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 preceding Part I of this Annual Report on
Form 10-K 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 in Item 8. "Financial Statements and Supplementary Data"
and the notes thereto but not presented in accordance with U.S. generally
49
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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 in Item 8. "Financial Statements and Supplementary Data" and the
notes thereto.
The following discussion is on the comparison between fiscal year 2020 and
fiscal year 2021 results. For a discussion on the comparison between fiscal year
2019 and fiscal year 2020 results, see the MD&A included in Adtalem's Annual
Report on Form 10-K for the fiscal year ended June 30, 2020 , as filed withtheSEC . Segments As ofSeptember 30, 2019 , Adtalem eliminated its Business and Law reportable segment when Adtalem Education ofBrazil ("Adtalem Brazil") was classified as discontinued operations and assets held for sale. In addition to the sale of Adtalem Brazil, which was completed onApril 24, 2020 , during the second quarter of fiscal year 2019, Adtalem divestedCarrington College ("Carrington") andDeVry University . In accordance with GAAP, we have classified the AdtalemBrazil , Carrington, andDeVry University entities as "Assets 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 Annual Report on Form 10-K exclude Adtalem Brazil, Carrington, andDeVry University operations, unless otherwise noted. See Note 4 "Discontinued Operations and Assets Held for Sale" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional discontinued operations information.
We present two reportable segments as follows:
Medical and Healthcare - Offers degree and non-degree programs in the medical and healthcare postsecondary education industry. This segment includes the operations ofChamberlain University ("Chamberlain"),American University of theCaribbean School of Medicine ("AUC"),Ross University School of Medicine ("RUSM"), andRoss University School of Veterinary Medicine ("RUSVM"). AUC, RUSM, and RUSVM 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 21 "Segment Information" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data."
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 (together with e-Learning, "Walden"), 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." Refer to the Form 8-K filed with theSEC onAugust 12, 2021 and Note 22 "Subsequent Event" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on the Acquisition. 50 Table of Contents Fiscal Year 2021 Highlights
Financial and operational highlights for fiscal year 2021 include:
Adtalem revenue grew
? the prior year. Both the Medical and Healthcare and Financial Services segments
saw increased revenue.
Net income attributable to Adtalem was
per share) in fiscal year 2021 compared to net loss attributable to Adtalem of
of
settlement loss of
"Commitments and Contingencies" to the Consolidated Financial Statements in
Item 8. "Financial Statements and Supplementary Data"), partially offset by a
pre-tax gain of
deal-contingent foreign currency hedge arrangement entered into in connection
? with the sale of Adtalem Brazil completed on
hedge the Brazilian Real denominated purchase price through mitigation of the
currency exchange rate risk, and
integration expense and
recorded in fiscal year 2021. Net income from continuing operations
attributable to Adtalem excluding special items of
diluted earnings per share) increased
24.4%, in fiscal year 2021 compared to the prior year. This increase was driven
by revenue growth at Chamberlain, AUC, RUSVM, and OCL, which resulted in
improved operating income for these businesses. The increase was partially
offset by a revenue decrease at RUSM and increased costs for sales, marketing,
and employee benefits, which resulted in lower operating income.
For the
? increased 3.6% and 4.6%, respectively, compared to the same session last year.
Chamberlain continues to invest in its programs, student services, and campus
locations.
? For the
increased 12.3% compared to the same semester last year.
? ACAMS memberships have increased to more than 83,000 as of
compared to more than 81,000 as of
OCL experienced strong revenue growth in its mortgage loan officer training and
? continuing education business, attributable to increased demand in the current
strong mortgage market.
Adtalem repurchased a total of 2,929,906 shares of Adtalem's common stock under
its share repurchase programs at an average cost of
fiscal year 2021. Repurchases were suspended on
economic uncertainty caused by COVID-19 pandemic. In
? resumed repurchases under its share repurchase programs. Repurchases were again
suspended in
repurchases for fiscal year 2021. The timing and amount of any future
repurchases will be determined based on an evaluation of market conditions and
other factors.
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. 51 Table of Contents Results of Operations In fiscal year 2021, COVID-19 resulted in estimated revenue losses of approximately$47 million , operating income losses of approximately$33 million , and loss of earnings per share of approximately$0.50 . In fiscal year 2020, COVID-19 resulted in estimated revenue losses of approximately$29 million , operating income losses of approximately$19 million and loss of earnings per share of approximately$0.28 . Management anticipates further negative COVID-19 effects to consolidated revenue, operating income, net income, and earnings per share in 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 operations and Financial Services customers. We also expect 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 across both segments. COVID-19 effects on fiscal year 2021 and 2020 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 theSeptember 2020 session, students and employees returned to several Chamberlain campuses for limited onsite instruction. COVID-19 did not result in significant revenue losses or increased costs at Chamberlain in fiscal year 2021 and 2020. The extent of the impact in 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, most of which have resumed. Chamberlain has clinical partnerships with healthcare facilities across theU.S. , minimizing the risk of suspension of all onsite clinical education experiences. The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") became law onMarch 27, 2020 . It provided funding for higher education, which included emergency grants, known asHigher Education Emergency Relief Fund ("HEERF") I, for studentswho experienced an unexpected expense or hardship as a result of the disruption of campus operations due to COVID-19. InJune 2020 , Chamberlain received a total of$8.0 million in HEERF I grant funding, for which distribution to eligible students commenced onJuly 7, 2020 . The Consolidated Appropriations Act, 2021 (the "Appropriations Act") became law onDecember 27, 2020 . The Appropriations Act includes the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 and is referred to as HEERF II. InFebruary 2021 , Chamberlain was awarded$7.1 million in HEERF II grant funding, all of which was disbursed to students in fiscal year 2021. The American Rescue Plan Act of 2021 (the "Rescue Act") became law onMarch 11, 2021 and authorized additional grant funds for students, known as HEERF III. Chamberlain was allocated$4.6 million in HEERF III grant funds that are dedicated solely to studentswho meet the institution's eligibility criteria and which were disbursed to students inJuly 2021 . HEERF I, II, and III funds have been a one-time emergency student financial aid resource associated with the COVID-19 pandemic and recovery, and thus are not anticipated to be renewed in the future. All of the funds received under HEERF I, II, and III were redistributed to eligible studentswho demonstrated exceptional need. As a result, these funds were recorded as zero net revenue in their respective periods and, thus, did not have a significant effect on the results of operations, financial position, or cash flows of Adtalem in fiscal year 2021 and 2020. ?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 leftSt. Maarten andBarbados to continue their studies remotely from other locations. AUC and RUSM were able to provide remote learning and have students remain eligible forU.S. federal financial aid assistance under a waiver provided by theU.S. Secretary of Education that was included in the CARES Act signed into law inMarch 2020 . The waiver was dependent upon the host country's coronavirus state of emergency declaration. The nation ofSt. Maarten lifted their declaration inJune 2020 , and as a result, AUC's ability to offer distance education ended after theSeptember 2020 semester, requiring all AUC students to return toSt. Maarten for basic science instruction effectiveJanuary 2021 . A limited number of RUSM students began returning toBarbados in January andMay 2021 with a full return expected for theSeptember 2021 semester. The Appropriations Act was signed into law inDecember 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 theU.S. This section also extends these flexibilities through the end of the qualifying emergency orJune 30, 2022 , whichever is later. The Appropriations Act provides Adtalem's foreign institutions the ability to continue distance education without 52
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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 fiscal year 2021 and 2020, 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, except with respect to housing operations, unless students choose to not continue or start their studies during this time of uncertainty. The extent of the impact in 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. Studentswho have completed their basic science education progress to clinical rotations in theU.S. and theU.K. Clinical rotations for all students were temporarily suspended inMarch 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 theU.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$21 million and$13 million and operating income by approximately$14 million and$10 million in fiscal year 2021 and 2020, respectively. As ofJune 2021 , all clinical partners of AUC and RUSM have resumed their clinical programs; however, 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 fiscal year 2022 and beyond. Adtalem has clinical partnerships with hospitals across theU.S. and theU.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 that housing and student transportation revenue of approximately$13 million and$4 million and operating income losses of approximately$10 million and$2 million in fiscal year 2021 and 2020, respectively, were also lost due to students leaving theSt. Maarten andBarbados campuses to continue basic science studies remotely. ?RUSVM: All basic science veterinary students transitioned to online learning beginning inMarch 2020 . Many students leftSt. Kitts inMarch 2020 to continue their studies remotely from other locations. As ofMay 2021 , all basic 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 fiscal year 2021 and 2020. 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 continues to be able to provide remote learning during the pandemic and have students remain eligible forU.S. federal financial aid assistance under a waiver provided by the CARES Act and the Appropriations Act 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 fiscal year 2021 and 2020. While we do not expect a significant impact from COVID-19 at RUSVM, the extent of the impact on clinical experiences in 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 has been moved to online. No significant COVID-19 related cost increases were realized in Financial Services in fiscal year 2021 and 2020. COVID-19 did result in estimated revenue losses of approximately$12 million and$12 million and operating income losses of approximately$8 million and$5 million in fiscal year 2021 and 2020, respectively, primarily driven by the cancellation of ACAMS live conferences. Fiscal year 2020 lost revenue and operating income was also impacted at Becker from Prometric, a global leader in the provision of technology-enabled testing and assessment solutions, closing CPA testing sites, along with a number of CPA firms either delaying start dates for, or rescinding altogether, offers of employment to recent college graduates. This dampened a key driver of demand in the fourth quarter of fiscal year 2020, which is normally a time of robust demand because of the influx of new college graduates looking to begin their CPA exam preparation. ACAMS live conference revenue is not expected to return to pre-pandemic levels until COVID-19 restrictions are fully lifted and customer apprehension dissipates. COVID-19 is expected to negatively impact Financial Services revenue and operating income in fiscal year 2022 and beyond driven by lower ACAMS live conference revenue and possible weakness in demand at Becker, primarily with CPA firm customers. Virtual conferences were conducted in late fiscal year 2020 and throughout fiscal year 2021, and additional conference revenue could be replaced 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. Loss of 53
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conference revenue is likely in fiscal year 2022 as ACAMS has only recently been able to offer a limited number of live conferences, mostly overseas. Large live and hybrid conferences in theU.S. are not expected to resume until possiblySeptember 2021 , and management expects any such events will not initially generate pre-pandemic levels of revenue. 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 fiscal year 2021 and 2020, and no such costs are anticipated in fiscal year 2022 and beyond. Although COVID-19 has had a negative effect on the operating results of all four reporting units that contain goodwill and indefinite-lived intangible assets as ofJune 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 in 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 ofJune 30, 2021 , was$494.6 million . Adtalem generated$223.2 million in operating cash flow from continuing operations in fiscal year 2021. In the event of 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 maintained a$300 million revolving credit facility with availability of$231.6 million as ofJune 30, 2021 . As ofAugust 12, 2021 , Adtalem now maintains a$400 million revolving credit facility (as discussed in Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." 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 New Credit Facility (as defined and discussed in Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data") 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." 54 Table of Contents Results of Operations
The following table presents selected Consolidated Statements of Income (Loss) data as a percentage of revenue:
Year Ended June 30,
2021 2020 2019
Revenue 100.0 % 100.0 % 100.0 %
Cost of educational services 44.0 % 46.6 % 46.5 %Student services and administrative expense 37.8 % 37.6 % 35.4 % Restructuring expense 0.9 % 2.7 % 5.2 % Business acquisition and integration expense 2.8 % 0.0 %
0.0 %
Gain on sale of assets 0.0 % (0.5) % 0.0 %
Settlement gains 0.0 % 0.0 % (2.6) %Total operating cost and expense 85.5 % 86.5 %
84.6 % Operating income 14.5 % 13.5 % 15.4 % Net other (expense) income (3.1) % 9.0 % (1.6) % Income from continuing operations before income taxes 11.4 % 22.5 % 13.8 % (Provision for) benefit from income taxes (2.3) % 0.6 % (3.2) % Income from continuing operations 9.1 % 23.1 % 10.5 % Loss from discontinued operations, net of tax (2.3) % (31.3) % (1.1) % Net income (loss) 6.9 % (8.2) % 9.4 % Net loss (income) attributable to redeemable noncontrolling interest 0.0 % 0.0 % (0.0) % Net income (loss) attributable to Adtalem 6.9 % (8.1) %
9.4 %
Revenue
The following table presents revenue by segment detailing the changes from the
prior year (in thousands):
Year Ended June 30, 2021
Medical and Financial
Healthcare Services Consolidated
Fiscal year 2020 as reported $ 866,428 $ 185,573 $ 1,052,001
Organic growth 40,473 19,906 60,379
Fiscal year 2021 as reported $ 906,901 $ 205,479 $ 1,112,380
Fiscal year 2021 % change:
Organic growth 4.7 % 10.7 % 5.7 %
Medical and Healthcare
Revenue in the Medical and Healthcare segment increased 4.7%, or $40.5 million ,
to $906.9 million in fiscal year 2021 compared to the prior year. The increase
in revenue in fiscal year 2021 is driven primarily by student enrollment
increases at Chamberlain. This increase was partially offset by an estimated
loss of approximately $13 million in housing and student transportation revenue
in fiscal year 2021 (compared to $4 million in fiscal year 2020), primarily at
RUSM as basic science students were not on campus for the full year due to
COVID-19 remote learning. COVID-19 related clinical revenue losses at AUC and
RUSM were approximately $21 million in fiscal year 2021 (compared to $13 million
in fiscal year 2020) driven by limitations at partner hospitals, which although
not as severe as earlier in the pandemic, were reinstituted when COVID-19 cases
surged across the U.S. during the winter in fiscal year 2021.
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Chamberlain
Chamberlain Student Enrollment:
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 %
Fiscal Year 2020
Session July 2019 Sept. 2019 Nov. 2019 Jan. 2020 Mar. 2020 May 2020
New students 2,396 5,595 2,711 5,293 3,073 4,213% change from prior year (5.0) % 2.9 % 3.6 % 11.2 % 12.7 % 5.4 % Total students 28,691 31,736 31,215 33,850 33,748 33,407 % change from prior year 2.3 % 1.4 % 1.2 %
4.6 % 5.1 % 8.2 %
Chamberlain revenue increased 10.2%, or$52.2 million , to$563.8 million in fiscal year 2021 compared to the prior year, driven by increases in total student enrollment during each of the fiscal year 2021 enrollment sessions compared to the same session from the prior year as well as select tuition and fee price increases. 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 increases. Chamberlain admitted its largest class of campus students inSeptember 2020 .
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 books, supplies, transportation, or
living expenses.
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Medical and Veterinary Schools
Medical and Veterinary Schools Student Enrollment:
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) %
Fiscal Year 2020
Semester Sept. 2019 Jan. 2020 May 2020
New students 872 486 544
% change from prior year (1.9) % 3.2 % 9.7 %
Total students 5,608 5,643 5,186
% change from prior year (4.7) % 1.7 % (0.7) %
The medical and veterinary schools' revenue decreased 3.3%, or $11.7 million , to
$343.1 million in fiscal year 2021 compared to the prior year. The principal
drivers of the decrease were an estimated loss of approximately $13 million in
fiscal year 2021 in housing and student transportation revenue (compared to $4
million in fiscal year 2020), primarily at RUSM as basic science students were
not on campus for the full year due to COVID-19 remote learning. COVID-19
related clinical revenue losses at AUC and RUSM were approximately $21 million
in fiscal year 2021 (compared to $13 million in fiscal year 2020) driven by
limitations at partner hospitals, which although not as severe as earlier in the
pandemic, were reinstituted when COVID-19 cases surged across the U.S. during
the winter in fiscal year 2021. These decreases were partially offset with
student enrollment increases in the basic science programs at AUC and RUSVM.
In the May 2021 semester, total student enrollment increased at AUC and RUSVM
but declined at RUSM while new student enrollment increased at AUC and RUSM but
declined slightly at RUSVM. In the January 2021 semester, total student
enrollment increased at AUC and RUSVM but declined at RUSM while new student
enrollment increased at RUSM and RUSVM but declined slightly at AUC. The
declines in total student enrollment at RUSM for the January 2021 and May 2021
semesters were partially driven by the inability to offer clinical experiences
to all eligible students caused by the COVID-19 restrictions at partner
hospitals and partially driven by an increase in students waiting to pass their
USMLE Step 1 exam. In previous semesters during the COVID-19 pandemic, students
were able to supplement their clinical experience with elective online courses;
however, these electives are limited and most were completed. 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. In the September
2020 semester, total student enrollment increased at AUC, RUSM, and RUSVM while
new student enrollment increased at AUC and RUSM but slightly declined at RUSVM
due to the large cohort of May 2020 Vet Prep students progressing to September
2020 , which was at maximum enrollment capacity. 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.
In September 2019 , AUC opened its medical education program in the U.K. in
partnership with UCLAN. The program offers students a Post Graduate Diploma in
International Medical Sciences from UCLAN, followed by their Doctor of Medicine
degree from AUC. Students are 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").
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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 are unchanged 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 are unchanged 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
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 10.7%, or$19.9 million , to$205.5 million in fiscal year 2021 compared to the prior year. The principal driver of this increase was increased revenue at OCL, ACAMS, and Becker. At OCL, the revenue increase was driven by the mortgage loan officer training and continuing education business, attributable to increased demand in the current strong mortgage market. At ACAMS, lost conference revenue was offset by increases in certification and risk assessment revenue. ACAMS lost conference revenue of approximately$12 million in fiscal year 2021 (compared to$7 million in fiscal year 2020) from live conferences moving to a virtual format in response to COVID-19 restrictions. ACAMS memberships have increased to more than 83,000 as ofJune 30, 2021 compared to more than 81,000 as ofJune 30, 2020 , driven by strong growth in the European region. At Becker, the revenue increase was driven by growth in its continuing education product line and entry into the Certified Management Accountant exam preparation market.
Cost of Educational Services
The largest component of cost of educational services is the cost of faculty and staffwho support educational operations. This expense category also includes the costs of facilities, adjunct faculty, supplies, housing, bookstore, other educational materials, student education-related support activities, and the provision for bad debts. The following table presents cost of educational services by segment detailing the changes from the prior year (in thousands): Year Ended June 30, 2021 Medical and Financial Home Office Healthcare Services and Other Consolidated
Fiscal year 2020 as reported
662 (1,561) 78 (821)
Fiscal year 2021 as reported$ 455,785 $ 31,328 $ 2,120 $ 489,233 Fiscal year 2021 % change: Cost increase (decrease) 0.1 % (4.7) % NM (0.2) % Cost of educational services decreased 0.2%, or$0.8 million , to$489.2 million in fiscal year 2021 compared to the prior year. Cost decreased in fiscal year 2021 primarily driven by decreased bad debt expense of$4.6 million primarily related to the credit extension programs at the medical and veterinary schools, cost control initiatives across all institutions, and lower costs of approximately$14 million in fiscal year 2021 (compared to$10 million in fiscal year 2020) associated with campus closure, reduced clinical rotations, lower services, including housing services, and ACAMS live conferences, due to the COVID-19 related revenue losses as noted above. These decreases were partially offset by increased costs at Chamberlain and the basic science programs at the medical and veterinary schools to support growth. 58
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As a percentage of revenue, cost of educational services was 44.0% in fiscal year 2021 compared to 46.6% in the prior year. The decrease in the percentage was primarily the result cost control and leveraging our infrastructure in both Medical and Healthcare and Financial Services, as well as decreased bad debt expense related to the credit extension programs at the medical and veterinary schools.
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 business acquisitions. The following table presents
student services and administrative expense by segment detailing the changes
from the prior year (in thousands):
Year Ended June 30, 2021
Medical and Financial Home Office
Healthcare Services and Other Consolidated
Fiscal year 2020 as reported $ 243,560 $ 130,221 $ 22,057 $ 395,838
Cost increase 10,854 12,524 1,051 24,429
Fiscal year 2021 as reported $ 254,414 $ 142,745 $ 23,108 $ 420,267
Fiscal year 2021 % change:
Cost increase 4.5 % 9.6 % NM 6.2 %
Student services and administrative expense increased 6.2%, or $24.4 million , to
$420.3 million in fiscal year 2021 compared to the prior year. Expense increased
primarily due to increased sales and marketing expense of $17.9 million in
fiscal year 2021 to support continued growth, and an increase in employee
benefit costs of $7.9 million . These increased costs were partially offset with
cost control initiatives across all institutions.
As a percentage of revenue, student services and administrative expense was 37.8% in fiscal year 2021 compared to 37.6% in the prior year.
Restructuring Expense
Restructuring expense in fiscal year 2021 was$9.8 million compared to$28.6 million in fiscal year 2020. The primary driver of the decreased restructure expense in fiscal year 2021 was the result of the higher amount of charges in fiscal year 2020 related to real estate consolidations at Adtalem's home office and the sale of Becker's courses for healthcare students. See Note 6 "Restructuring Charges" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on restructuring charges. We have completed our current restructuring plans. However, we continue to incur restructuring charges or reversals related to exiting leased space from previous restructuring activities. Management may institute future restructuring plans.
Business Acquisition and Integration Expense
Business acquisition and integration expense in fiscal year 2021 was$31.6 million . These are transaction costs associated with entering into the Agreement to acquireWalden and costs associated with integratingWalden into Adtalem. We expect to incur additional integration costs in fiscal year 2022. There was no corresponding expense in fiscal year 2020.
Gain on Sale of Assets
OnSeptember 27, 2019 , Adtalem closed on the sale of itsColumbus, Ohio , campus facility. Net proceeds of$6.4 million from the sale of this facility resulted in a gain on the sale of$4.8 million in fiscal year 2020. This gain was recorded at Adtalem's home office, which is classified as "Home Office and Other" in Note 21 "Segment Information" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." There was no corresponding gain in fiscal year 2021. 59 Table of Contents Operating Income
The following table presents operating income by segment detailing the changes from the prior year (in thousands):
Year Ended June 30, 2021
Medical and Financial Home Office
Healthcare Services and Other Consolidated
Fiscal year 2020 as reported $ 166,037 $ 17,622 $ (41,399) $ 142,260
Organic change 28,959 8,941 (1,129) 36,771
Restructuring expense change 1,707 1,798 15,319 18,824
Business acquisition and integration
expense change - - (31,593) (31,593)
Gain on sale of assets change - - (4,779) (4,779)
Fiscal year 2021 as reported $ 196,703 $ 28,361 $
(63,581)
The following table presents a reconciliation of operating income (GAAP) to
operating income excluding special items (non-GAAP) by segment (in thousands):
Year Ended June 30,
Increase
2021 2020 (Decrease)
Medical and Healthcare:
Operating income (GAAP) $ 196,703 $ 166,037 18.5 %
Restructuring expense - 1,707
Operating income excluding special items
(non-GAAP) $ 196,703 $ 167,744 17.3 %
Financial Services:
Operating income (GAAP) $ 28,361 $ 17,622 60.9 %
Restructuring expense 3,044 4,842
Operating income excluding special items
(non-GAAP) $ 31,405 $ 22,464 39.8 %
Home Office and Other:
Operating loss (GAAP) $ (63,581) $ (41,399) (53.6) %
Restructuring expense 6,760 22,079
Business acquisition and integration expense 31,593 -
Gain on sale of assets - (4,779)
Operating loss excluding special items
(non-GAAP) $ (25,228) $ (24,099) (4.7) %
Adtalem Global Education :
Operating income (GAAP) $ 161,483 $ 142,260 13.5 %
Restructuring expense 9,804 28,628
Business acquisition and integration expense 31,593 -
Gain on sale of assets - (4,779)
Operating income excluding special items
(non-GAAP) $ 202,880 $ 166,109 22.1 %
Total consolidated operating income increased 13.5%, or$19.2 million , to$161.5 million in fiscal year 2021 compared to the prior year. Consolidated operating income excluding special items increased 22.1%, or$36.8 million , to$202.9 million in fiscal year 2021 compared to the prior year. The primary drivers of this increase were an increase in revenue of$60.4 million , primarily at Chamberlain, which generated higher incremental operating income than the lost revenue sources at other institutions due to COVID-19, decreased bad debt expense of$4.6 million , primarily related to the credit extension programs at the medical and veterinary schools, and efforts to manage salary, travel, and discretionary spending across the organization. The positive influences on operating income were partially offset by increased sales and marketing expense of$17.9 million in fiscal year 2021 to support continued growth, and an increase of$7.9 million in employee benefit costs. In addition, the effects of COVID-19 reduced operating income in fiscal year 2021 by approximately$33 million (compared to$19 million in fiscal year 2020), primarily driven by the loss of AUC and RUSM clinical revenue, RUSM housing and student transportation revenue, and ACAMS conference revenue.
Medical and Healthcare
Medical and Healthcare segment operating income increased 18.5%, or
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Chamberlain of $52.2 million in fiscal year 2021, which generated higher
incremental operating income than the lost revenue sources due to COVID-19, as
discussed below. In addition, other drivers include decreased bad debt expense
of $3.4 million in fiscal year 2021, primarily related to the credit extension
programs at the medical and veterinary schools, and efforts to manage salary,
travel, and discretionary spending at all institutions. The positive influences
on operating income in fiscal year 2021 were partially offset by increased
marketing expense of $7.6 million in fiscal year 2021 to support continued
growth and increased employee benefit costs of $4.2 million . Estimated COVID-19
related loss of clinical revenue at AUC and RUSM contributed to approximately
$14 million in lost operating income in fiscal year 2021 (compared to $10
million in fiscal year 2020). Lower COVID-19 related housing and student
transportation revenue, primarily at RUSM as described above, resulted in
approximately $10 million in lost operating income in the fiscal year 2021
(compared to $2 million in fiscal year 2020).
Financial Services
Financial Services segment operating income increased 60.9%, or$10.7 million , to$28.4 million in fiscal year 2021 compared to the prior year. Segment operating income excluding special items increased 39.8%, or$8.9 million , in fiscal year 2021 compared to the prior year. The primary driver of this increase was an increase in revenue at OCL, ACAMS, and Becker, which resulted in improved operating income. This increase was partially offset by increased sales and marketing expense of$10.3 million in fiscal year 2021. Conference revenue decreases at ACAMS due to COVID-19, as described above, drove approximately$8 million in lost operating income in fiscal year 2021 (compared to$5 million in fiscal year 2020); however, this decrease was fully offset by improved operating income from other ACAMS operations.
Net Other (Expense) Income
Net other expense in fiscal year 2021 was$34.6 million compared to net other income of$94.9 million in the prior year. The increase in net other expense was primarily the result of a pre-tax gain of$110.7 million in fiscal year 2020 on the deal-contingent foreign currency hedge arrangement entered into onOctober 18, 2019 in connection with the sale of Adtalem Brazil, which was completed onApril 24, 2020 , to economically hedge the Brazilian Real denominated purchase price through mitigation of the currency exchange rate risk (as discussed in Note 4 "Discontinued Operations and Assets Held for Sale" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data"). The derivative associated with the hedge did not qualify for hedge accounting treatment under Accounting Standards Codification ("ASC") 815, and as a result, all changes in fair value were recorded within the income statement. In addition, interest expense increased in fiscal year 2021 driven by$26.7 million in pre-acquisition interest expense, which partially offset our lower interest expense on our current Credit Facility driven by the repayment of debt in the fourth quarter of fiscal year 2020 using the proceeds from the sale of AdtalemBrazil .
(Provision for) Benefit from 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.
The ETR from continuing operations in fiscal year 2021 was positive 19.9%, an
increase from negative 2.7% in fiscal year 2020. This increase is primarily due
to not recording a tax provision on the pre-tax gain of $110.7 million in fiscal
year 2020 on the deal-contingent foreign currency hedge arrangement entered into
in connection with the sale of Adtalem Brazil completed on April 24, 2020 (see
Note 4 "Discontinued Operations and Assets Held for Sale" to the Consolidated
Financial Statements in Item 8. "Financial Statements and Supplementary Data"
for additional information). Also, during fiscal year 2020, a net tax benefit
special item of $25.7 million was recorded related to a former subsidiary
investment loss claimed for the tax year ended June 30, 2018 . Excluding the
one-time effects of the derivative contract and the tax benefit on a former
subsidiary investment loss in fiscal year 2020 (a non-GAAP financial measure),
the ETR from continuing
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operations in fiscal year 2021 and 2020 was 19.9% and 15.3%, respectively. This increase in the fiscal year 2021 rate was driven by a decrease in the percentage of earnings from foreign operations compared to the prior year. 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 enacts new provisions and extends 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 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.
Discontinued Operations
Beginning in the second quarter of fiscal year 2018,DeVry University operations were classified as discontinued operations. Beginning in the fourth quarter of fiscal year 2018, Carrington operations were classified as discontinued operations. Beginning in the first quarter of fiscal year 2020, Adtalem Brazil operations were classified as discontinued operations. The divestitures ofCarrington andDeVry University operations were completed in the second quarter of fiscal year 2019 and the divestiture of Adtalem Brazil operations was completed in the fourth quarter of fiscal year 2020. We continue to incur costs, principally attorney fees, associated with ongoing litigation and settlements related to theDeVry University divestiture which is classified as expense within discontinued operations. Total loss from discontinued operations for the year endedJune 30, 2021 was$25.1 million , which was the result of costs from the ongoing litigation and settlements related to theDeVry University divestiture. Total loss from discontinued operations for the year endedJune 30, 2020 was$329.3 million . This loss consisted of the following: (i) a loss of$62.6 million driven by the operating results of Adtalem Brazil and ongoing litigation costs, settlements, and other divestiture costs related to theDeVry University , Carrington, and Adtalem Brazil divestitures; (ii) a loss on the sale of AdtalemBrazil of$287.6 million , which included a$293.4 million loss recognized from the reclassification of the cumulative foreign currency translation adjustments from other comprehensive income; and (iii) a benefit from income taxes of$20.8 million associated with the items listed above.
Management no longer discloses other discussions of operating results of these entities as comparable results are no longer meaningful.
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.
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The following table, which excludes Adtalem Brazil, Carrington, andDeVry 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 2019Federal 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" 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 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
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dollar-for-dollar under its Credit Facility (as defined in Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data").
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 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 toOctober 1, 2021 . 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 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 %
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 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 at its next 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 heightened cash
monitoring or be required to post a letter of credit to continue to participate
in federal and state financial assistance programs.
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Liquidity and Capital Resources
Adtalem's consolidated cash and cash equivalents balance of$494.6 million and$500.5 million as ofJune 30, 2021 and 2020, respectively, included cash and cash equivalents held at Adtalem's international operations of$127.2 million and$70.1 million as ofJune 30, 2021 and 2020, respectively, which is available to Adtalem for general corporate purposes. Cash balances are currently being maintained to partially fund the proposed Acquisition, as discussed in the previous section "Walden University Acquisition" of this MD&A. 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$0.4 million and$0.6 million was held in restricted bank accounts as ofJune 30, 2021 and 2020, respectively. In addition,$818.6 million is recorded within restricted cash on the Consolidated Balance Sheet as ofJune 30, 2021 , which represents cash held in an escrow account designated to fund the Acquisition and is not available to Adtalem for general corporate purposes (see Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information).
Cash Flow Summary
Operating Activities
The following table provides a summary of cash flows from operating activities
(in thousands):
Year Ended June 30,
2021 2020Income from continuing operations$ 101,602 $
243,537
Non-cash items 129,034
16,204
Changes in assets and liabilities (7,478)
(110,176)
Net cash provided by operating activities-continuing operations$ 223,158 $
149,565
Net cash provided by operating activities from continuing operations in fiscal year 2021 was$223.2 million compared to$149.6 million in the prior year. The increase of$112.8 million in non-cash items between fiscal year 2021 and 2020 was principally driven by the gain of$110.7 million recorded in income from continuing operations in the prior year for the deal-contingent foreign currency hedge arrangement entered into in connection with the sale of Adtalem Brazil completed onApril 24, 2020 to economically hedge the Brazilian Real denominated purchase price through mitigation of the currency exchange rate risk (as discussed in Note 4 "Discontinued Operations and Assets Held for Sale" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data"). The increase of$73.6 million in cash generated from continuing operating activities between fiscal year 2021 and 2020 was primarily due to timing of prepaid expense, accounts payable, accrued expense disbursements, and deferred revenue. This includes changes in prepaid income taxes, accrued payroll taxes and benefits, accounts payable, accrued income taxes, accrued interest, and clinical partner payments.
Investing Activities
Capital expenditures in fiscal year 2021 were$48.7 million compared to$44.1 million in the prior year. The capital expenditures in fiscal year 2021 include spending for Chamberlain new campus development, maintenance, and Adtalem's home office information technology investments. Capital spending for 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 fiscal year 2022 capital spending to be in the$50 to$60 million range, which excludes any capital spending related toWalden . The source of funds for this capital spending will be from operations or the New Credit Facility (as defined and discussed in Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data"). 65 Table of Contents OnSeptember 27, 2019 , Adtalem closed on the sale of itsColumbus, Ohio , campus facility. Net proceeds of$6.4 million from the sale of this facility resulted in a gain on the sale of$4.8 million in fiscal year 2020. This gain was recorded at Adtalem's home office, which is classified as "Home Office and Other" in Note 21 "Segment Information" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." OnApril 24, 2020 , Adtalem completed the sale of Adtalem Brazil to Estácio Participações S.A. ("Estácio") and Sociedade de Ensino Superior Esta?io de Sá Ltda, a wholly owned subsidiary of Estácio ("Purchaser"), pursuant to the Stock Purchase Agreement datedOctober 18, 2019 . Adtalem received$345.9 million in sale proceeds and$56.0 million of Adtalem Brazil's cash, for a combined$401.9 million upon the sale. Adtalem Brazil's cash balance on the sale date was$88.4 million , resulting in$313.5 million of cash proceeds, net of this cash transferred. In addition, Adtalem received$110.7 million from the settlement of the deal-contingent foreign currency hedge arrangement to economically hedge the Brazilian Real denominated purchase price through mitigation of the currency exchange rate risk. Financing Activities The following table provides a summary of cash flows from financing activities (in thousands): Year Ended June 30, 2021 2020 Repurchases of common stock for treasury$ (100,000) $
(136,889)
Net proceeds from (repayments of) long-term debt 797,000
(113,000)
Payment of debt issuance costs (18,047)
-
Payment for purchase of redeemable noncontrolling interest of subsidiary -
(6,247)
Other (2,487)
3,493
Net cash provided by (used in) financing activities-continuing operations$ 676,466 $
(252,643)
OnNovember 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 throughDecember 31, 2021 . The eleventh share repurchase program commenced inJanuary 2019 and was completed inJanuary 2021 . OnFebruary 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 throughDecember 31, 2021 . The twelfth and current share repurchase program commenced inJanuary 2021 . As ofJune 30, 2021 ,$245.2 million of authorized share repurchases were remaining under the current share repurchase program. Repurchases under our share repurchase programs were suspended onMarch 12, 2020 due to the economic uncertainty caused by the COVID-19 pandemic. InNovember 2020 , Adtalem resumed repurchases under its share repurchase programs. Repurchases were again suspended inMay 2021 after achieving management's target of$100 million in repurchases for fiscal year 2021. 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 in Item 8. "Financial Statements and Supplementary Data" for additional information on our share repurchase programs. OnMarch 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 Term B Loan debt. We pay interest at a fixed rate of 0.946% and receive variable interest of one-month LIBOR (subject to a minimum of 0.00%), on a notional amount equal to the amount outstanding under the Term B Loan. The effective date of the Swap wasMarch 31, 2020 and settlements with the counterparty occur on a monthly basis. The Swap was set to terminate onFebruary 28, 2025 . During the operating term of the Swap, the annual interest rate on the amount of the 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 is 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. As ofJune 30, 2021 , the fair value of the Swap recorded within other liabilities was a loss of$8.9 million . OnJuly 29, 2021 , prior to refinancing our 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. 66 Table of Contents
As discussed in the previous section of this MD&A titled "Walden University Acquisition," onAugust 12, 2021 , Adtalem acquired all of the issued and outstanding equity interest inWalden , in exchange for a purchase price of$1.48 billion in cash, subject to certain adjustments set forth in the Agreement. OnMarch 1, 2021 ,Adtalem Escrow Corporation (the "Escrow Issuer"), a wholly-owned subsidiary of Adtalem, issued$800 million aggregate principal amount of 5.50% Senior Secured Notes due 2028 (the "Notes"), which mature onMarch 1, 2028 , pursuant to an indenture, dated as ofMarch 1, 2021 (the "Indenture"), by and between theEscrow Issuer andU.S. Bank National Association , as trustee and notes collateral agent. OnFebruary 12, 2021 , Adtalem placed a$850 million senior secured term loan ("New Term Loan") into the loan market. Funding under the New Term Loan occurred at the same time as the closing of the Acquisition. In addition, Adtalem secured a$400 million senior secured revolving loan facility ("New Revolver") based on the commitment letter (the "Commitment Letter") Adtalem entered into onSeptember 11, 2020 withMorgan Stanley Senior Funding, Inc. ("MSSF"), Barclays Bank PLC ("Barclays"), Credit Suisse AG,Cayman Islands Branch ("CS") andCredit Suisse Loan Funding LLC ("CSLF" and, together with CS and their respective affiliates, "Credit Suisse"), andMUFG Bank, Ltd. (together with MSSF, Barclays and Credit Suisse, the "Commitment Parties"). We refer to the New Revolver and New Term Loan collectively as the "New Credit Facility." The New Credit Facility closed onAugust 12, 2021 . The proceeds of the Notes and the New Credit Facility were used, among other things, to finance the Acquisition, refinance Adtalem's existing credit agreement, and pay fees and expenses related to the Acquisition. The New Revolver will be used to finance ongoing working capital and for general corporate purposes. As ofJune 30, 2021 , the amount of debt outstanding under the then effective credit facility was$291.0 million . See Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on our credit agreement and the financing agreements associated with the Acquisition. 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 New Credit Facility (as defined and discussed in Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data") 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$600 million credit facility, which requires principal and interest payments. As ofJune 30, 2021 , the amount of debt outstanding under our Credit Facility was$291.0 million . See Note 13 "Debt" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on our credit agreement. As discussed in the previous section of this MD&A titled "Liquidity and Capital Resources," onAugust 12, 2021 , an$850 million senior secured term loan was funded to provide funding for the Acquisition and repay the then existing$291.0 million senior secured Term B loan. In addition, onAugust 12, 2021 , Adtalem secured a$400 million senior secured revolving loan facility to replace the then existing$300 million revolving loan facility. 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 parties, which partially offsets the lease obligations at these facilities. See Note 11 "Leases" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on our lease agreements.
Contingencies
For a discussion of legal proceedings, see Note 20 "Commitments and Contingencies" to the Consolidated Financial Statements in Item 8 "Financial Statements and Supplementary Data."
Critical Accounting Estimates
We describe our significant accounting policies in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." 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 the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts
of
revenue
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and expenses during the reporting period. Critical accounting estimates
discussed below are those that we believe involve a significant level of
estimation uncertainty and have had or are reasonably likely to have a material
impact on our financial condition or results of operations. Management has
discussed our critical accounting estimates with the Audit and Finance Committee
of the Board. Although management believes its assumptions and estimates are
reasonable, actual results could differ from those estimates.
Although our current estimates contemplate current conditions, including the
impact of COVID-19, and how we anticipate them to change in the future, as
appropriate, it is reasonably possible that actual conditions could differ from
what was anticipated in those estimates, which could materially affect our
results of operations and financial condition. On March 11, 2020 , the COVID-19
outbreak was declared a pandemic by the World Health Organization , which
recommended containment and mitigation measures worldwide. COVID-19 and the
response of governmental and public health organizations in dealing with the
pandemic included restricting general activity levels within communities, the
economy, and operations of our customers. While we have experienced an impact to
our business, operations, and financial results as a result of the COVID-19
pandemic, it may have even more far-reaching impacts on many aspects of our
operations including the impact on customer behaviors, business operations, our
employees, and the market in general. The extent to which the COVID-19 pandemic
ultimately impacts our business, financial condition, results of operations,
cash flows, and liquidity may differ from management's current estimates due to
inherent uncertainties regarding the duration and further spread of COVID-19,
actions taken to contain the virus, the efficacy and distribution of the
vaccines, as well as, how quickly and to what extent normal economic and
operating conditions can resume.
Credit Losses
The allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in our accounts receivable balances as of each balance sheet date. In evaluating the collectability of all our accounts receivable balances, we utilize historical events, current conditions, and reasonable and supportable forecasts about the future. The estimate of our credit losses involves a significant level of uncertainty as it requires significant judgment to estimate the amount we will collect in the future on our account receivable balances. See Note 9 "Accounts Receivable and Credit Losses" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on our credit losses.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset. 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. Future events could lead to future impairments of long-lived assets.
Goodwill and indefinite-lived intangibles are not amortized, but are tested for impairment annually and when an event occurs or circumstances change such that it is more likely than not that an impairment may exist. Our annual testing date isMay 31 . Adtalem first assesses goodwill for impairment qualitatively for each reporting unit that contains goodwill. Management analyzes factors that include results of operations and business conditions, significant changes in cash flows at the reporting unit level, as well as how much previously calculated fair values exceed carrying values to determine if it is more likely than not that the reporting units have been impaired. If there is reason to believe the carrying value of a reporting unit exceeds its fair value, then management performs a quantitative impairment review. Adtalem uses a discounted cash flow model to compute fair value. The estimated fair values of the reporting units are based on management's projection of revenue, gross margin, operating costs, and cash flows considering planned business and operational strategies over a long-term planning horizon of five years. These reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management and the Board. If the carrying amount of a 68
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reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized to the extent of the excess, up to the amount of goodwill recorded. For indefinite-lived intangible assets, management first analyzes qualitative factors, including results of operations and business conditions of each reporting unit that contain indefinite-lived intangible assets, significant changes in cash flows at the individual indefinite-lived intangible asset level, if applicable, as well as how much previously calculated fair values exceed carrying values to determine if it is more likely than not that the intangible assets associated with these reporting units have been impaired. If there is reason to believe the carrying value of an intangible asset exceeds its fair value, then management performs a quantitative impairment review. In calculating fair value, Adtalem uses various valuation techniques including a royalty rate model for trade names and intellectual property and a discounted cash flow model for Title IV eligibility and accreditation. The estimated fair values of these indefinite-lived intangible assets are based on management's projection of revenue, gross margin, operating costs, and cash flows considering planned business and operational strategies over a long-term planning horizon of five years. The assumed royalty rates and the growth rates used to project cash flows and operating results are based upon historical results and analysis of the economic environment in which the reporting units that record indefinite-lived intangible assets operate. The valuations employ present value techniques to measure fair value and consider market factors. Management believes the assumptions used for the impairment testing are consistent with those that would be utilized by a market participant in performing similar valuations of its indefinite-lived intangible assets. If the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to that excess. For intangible assets with finite lives, we evaluate for potential impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset. Intangible assets with finite lives are amortized over their expected economic lives, ranging from 5 to 10 years.
All intangible assets and certain goodwill are being amortized for tax reporting purposes over statutory lives.
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 future impairments of goodwill or intangible assets. See Note 12 "Goodwill and Intangible Assets" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on our goodwill and intangible assets impairment analysis. Income Taxes Adtalem accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Adtalem also recognizes future tax benefits associated with tax loss and credit carryforwards as deferred tax assets. Adtalem's deferred tax assets are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Adtalem measures deferred tax assets and liabilities using enacted tax rates in effect for the year in which Adtalem expects to recover or settle the temporary differences. The effect of a change in tax rates on deferred taxes is recognized in the period that the change is enacted. Adtalem reduces its net tax assets for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions Adtalem has taken.
Contingencies
Adtalem is subject to contingencies, such as various claims and legal actions that arise in the normal conduct of its business. We record an accrual for those matters where management believes a loss is probable and can be reasonably estimated. For those matters for which we have not recorded an accrual, their possible impact on Adtalem's business, financial condition, or results of operations, cannot be predicted at this time. A significant amount of judgment and the use of estimates are required to quantify our ultimate exposure in these matters. The valuation of liabilities for these contingencies is reviewed on a quarterly basis to ensure that we have accrued the proper level of expense.
While we believe
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that the amount accrued to-date is adequate, future changes in circumstances
could impact these determinations. See Note 20 "Commitments and Contingencies"
to the Consolidated Financial Statements in Item 8. "Financial Statements and
Supplementary Data" for additional information on our loss contingencies.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data."
Non-GAAP Financial Measures and Reconciliations
We believe that certain non-GAAP financial measures 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. 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 Annual Report on Form 10-K: Net income from continuing operations attributable to Adtalem excluding special items (most comparable GAAP measure: net income (loss) attributable to Adtalem) - Measure of Adtalem's net income (loss) attributable to Adtalem adjusted for restructuring expense, business acquisition and integration expense, pre-acquisition interest expense, gain on sale of assets, settlement gains, gain on derivative, tax charges related to the implementation of the Tax Act and the divestiture ofDeVry University , a net tax benefit for a former subsidiary investment loss, and loss from discontinued operations. Earnings per share from continuing operations excluding special items (most comparable GAAP measure: earnings (loss) per share) - Measure of Adtalem's diluted earnings (loss) per share adjusted for restructuring expense, business acquisition and integration expense, pre-acquisition interest expense, gain on sale of assets, settlement gains, gain on derivative, tax charges related to the implementation of the Tax Act and the divestiture ofDeVry University , a net tax benefit for a former subsidiary investment loss, and loss from discontinued operations. Operating income excluding special items (most comparable GAAP measure: operating income) - Measure of Adtalem's operating income adjusted for restructuring expense, business acquisition and integration expense, and gain on sale of assets. This measure is applied on a consolidated and segment basis, depending on the context of the discussion. Effective income tax rate from continuing operations excluding special items (most comparable GAAP measure: effective income tax rate from continuing operations) - Measure of Adtalem's effective tax rate adjusted for tax effect on gain on derivative and a net tax benefit for a former subsidiary investment loss.
A description of special items in our non-GAAP financial measures described above are as follows:
Restructuring charges primarily related to real estate consolidations at
? Adtalem's home office and ACAMS, the write-down of EduPristine's assets, the
sale of Becker's courses for healthcare students, workforce reductions across
the organization, and the closing of the RUSM campus in
? Business acquisition and integration expense include expenses related to the
? Pre-acquisition interest expense related to financing arrangements in
connection with the
? Gain on the sale of Adtalem's
Settlement gains related to the final insurance settlement related to
? Hurricanes Irma and Maria at AUC and RUSM and a lawsuit settlement against the
Adtalem Board of Directors.
Gain on the deal-contingent foreign currency hedge arrangement entered into in
? connection with the sale of Adtalem Brazil completed on
economically hedge the Brazilian Real denominated purchase price through
mitigation of the currency exchange rate risk.
? Tax charges related to the implementation of the Tax Act and the divestiture of
? A net tax benefit for a former subsidiary investment loss.
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? Loss from discontinued operations include the operations of Adtalem Brazil,
Carrington, and
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 income (loss) attributable to Adtalem reconciliation to net income from
continuing operations attributable to Adtalem excluding special items (in
thousands):
Year Ended June 30,
2021 2020 2019
Net income (loss) attributable to Adtalem
(GAAP) $ 76,909 $ (85,334) $ 95,168
Restructuring expense 9,804 28,62853,067
Business acquisition and integration expense 31,593 - - Pre-acquisition interest expense 26,746 -
-
Gain on sale of assets - (4,779) -
Settlement gains - - (26,178)
Gain on derivative - (110,723) -
Tax Cuts and Jobs Act of 2017 and tax charges
related to the divestiture of DeVry University - (2,230)3,584
Net tax benefit for a former subsidiary investment loss - (25,688) -
Income tax impact on non-GAAP adjustments (1) (16,501) (5,648)
(1,560)
Loss from discontinued operations 25,127 329,315
12,079
Net income from continuing operations attributable to Adtalem excluding special items (non-GAAP)$ 153,678 $ 123,541
(1) Represents the income tax impact of non-GAAP continuing operations
adjustments that is recognized in our GAAP financial statements.
Earnings (loss) per share reconciliation to earnings per share from continuing operations excluding special items (shares in thousands):
Year Ended June 30,
2021 2020 2019Earnings (loss) per share, diluted (GAAP)$ 1.49 $ (1.58) $ 1.60 Effect on diluted earnings per share: Restructuring expense 0.19 0.53
0.89
Business acquisition and integration expense 0.61 -
-
Pre-acquisition interest expense 0.52 -
-
Gain on sale of assets - (0.09) -
Settlement gains - - (0.44)
Gain on derivative - (2.05) -
Tax Cuts and Jobs Act of 2017 and tax charges
related to the divestiture of DeVry University - (0.04) 0.06
Net tax benefit for a former subsidiary investment loss - (0.47)
-
Income tax impact on non-GAAP adjustments (1) (0.32) (0.10)
(0.03)
Loss from discontinued operations 0.49 6.09
0.20
Earnings per share from continuing operations excluding special items, diluted (non-GAAP)$ 2.98 $ 2.28 $ 2.29 Diluted shares used in EPS calculation 51,645 54,094
59,330
(1) Represents the income tax impact of non-GAAP continuing operations
adjustments that is recognized in our GAAP financial statements.
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Effective income tax rate from continuing operations reconciliation to effective
income tax rate from continuing operations excluding special items (in
thousands):
Year Ended June 30,
2021 2020 2019
Pre-tax results:Income from continuing operations before income taxes (GAAP)$ 126,850 $ 237,179 $ 139,747 Gain on derivative - (110,723) -
Income from continuing operations before income taxes excluding special items (non-GAAP)
$ 126,850
Taxes:
(Provision for) benefit from income taxes (GAAP)$ (25,248) $ 6,358 $ (32,878) Net tax benefit for a former subsidiary investment loss - (25,688) - Provision for income taxes excluding special items (non-GAAP)$ (25,248)
Tax rate: Effective income tax rate (GAAP) 19.9 % (2.7) % 23.5 % Effective income tax rate excluding special items (non-GAAP) 19.9 %
15.3 % 23.5 %
The calculation of the effective income tax rate from continuing operations excluding special items in this MD&A does not include all of the same special items used in our calculation of net income from continuing operations excluding special items because we do not include all the special item adjustments from our GAAP results in discussing our effective tax rates in this MD&A discussion.
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