449
% change from prior year (6.9) %
Fiscal Year 2021
Semester Sept. 2020 Jan. 2021 May 2021
New students 920 589 611
% change from prior year 5.5 % 21.2 % 12.3 %
Total students 5,850 5,292 5,126
% change from prior year 4.3 % (6.2) % (1.2) %
Medical and Veterinary revenue decreased 0.3%, or $0.2 million , to $84.8 million
in the first quarter of fiscal year 2022 compared to the year-ago period, driven
by lower enrollment, partially offset by an increase in clinical revenue at AUC
and RUSM and increased housing revenue at RUSM.
In the September 2021 semester, total student enrollment increased at AUC but
declined at RUSM and RUSVM while new student enrollment increased at RUSVM but
declined at AUC and RUSM. The decline in total student enrollment at RUSM was
driven by the inability to offer clinical experiences to all eligible students
caused by an increase in students waiting to pass their USMLE Step 1 exam. If a
student has not yet started in a clinical program, is not eligible to be
enrolled in a clinical program, or not participating in other educational
experiences, they are not included in the enrollment count for that semester.
Management believes increased competition for students and hesitancy on
participating in on campus instruction were drivers of lower new student
enrollment. Total enrollment at RUSM and RUSVM also declined due to higher
student withdrawals and leaves of absence. Management is executing its plan to
differentiate the medical and veterinary schools from the competition, with a
core goal of increasing international students, increasing 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 and enrollment investments.
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Tuition Rates:
Effective for semesters beginning in
? beginning basic sciences and final clinical rotation portions of AUC's medical
program are
rates represent a 2.4% increase from the prior academic year.
Effective for semesters beginning in
? beginning basic sciences and final clinical rotation portions of RUSM's medical
program are
rates represent a 2.4% increase from the prior academic year.
For students
tuition rate for the pre-clinical (Semesters 1-7) and clinical curriculum
(Semesters 8-10) is
?
clinical curriculum are
effective
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
Financial Services revenue increased 19.9%, or$9.8 million , to$59.3 million in the first quarter of fiscal year 2022 compared to the year-ago period, driven principally by increased revenue at ACAMS and Becker. The ACAMS revenue increase was driven by sales of certification and training products as well as a hybridLas Vegas conference in the first quarter of fiscal year 2022, which was entirely virtual last year due to COVID-19 restrictions. ACAMS memberships have increased to more than 86,000 as ofSeptember 30, 2021 compared to more than 82,000 as ofSeptember 30, 2020 , driven by strong growth in the European region. The Becker revenue increase was driven by sales of the Certified Management Accountant ("CMA") exam review products as well as the CPA exam review products.
Cost of Educational Services
The largest component of cost of educational services is the cost of faculty and staffwho support educational operations. This expense category also includes the costs of facilities, adjunct faculty, supplies, housing, bookstore, other educational materials, student education-related support activities, and the provision for bad debts. The following table presents cost of educational services by segment detailing the changes from the year-ago period (in thousands): Three Months Ended September 30, 2021 Medical and Financial Home Office Chamberlain Walden Veterinary Services and Other Consolidated Fiscal year 2021 as reported$ 59,732 $ -$ 45,379 $ 8,005 $ 582$ 113,698 Cost increase (decrease) 5,956 - 6,930 3,055 (582) 15,359 Effect of acquisitions - 34,053 - - - 34,053 Fiscal year 2022 as reported$ 65,688 $ 34,053 $ 52,309 $ 11,060 $ -$ 163,110 Fiscal year 2022 % change: Cost increase 10.0 % NM 15.3 % 38.2 % NM 13.5 % Effect of acquisitions - NM - - NM 30.0 % Fiscal year 2022 % change as reported 10.0 % NM 15.3 % 38.2 % NM 43.5 % Cost of educational services increased 43.5%, or$49.4 million , to$163.1 million in the first quarter of fiscal year 2022 compared to the year-ago period. Excluding the effect of theWalden acquisition, cost of education services increased 13.5%, or$15.4 million , in the first quarter of fiscal year 2022 compared to the year-ago period. Costs increased in the first quarter of fiscal year 2022 primarily driven by return to campus cost increases at Chamberlain, AUC, RUSM, and RUSVM, increased conference costs from delivering the ACAMS hybridLas Vegas conference, increased clinical expense to support increased clinical hours and costs to support Chamberlain campus growth. 46
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As a percentage of revenue, cost of educational services was 46.8% and 42.4% in the first quarter of fiscal year 2022 and 2021, respectively. The increase in the percentage was primarily the result of return to campus and the lower margins on ACAMS hybrid 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, and amortization expense of finite-lived intangible assets
related to business acquisitions. The following table presents student services
and administrative expense by segment detailing the changes from the year-ago
period (in thousands):
Three Months Ended September 30, 2021
Medical and Financial Home Office
Chamberlain Walden Veterinary Services and Other Consolidated
Fiscal year 2021 as
reported $ 43,864 $ - $ 16,841 $ 32,723 $ 6,750 $ 100,178
Cost increase (decrease) 5,232 - (2) 2,025 (359) 6,896
Effect of acquisitions
excluding special items - 29,759 - - - 29,759
Walden intangible
amortization expense - 16,451 - - - 16,451
CEO transition costs - - - - 6,195 6,195
Fiscal year 2022 as
reported $ 49,096 $ 46,210 $ 16,839 $
34,748
Fiscal year 2022 % change: Cost increase (decrease) 11.9 % NM (0.0) % 6.2 % NM 6.9 % Effect of acquisitions excluding special items - NM - - NM 29.7 % Effect of Walden intangible amortization expense - NM - - NM 16.4 % Effect of CEO transition costs - NM - - NM 6.2 % Fiscal year 2022 % change as reported 11.9 % NM (0.0) % 6.2 % NM 59.2 % Student services and administrative expense increased 59.2%, or$59.3 million , to$159.5 million in the first quarter of fiscal year 2022 compared to the year-ago period. Excluding the effect of theWalden acquisition and CEO transition costs, student services and administrative expense increased 6.9%, or$6.9 million , in the first quarter of fiscal year 2022 compared to the year-ago period. Increased costs at Chamberlain were primarily driven by higher marketing expense. Costs increased at Financial Services to support growth. As a percentage of revenue, student services and administrative expense was 45.8% and 37.3% in the first quarter of fiscal year 2022 and 2021, respectively. The increase in the percentage was primarily the result ofWalden intangible amortization expense and CEO transition costs.
Restructuring Expense
Restructuring expense was$3.9 million and$4.2 million in the first quarter of fiscal year 2022 and 2021, respectively. The primary driver of the decreased restructure expense in the first quarter of fiscal year 2022 was the result of a higher amount of charges in the first quarter of fiscal year 2021 related to Adtalem's home office and ACAMS real estate consolidations. See Note 6 "Restructuring Charges" to the Consolidated Financial Statements for additional information on restructuring charges.
In addition to continuing to incur restructuring charges or reversals related to
exiting leased space from previous restructuring activities, we have begun
additional restructuring plans to achieve synergies with the
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Business Acquisition and Integration Expense
Business acquisition and integration expense was$26.6 million and$13.4 million in the first quarter of fiscal year 2022 and 2021, respectively. These are transaction costs associated with acquiringWalden and costs associated with integratingWalden into Adtalem. We expect to incur additional integration costs through the remainder of fiscal year 2022.
Operating (Loss) Income
The following table presents operating (loss) income by segment detailing the changes from the year-ago period (in thousands):
Three Months Ended
Medical and Financial Home Office
Chamberlain Walden Veterinary Services and Other Consolidated
Fiscal year 2021 as
reported $ 30,169 $ - $ 22,841 $ 7,272 $ (23,576) $ 36,706
Organic change (9,314) - (7,176) 4,762 942 (10,786)
Effect of acquisitions
excluding special items - 11,012 - - - 11,012
Deferred revenue adjustment
change - (6,207) - - - (6,207)
CEO transition costs change - - - - (6,195) (6,195)
Restructuring expense
change - - - 594 (287) 307
Business acquisition and
integration expense change - - - - (13,117) (13,117)
Walden intangible
amortization expense change - (16,451) - - - (16,451)
Fiscal year 2022 as
reported $ 20,855 $ (11,646) $ 15,665 $ 12,628 $ (42,233) $ (4,731)
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The following table presents a reconciliation of operating (loss) income (GAAP)
to operating income excluding special items (non-GAAP) by segment (in
thousands):
Three Months Ended
September 30,
Increase
2021 2020 (Decrease)
Chamberlain:
Operating income (GAAP) $ 20,855 $ 30,169 (30.9) %
Operating income excluding special items
(non-GAAP) $ 20,855 $ 30,169 (30.9) %
Walden:
Operating loss (GAAP) $ (11,646) $ - NM
Deferred revenue adjustment 6,207 -
Walden intangible amortization expense 16,451 -
Operating income excluding special items
(non-GAAP) $ 11,012 $ - NM
Medical and Veterinary:
Operating income (GAAP) $ 15,665 $ 22,841 (31.4) %
Operating income excluding special items
(non-GAAP) $ 15,665 $ 22,841 (31.4) %
Financial Services:
Operating income (GAAP) $ 12,628 $ 7,272 73.7 %
Restructuring expense 821 1,415
Operating income excluding special items
(non-GAAP) $ 13,449 $ 8,687 54.8 %
Home Office and Other:
Operating loss (GAAP) $ (42,233) $ (23,576) (79.1) %
CEO transition costs 6,195 -
Restructuring expense 3,095 2,808Business acquisition and integration expense 26,553 13,436 Operating loss excluding special items (non-GAAP)
$ (6,390) $ (7,332)
12.8 %
Adtalem Global Education : Operating (loss) income (GAAP)$ (4,731) $ 36,706
NM
Deferred revenue adjustment 6,207 - CEO transition costs 6,195 - Restructuring expense 3,916 4,223
Business acquisition and integration expense 26,553 13,436
16,451 -
Operating income excluding special items
(non-GAAP) $ 54,591 $ 54,365 0.4 %
Total consolidated operating loss of$4.7 million decreased$41.4 million in the first quarter of fiscal year 2022 compared to operating income of$36.7 million in the year-ago period. Excluding the effect of theWalden acquisition, total consolidated operating income decreased$29.8 million . The primary drivers of the decrease were increased costs at Chamberlain and Medical and Veterinary for return to campus, increased marketing expense at Chamberlain, increased business acquisition and integration costs, and CEO transition costs. These decreases were partially offset by increased operating income at Financial Services which was driven by revenue growth within the segment. Consolidated operating income excluding special items increased in the first quarter of fiscal year 2022 to$54.6 million , or 0.4%, compared to the year-ago period. The addition of operating income excluding special items fromWalden was mostly offset by the drivers explained above for the other segments.
Chamberlain
Chamberlain operating income decreased 30.9%, or$9.3 million , to$20.9 million in the first quarter of fiscal year 2022 compared to the year-ago period. The primary driver of the decrease in operating income was an increase in costs for return to campus and increased marketing expense. 49 Table of ContentsWalden
Walden operating loss was$11.6 million in the first quarter of fiscal year 2022, driven by intangible amortization expense and the deferred revenue purchase accounting adjustment. Segment operating income excluding special items was$11.0 million in the first quarter of fiscal year 2022. There was no comparable operating income in the year-ago period as Adtalem acquiredWalden onAugust 12, 2021 . Medical and Veterinary Medical and Veterinary operating income decreased 31.4%, or$7.2 million , to$15.7 million in the first quarter of fiscal year 2022 compared to the year-ago period. The primary driver of the decrease in operating income was an increase in costs for return to campus.
Financial Services
Financial Services operating income increased 73.7%, or$5.4 million , to$12.6 million in the first quarter of fiscal year 2022 compared to the year-ago period. Segment operating income excluding special items increased 54.8%, or$4.8 million , in the first quarter of fiscal year 2022 compared to the year-ago period. The primary driver of this increase was an increase in revenue at ACAMS and Becker, which resulted in improved operating income.
Net Other Expense
Net other expense was$46.5 million and$2.2 million in the first quarter of fiscal year 2022 and 2021, respectively. The increase in net other expense was primarily the result of increased borrowings (as discussed in Note 13 "Debt" to the Consolidated Financial Statements) to finance theWalden acquisition.
Benefit from (Provision for) Income Taxes
Our effective income tax rate ("ETR") from continuing operations can differ from
the 21% U.S. federal statutory rate due to several factors, including the rate
of tax applied by state and local jurisdictions, the rate of tax applied to
earnings outside the U.S. , tax incentives, changes in valuation allowances,
liabilities for uncertain tax positions, and tax benefits on stock-based
compensation awards. Additionally, our ETR is impacted by the provisions from
the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), which primarily includes a
tax on global intangible low-taxed income ("GILTI"), a deduction for foreign
derived intangible income ("FDII"), and a limitation of tax benefits on certain
executive compensation. The impact of the Tax Act may be revised in future
periods as we obtain additional data and consider any new regulations or
guidance that may be released.
Our ETR from continuing operations was 20.7% and 20.5% in the three months ended
OnDecember 27, 2020 , the Appropriations Act was enacted in response to the COVID-19 pandemic. The Appropriations Act, among other things, temporarily extends throughDecember 31, 2025 , certain expiring tax provisions, including look-through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations. Additionally, the Appropriations Act enacted new provisions and extended certain provisions originated within the CARES Act, enacted onMarch 27, 2020 , including an extension of time for repayment of the deferred portion of employees' payroll tax throughDecember 31, 2021 , and a temporary allowance for full deduction of certain business meals. Adtalem has elected not to defer the employees' portion of payroll tax. Management does not expect that the other provisions of the Appropriations Act would result in a material tax or cash benefit. OnMarch 11, 2021 , the American Rescue Plan Act of 2021 (the "Rescue Act") was enacted in response to the COVID-19 pandemic. The Rescue Act, among other things, expands the number of employees subject to the tax deductibility limitation of employee compensation in excess of$1 million for tax years beginning afterDecember 31, 2026 and repeals the election forU.S. affiliated groups to allocate interest expense on a worldwide basis. Management does not expect that the other provisions of the Rescue Act would result in a material tax or cash detriment. 50 Table of Contents Discontinued Operations We continue to incur costs associated with ongoing litigation and settlements related to theDeVry University divestiture, which was completed during fiscal year 2019, and are classified as expense within discontinued operations.
Regulatory Environment
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 student and family
financial resources. Adtalem continues to provide financing options for its
students, including Adtalem's credit extension programs.
The following table, which excludes Adtalem Brazil, Carrington, and DeVry
University revenue, summarizes Adtalem's revenue by fund source as a percentage
of total revenue for fiscal years 2020 and 2019. Final data for fiscal year
2021
is not yet available.
Fiscal Year
2020 2019
Federal assistance (Title IV) program funding (grants and
loans) 59 % 59 %
Private loans 2 % 2 % Student accounts, cash payments, private scholarships, employer and military provided tuition assistance, and other 39 %
39 % 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 institution's term. Financial Aid
Like other higher education companies, 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 theU.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 our 2021 Form 10-K for a discussion of student financial aid related risks. In addition, government-funded financial assistance programs are governed by extensive and complex regulations in theU.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 theU.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. During the fourth quarter of fiscal year 2020 and the first quarter of fiscal year 2021, ED provisionally recertified AUC, RUSM, and RUSVM's Title IV PPAs with expiration dates ofDecember 31, 2022 ,March 31, 2023 , andJune 30, 2023 , respectively. The provisional nature of the agreements stemmed from increased and/or repeated Title IV compliance audit findings. No financial ramifications, such as a letter of credit, heightened cash monitoring, or student enrollment limitations, were imposed on any of these institutions. While corrective actions have been taken to resolve past compliance 51
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matters and eliminate the incidence of repetition, if AUC, RUSM, or RUSVM fail to maintain administrative capability as defined by ED while under provisional status or otherwise fail to comply with ED requirements, the institution(s) could lose eligibility to participate in Title IV programs or have that eligibility adversely conditioned, which could have a material adverse effect on the businesses, financial condition, results of operations, and cash flows. OnOctober 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 theMulti-Regional andForeign School Participation Division of the Federal Student Aid office of theDepartment 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, thatDeVry University's participation in Title IV programs is subject to provisional certification for five years and thatDeVry University is required to post a letter of credit equal to the greater of 10% ofDeVry 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 ofDeVry University and reduces Adtalem's borrowing capacity dollar-for-dollar under its Credit Facility (as defined in Note 13 "Debt" to the Consolidated Financial Statements).Walden must apply periodically to ED for continued certification to participate in Title IV programs. Such recertification generally is required every six years, but may be required earlier, including when an institution undergoes a change in control. ED may place an institution on provisional certification status if it finds that the institution does not fully satisfy all of the eligibility and certification standards and in certain other circumstances, such as when an institution is certified for the first time or undergoes a change in control. During the period of provisional certification, the institution must comply with any additional conditions included in the institution's program participation agreement. In addition, ED may more closely review an institution that is provisionally certified if it applies for recertification or approval to open a new location, add an educational program, acquire another institution or make any other significant change. Students attending provisionally certified institutions remain eligible to receive Title IV program funds. If ED determines that a provisionally certified institution is unable to meet its responsibilities under its program participation agreement, it may seek to revoke the institution's certification to participate in Title IV programs without advance notice or opportunity for the institution to challenge the action.Walden University is currently on a temporary provisional program participation agreement which is required for participation in Title IV programs on a month-to-month basis.Walden's provisional certification prior to acquisition was due toWalden's prior parent company (Laureate Education Inc.) failing composite score under ED's financial responsibility standards and ED's approval of Laureate's initial public offering inFebruary 2017 , which it viewed as a change in control. As a result of Adtalem's acquisition ofWalden , the provisional nature ofWalden's program participation agreement remains in effect on a month-to-month basis while ED reviews the change in ownership application relating to the acquisition ofWalden by Adtalem.Walden also is subject to a letter of credit and is subject to additional cash management requirements with respect to its disbursements of Title IV funds, as well as certain additional reporting and disclosure requirements. As ofSeptember 30, 2021 , Adtalem maintains a letter of credit for$83.6 million in favor of ED, which allowsWalden to participate in Title IV programs. This letter of credit, which was assumed in the Acquisition, reduces Adtalem's borrowing capacity dollar-for-dollar under its Credit Facility (as defined in Note 13 "Debt" to the Consolidated Financial Statements). We are required by various states to post a surety bond. The bonds reflect a financial guarantee of the total amount of non-Title IV adjusted gross tuition and fees from the enrollment of students. Restricted cash of$18.4 million related to these surety bonds was recorded within restricted cash on the Consolidated Balance Sheet as ofSeptember 30, 2021 . An ED regulation known as the "90/10 Rule" affects only proprietary postsecondary institutions, such as Chamberlain,Walden , 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 Rescue Act enacted onMarch 11, 2021 amended the 90/10 rule to require that a proprietary institution derive no more than 90% of its revenue from federal education assistance funds, including but not limited to previously excludedU.S. Department of Veterans Affairs and military tuition assistance benefits. This change is subject to negotiated rulemaking, which will not begin prior toJanuary 2022 . The amended rule will first apply to institutional fiscal years beginning on or afterJanuary 1, 2023 . The following table details the percentage of revenue on a cash basis from federal financial assistance programs (excluding theU.S. Department of Veterans Affairs 52
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and military tuition assistance benefits) for each of Adtalem's Title IV-eligible institutions for fiscal years 2020 and 2019. Final data for fiscal year 2021 is not yet available.
Fiscal Year
2020 2019
Chamberlain University 62 % 62 %
85 % 83 %
Ross University School of Veterinary Medicine 84 % 83 %
Fiscal year data for Walden is not available as they previously reported on a
calendar year basis. As reported by Laureate Education, Inc. in their February
2021 Annual Report on Form 10-K, Walden derived approximately 76% of its
revenues (calculated on a cash basis) from Title IV program funds for the year
ended December 31, 2020 .
In September 2016 , Adtalem committed to voluntarily limit to 85% the amount of
revenue that each of its 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 reports that have
been made publicly available, Adtalem's institutions that were owned at each
reporting date have met this lower threshold for each fiscal year since the
commitment was made. 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.
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 institutions 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, an institution
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 institution 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. Changes to the manner in which the composite score is calculated
that were effective on July 1, 2020 has negatively affected Adtalem's composite
score for fiscal year 2021 and will continue to negatively affect future Adtalem
scores. At this time, management does not believe these changes by themselves
will result in the score falling below 1.5. However, as a result of the
acquisition of Walden and the related transactions, Adtalem expects its
consolidated composite score to fall below 1.5 for its fiscal year 2022
financial responsibility test. If Adtalem becomes unable to meet requisite
financial responsibility standards within the regulations, management believes
it will be able to otherwise demonstrate its ability to continue to provide
educational services; however, our institutions could still be subject to
additional state regulatory approvals, heightened cash monitoring, or be
required to post a letter of credit to continue to participate in federal and
state financial assistance programs.
Liquidity and Capital Resources
Adtalem's consolidated cash and cash equivalents balance of$360.1 million ,$494.6 million , and$561.2 million as ofSeptember 30, 2021 ,June 30, 2021 , andSeptember 30, 2020 , respectively, included cash and cash equivalents held at Adtalem's international operations of$73.7 million ,$127.2 million , and$82.0 million as ofSeptember 30, 2021 ,June 30, 2021 , andSeptember 30, 2020 , respectively, which is available to Adtalem for general corporate purposes.
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
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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$1.8 million ,$0.4 million , and$0.9 million was held in restricted bank accounts as ofSeptember 30, 2021 ,June 30, 2021 , andSeptember 30, 2020 , respectively. In addition, restricted cash of$18.4 million related to the surety bonds discussed above was recorded within restricted cash on the Consolidated Balance Sheet as ofSeptember 30, 2021 . Finally,$818.6 million was recorded within restricted cash on the Consolidated Balance Sheet as ofJune 30, 2021 , which represents cash held in an escrow account designated to fund the Acquisition and was not available to Adtalem for general corporate purposes (see Note 13 "Debt" to the Consolidated Financial Statements for additional information). Cash Flow Summary Operating Activities The following table provides a summary of cash flows from operating activities (in thousands): Three Months EndedSeptember 30, 2021 2020
(Loss) income from continuing operations$ (40,634) $
27,446
Non-cash items 66,534
37,565
Changes in assets and liabilities 15,016
19,643
Net cash provided by operating activities-continuing operations$ 40,916 $
84,654
Net cash provided by operating activities from continuing operations in the three months endedSeptember 30, 2021 was$40.9 million compared to$84.7 million in the year-ago period. The decrease was driven by increased interest payments and payments for business acquisition and integration expenses related to theWalden acquisition. The increase of$29.0 million in non-cash items between the three months endedSeptember 30, 2021 and the three months endedSeptember 30, 2020 was principally driven by increases inWalden intangible amortization expense, amortization of deferred financing fees, and stock-based compensation expense related to the CEO transition. The decrease of$4.6 million in cash generated from changes in assets and liabilities was primarily due to changes in accounts receivable, prepaid expenses, prepaid income taxes, accounts payable, accrued payroll and related taxes, accrued liabilities, accrued income taxes, accrued interest, and deferred revenue.
Investing Activities
Capital expenditures in the first three months of fiscal year 2022 and 2021 were$7.3 million and$14.4 million , respectively. The capital expenditures in fiscal year 2022 primarily consisted of spending for Chamberlain new campus development and improvements. Capital spending for the remainder of fiscal year 2022 will support continued investment for new campus development at Chamberlain, maintenance at the medical and veterinary schools, and Adtalem's home office. Management anticipates full fiscal year 2022 capital spending to be in the$75 to$85 million range, including$7.3 million spent during the first three months of fiscal year 2022. The source of funds for this capital spending will be from operations or the Credit Facility (as defined and discussed in Note 13 "Debt" to the Consolidated Financial Statements).
Financing Activities
The following table provides a summary of cash flows from financing activities
(in thousands):
Three Months Ended
September 30,
2021 2020
Net proceeds from (repayments of) long-term debt
(750)
Payment of debt discount and issuance costs (49,553)
-
Other 5,571
(3,835)
Net cash provided by (used in) financing activities-continuing operations$ 515,018 $
(4,585)
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On November 8, 2018 , we announced that the Board authorized Adtalem's eleventh
share repurchase program, which allowed Adtalem to repurchase up to $300 million
of its common stock through December 31, 2021 . The eleventh share repurchase
program commenced in January 2019 and was completed in January 2021 . On February
4, 2020 , we announced that the Board authorized Adtalem's twelfth share
repurchase program, which allows Adtalem to repurchase up to $300 million of its
common stock through December 31, 2021 . The twelfth and current share repurchase
program commenced in January 2021 . Repurchases were suspended in May 2021 after
achieving management's target of $100 million in repurchases for fiscal year
2021. We did not make any share repurchases during the three months ended
September 30, 2021 and 2020. As of September 30, 2021 , $245.2 million of
authorized share repurchases were remaining under the current share repurchase
program. The timing and amount of any future repurchases will be determined
based on an evaluation of market conditions and other factors. See Note 15
"Share Repurchases" to the Consolidated Financial Statements for additional
information on our share repurchase programs.
On March 24, 2020 , we executed a pay-fixed, receive-variable interest rate swap
agreement (the "Swap") with a multinational financial institution to mitigate
risks associated with the variable interest rate on our Prior Term Loan B (as
defined in Note 13 "Debt" to the Consolidated Financial Statements) debt. We
paid interest at a fixed rate of 0.946% and received variable interest of
one-month LIBOR (subject to a minimum of 0.00%), on a notional amount equal to
the amount outstanding under the Prior Term Loan B. The effective date of the
Swap was March 31, 2020 and settlements with the counterparty occurred on a
monthly basis. The Swap was set to terminate on February 28, 2025 . During the
operating term of the Swap, the annual interest rate on the amount of the Prior
Term B Loan is fixed at 3.946% (including the impact of our current 3% interest
rate margin on LIBOR loans) for the applicable interest rate period. The Swap
was designated as a cash flow hedge and as such, changes in its fair value are
recognized in accumulated other comprehensive loss on the Consolidated Balance
Sheet and are reclassified into the Consolidated Statements of Income (Loss)
within interest expense in the periods in which the hedged transactions affect
earnings. On July 29, 2021 , prior to refinancing our Prior Credit Agreement (as
discussed below), we settled and terminated the Swap for $4.5 million , which
resulted in a charge to interest expense for this amount in the first quarter of
fiscal year 2022.
As discussed in the previous section of this MD&A titled "Walden University
Acquisition," on August 12, 2021 , Adtalem acquired all of the issued and
outstanding equity interest in Walden , in exchange for a purchase price of $1.48
billion in cash, subject to certain adjustments set forth in the Agreement. On
March 1, 2021 , we issued $800 million aggregate principal amount of 5.50% Senior
Secured Notes due 2028 (the "Notes"), which mature on March 1, 2028 . On August
12, 2021 , Adtalem replaced the Prior Credit Facility and Prior Credit Agreement
(as defined in Note 13 "Debt" to the Consolidated Financial Statements) by
entering into its new credit agreement (the "Credit Agreement") that provides
for (1) a $850 million senior secured term loan ("Term Loan B") with a maturity
date of August 12, 2028 and (2) a $400 million senior secured revolving loan
facility ("Revolver") with a maturity date of August 12, 2026 . We refer to the
Term Loan B and Revolver collectively as the "Credit Facility." The proceeds of
the Notes and the Term Loan B were used, among other things, to finance the
Acquisition, refinance Adtalem's Prior Credit Agreement, and pay fees and
expenses related to the Acquisition. The Revolver will be used to finance
ongoing working capital and for general corporate purposes. As of September 30,
2021 , the amount of debt outstanding under the Notes and Credit Facility was
$1,650.0 million . See Note 13 "Debt" to the Consolidated Financial Statements
for additional information on the Notes and our Credit Agreement.
Management currently projects that COVID-19 will continue to have an effect on
operations and, as a result, liquidity, as discussed in the previous section of
this MD&A titled "Overview of the Impact of COVID-19"; however, we believe the
current balances of cash, cash generated from operations, and our Credit
Facility will be sufficient to fund both Adtalem's current domestic and
international operations and growth plans for the foreseeable future.
Material Cash Requirements
Long-Term Debt - We have issued$800 million of Notes and maintain a$1,250 million credit facility, which requires principal and interest payments. As ofSeptember 30, 2021 , the amount of debt outstanding under the Notes and our Credit Facility was$1,650.0 million . See Note 13 "Debt" to the Consolidated Financial Statements for additional information on our Credit Agreement.
Operating Lease Obligations - We have operating lease obligations for the minimum payments required under various lease agreements which are recorded on the Consolidated Balance Sheet. In addition, we sublease certain space to third
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parties, which partially offsets the lease obligations at these facilities. See Note 11 "Leases" to the Consolidated Financial Statements for additional information on our lease agreements.
Seasonality
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.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates as disclosed in our 2021 Form 10-K.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 "Summary of Significant Accounting Policies" to the Consolidated Financial Statements.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact, which includes statements regarding the future impact of the COVID-19 pandemic, and the efficacy and distribution of the vaccines. Forward-looking statements can also be identified by words such as "future," "believe," "expect," "anticipate," "estimate," "plan," "intend," "may," "will," "would," "could," "can," "continue," "preliminary," "range," and similar terms. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include the risk factors described in Item 1A. "Risk Factors" of our 2021 Form 10-K and this Quarterly Report on Form 10-Q, which should be read in conjunction with the forward-looking statements in this Quarterly Report on Form 10-Q. These forward-looking statements are based on information available to us as of the date any such statements are made, and we do not undertake any obligation to update any forward-looking statement, except as required by law.
Non-GAAP Financial Measures and Reconciliations
We believe that certain non-GAAP financial measures provide investors with useful supplemental information regarding the underlying business trends and performance of Adtalem's ongoing operations and are useful for period-over-period comparisons. We use these supplemental non-GAAP financial measures internally in our assessment of performance and budgeting process. However, these non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The following are non-GAAP financial measures used in this Quarterly Report on Form 10-Q: Net income from continuing operations attributable to Adtalem excluding special items (most comparable GAAP measure: net (loss) income attributable to Adtalem) - Measure of Adtalem's net (loss) income attributable to Adtalem adjusted for deferred revenue adjustment, CEO transition costs, restructuring expense, business acquisition and integration expense,Walden intangible amortization expense, pre-acquisition interest expense, and loss from discontinued operations. Earnings per share from continuing operations excluding special items (most comparable GAAP measure: (loss) earnings per share) - Measure of Adtalem's diluted (loss) earnings per share adjusted for deferred revenue adjustment, CEO transition costs, restructuring expense, business acquisition and integration expense,Walden intangible amortization expense, pre-acquisition interest expense, and loss from discontinued operations.
Operating income excluding special items (most comparable GAAP measure: operating (loss) income) - Measure of Adtalem's operating (loss) income adjusted for deferred revenue adjustment, CEO transition costs, restructuring expense,
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business acquisition and integration expense, and Walden intangible amortization
expense. This measure is applied on a consolidated and segment basis, depending
on the context of the discussion.
A description of special items in our non-GAAP financial measures described above are as follows:
? Deferred revenue adjustment related to a revenue purchase accounting adjustment
to record
? CEO transition costs related to acceleration of stock-based compensation
expense.
Restructuring charges primarily related to plans to achieve synergies with the
?
ACAMS.
? Business acquisition and integration expense include expenses related to the
?
? Pre-acquisition interest expense related to financing arrangements in
connection with the
? Loss from discontinued operations includes costs related to
The following tables provide a reconciliation from the most directly comparable GAAP measure to these non-GAAP financial measures. The operating income reconciliation is included in the results of operations section within this MD&A.
Net (loss) income attributable to Adtalem reconciliation to net income from
continuing operations attributable to Adtalem excluding special items (in
thousands):
Three Months Ended
September 30,
2021 2020
Net (loss) income attributable to Adtalem (GAAP) $ (58,004) $ 19,930
Deferred revenue adjustment 6,207 -
CEO transition costs 6,195 -
Restructuring expense 3,916 4,223
Business acquisition and integration expense 26,553 13,436
Walden intangible amortization expense 16,451
-
Pre-acquisition interest expense 31,634
-
Income tax impact on non-GAAP adjustments (1) (19,064)
(3,998)
Loss from discontinued operations 17,370
7,607
Net income from continuing operations attributable to Adtalem excluding special items (non-GAAP)
$ 31,258 $
41,198
(1) Represents the income tax impact of non-GAAP continuing operations
adjustments that is recognized in our GAAP financial statements.
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(Loss) earnings per share reconciliation to earnings per share from continuing operations excluding special items (shares in thousands):
Three Months Ended
September 30,
2021 2020(Loss) earnings per share, diluted (GAAP)$ (1.17) $
0.38
Effect on diluted earnings per share: Deferred revenue adjustment 0.12 - CEO transition costs 0.12 - Restructuring expense 0.08 0.08
Business acquisition and integration expense 0.53
0.25
Walden intangible amortization expense 0.33
-
Pre-acquisition interest expense 0.63
-
Income tax impact on non-GAAP adjustments (1) (0.38)
(0.08)
Loss from discontinued operations 0.35
0.14
Earnings per share from continuing operations excluding special items, diluted (non-GAAP)$ 0.62 $
0.78
Diluted shares used in non-GAAP EPS calculation 50,222
52,797
(1) Represents the income tax impact of non-GAAP continuing operations
adjustments that is recognized in our GAAP financial statements.
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