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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number: 001-13988

Adtalem Global Education Inc.

(Exact name of registrant as specified in its charter)

Delaware

36-3150143

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

500 West Monroe Street

Chicago, Illinois

60661

(Address of principal executive offices)

(Zip Code)

(312) 651-1400

(Registrant’s telephone number; including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value per share

ATGE

New York Stock Exchange

Common stock, $0.01 par value per share

ATGE

Chicago Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

þ

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ

As of October 20, 2023, there were 39,828,454 shares of the registrant’s common stock, $0.01 par value per share outstanding.

Table of Contents

Adtalem Global Education Inc.

Form 10-Q

Table of Contents

 

Page

Part I. Financial Information

Item 1.

Financial Statements

1

Consolidated Balance Sheets

1

Consolidated Statements of Income

2

Consolidated Statements of Cash Flows

3

Consolidated Statements of Shareholders’ Equity

4

Notes to Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

Item 4.

Controls and Procedures

48

Part II. Other Information

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

49

Item 6.

Exhibits

49

Signature 

50

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Adtalem Global Education Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except par value)

September 30, 

June 30, 

2023

2023

Assets:

Current assets:

Cash and cash equivalents

$

262,438

$

273,689

Restricted cash

 

1,988

 

1,386

Accounts receivable, net

 

147,752

 

102,749

Prepaid expenses and other current assets

 

60,750

 

100,715

Total current assets

 

472,928

 

478,539

Noncurrent assets:

 

 

Property and equipment, net

264,766

258,522

Operating lease assets

 

171,055

 

174,677

Deferred income taxes

 

54,855

 

56,694

Intangible assets, net

 

801,661

 

812,338

Goodwill

 

961,262

 

961,262

Other assets, net

 

67,634

 

68,509

Total noncurrent assets

 

2,321,233

 

2,332,002

Total assets

$

2,794,161

$

2,810,541

Liabilities and shareholders' equity:

 

Current liabilities:

 

Accounts payable

$

76,866

$

81,812

Accrued payroll and benefits

 

43,138

 

52,041

Accrued liabilities

 

89,395

 

105,806

Deferred revenue

 

250,555

 

153,871

Current operating lease liabilities

 

35,681

 

37,673

Total current liabilities

 

495,635

 

431,203

Noncurrent liabilities:

 

 

Long-term debt

 

695,725

 

695,077

Long-term operating lease liabilities

 

160,523

 

163,441

Deferred income taxes

 

26,394

 

26,068

Other liabilities

 

37,221

 

37,416

Total noncurrent liabilities

 

919,863

 

922,002

Total liabilities

 

1,415,498

 

1,353,205

Commitments and contingencies

 

 

Shareholders' equity:

 

 

Common stock, $0.01 par value per share, 200,000 shares authorized; 40,401 and 42,310 shares outstanding as of September 30, 2023 and June 30, 2023, respectively

 

826

 

822

Additional paid-in capital

 

576,758

 

568,761

Retained earnings

 

2,414,378

 

2,403,750

Accumulated other comprehensive loss

 

(2,227)

 

(2,227)

Treasury stock, at cost, 42,204 and 39,922 shares as of September 30, 2023 and June 30, 2023, respectively

 

(1,611,072)

 

(1,513,770)

Total shareholders' equity

 

1,378,663

 

1,457,336

Total liabilities and shareholders' equity

$

2,794,161

$

2,810,541

See accompanying Notes to Consolidated Financial Statements.

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Table of Contents

Adtalem Global Education Inc.

Consolidated Statements of Income

(unaudited)

(in thousands, except per share data)

Three Months Ended

September 30, 

2023

2022

Revenue

$

368,845

$

354,269

Operating cost and expense:

 

Cost of educational services

 

168,618

 

159,645

Student services and administrative expense

 

166,095

 

146,385

Restructuring expense

 

676

 

15,065

Business integration expense

 

5,262

 

9,540

Total operating cost and expense

 

340,651

 

330,635

Operating income

 

28,194

 

23,634

Interest expense

 

(15,657)

 

(17,760)

Other income, net

 

2,214

 

761

Income from continuing operations before income taxes

 

14,751

 

6,635

Provision for income taxes

 

(2,792)

 

(1,122)

Income from continuing operations

 

11,959

 

5,513

Discontinued operations:

 

Loss from discontinued operations before income taxes

 

(1,765)

 

(3,265)

Loss on disposal of discontinued operations before income taxes

 

 

(3,359)

Benefit from income taxes

 

452

 

1,703

Loss from discontinued operations

 

(1,313)

 

(4,921)

Net income and comprehensive income

$

10,646

$

592

Earnings (loss) per share:

 

Basic:

 

Continuing operations

$

0.29

$

0.12

Discontinued operations

$

(0.03)

$

(0.11)

Total basic earnings per share

$

0.26

$

0.01

Diluted:

 

 

Continuing operations

$

0.28

$

0.12

Discontinued operations

$

(0.03)

$

(0.11)

Total diluted earnings per share

$

0.25

$

0.01

Weighted-average shares outstanding:

Basic shares

41,399

45,274

Diluted shares

42,184

46,342

See accompanying Notes to Consolidated Financial Statements.

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Table of Contents

Adtalem Global Education Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

Three Months Ended

September 30, 

2023

2022

Operating activities:

Net income

$

10,646

$

592

Loss from discontinued operations

 

1,313

 

4,921

Income from continuing operations

11,959

5,513

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Stock-based compensation expense

 

7,455

 

6,145

Amortization and impairments to operating lease assets

8,765

19,708

Depreciation

 

9,778

 

10,805

Amortization of intangible assets

 

10,677

 

18,528

Amortization and write-off of debt discount and issuance costs

1,155

4,227

Provision for bad debts

10,226

5,991

Deferred income taxes

 

2,165

 

2,629

Loss on disposals, accelerated depreciation, and impairments to property and equipment

 

38

 

3,483

Gain on extinguishment of debt

 

 

(71)

Loss on investments

447

901

Changes in assets and liabilities:

 

 

Accounts receivable

 

(50,116)

 

(33,219)

Prepaid expenses and other current assets

 

(5,532)

 

(2,483)

Accounts payable

 

(2,870)

 

8,711

Accrued payroll and benefits

(8,882)

(12,743)

Accrued liabilities

 

13,770

 

(9,010)

Deferred revenue

 

98,658

 

82,688

Operating lease liabilities

(10,053)

(12,921)

Other assets and liabilities

 

(6,914)

 

(7,406)

Net cash provided by operating activities-continuing operations

 

90,726

 

91,476

Net cash provided by (used in) operating activities-discontinued operations

 

8,959

 

(130)

Net cash provided by operating activities

 

99,685

 

91,346

Investing activities:

 

Capital expenditures

 

(15,046)

 

(5,551)

Proceeds from sale of marketable securities

 

400

 

356

Purchases of marketable securities

 

(300)

 

(308)

Net cash used in investing activities-continuing operations

 

(14,946)

 

(5,503)

Payment for working capital adjustment for sale of business

 

 

(811)

Net cash used in investing activities

 

(14,946)

 

(6,314)

Financing activities:

 

Proceeds from exercise of stock options

 

550

 

1,241

Employee taxes paid on withholding shares

 

(5,651)

 

(3,486)

Proceeds from stock issued under Colleague Stock Purchase Plan

 

190

 

132

Repurchases of common stock for treasury

 

(90,477)

 

Repayments of long-term debt

 

 

(100,861)

Net cash used in financing activities

 

(95,388)

 

(102,974)

Net decrease in cash, cash equivalents and restricted cash

 

(10,649)

 

(17,942)

Cash, cash equivalents and restricted cash at beginning of period

 

275,075

 

347,937

Cash, cash equivalents and restricted cash at end of period

$

264,426

$

329,995

Non-cash investing and financing activities:

Accrued capital expenditures

$

9,217

$

4,713

Accrued liability for repurchases of common stock

$

3,600

$

Accrued excise tax on share repurchases

$

1,928

$

See accompanying Notes to Consolidated Financial Statements.

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Table of Contents

Adtalem Global Education Inc.

Consolidated Statements of Shareholders’ Equity

(unaudited)

(in thousands)

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Shares

Amount

Capital

Earnings

Loss

Shares

Amount

Total

June 30, 2022

81,796

$

818

$

521,848

$

2,310,396

$

(2,227)

36,619

$

(1,339,449)

$

1,491,386

Net income

 

 

 

 

592

 

 

 

 

592

Stock-based compensation

 

 

 

6,145

 

 

 

 

 

6,145

Net activity from stock-based compensation awards

 

303

 

3

 

1,238

 

 

 

88

 

(3,486)

 

(2,245)

Proceeds from stock issued under Colleague Stock Purchase Plan

(2)

(4)

149

147

September 30, 2022

82,099

$

821

$

529,229

$

2,310,988

$

(2,227)

36,703

$

(1,342,786)

$

1,496,025

June 30, 2023

82,232

$

822

$

568,761

$

2,403,750

$

(2,227)

39,922

$

(1,513,770)

$

1,457,336

Net income

 

10,646

 

 

10,646

Stock-based compensation

 

7,455

 

7,455

Net activity from stock-based compensation awards

 

373

4

546

130

(5,651)

 

(5,101)

Proceeds from stock issued under Colleague Stock Purchase Plan

 

(4)

(18)

(6)

233

 

211

Repurchases of common stock for treasury

2,158

(91,884)

(91,884)

September 30, 2023

82,605

$

826

$

576,758

$

2,414,378

$

(2,227)

42,204

$

(1,611,072)

$

1,378,663

See accompanying Notes to Consolidated Financial Statements.

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Table of Contents

Adtalem Global Education Inc.

Notes to Consolidated Financial Statements

(unaudited)

Table of Contents

Note

 

Page

1

Nature of Operations

6

2

Summary of Significant Accounting Policies

6

3

Discontinued Operations

8

4

Revenue

9

5

Restructuring Charges

11

6

Other Income, Net

12

7

Income Taxes

12

8

Earnings per Share

12

9

Accounts Receivable and Credit Losses

13

10

Property and Equipment, Net

16

11

Leases

16

12

Goodwill and Intangible Assets

18

13

Debt

20

14

Share Repurchases

23

15

Stock-Based Compensation

24

16

Fair Value Measurements

26

17

Commitments and Contingencies

27

18

Segment Information

29

5

Table of Contents

1. Nature of Operations

In this Quarterly Report on Form 10-Q, Adtalem Global Education Inc., together with its subsidiaries, is collectively referred to as “Adtalem,” “we,” “our,” “us,” or similar references.

Adtalem is a national leader in post-secondary education and a leading provider of professional talent to the healthcare industry. Our schools consist of Chamberlain University (“Chamberlain”), Walden University (“Walden”), American University of the Caribbean School of Medicine (“AUC”), Ross University School of Medicine (“RUSM”), and Ross University School of Veterinary Medicine (“RUSVM”). AUC, RUSM, and RUSVM are collectively referred to as the “medical and veterinary schools.” See Note 18 “Segment Information” for information on our reportable segments.

2. Summary of Significant Accounting Policies

Basis of Presentation

A full listing of our significant accounting policies is described in Note 2 “Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (“2023 Form 10-K”). We have prepared the accompanying unaudited consolidated financial statements in accordance with U.S generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which are normal and recurring in nature) considered necessary for a fair presentation have been included. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto included in our 2023 Form 10-K.

We use the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Consolidated Financial Statements refer to our continuing operations.

Business integration expense was $5.3 million and $9.5 million in the three months ended September 30, 2023 and 2022, respectively. These are costs associated with integrating Walden into Adtalem. In addition, during the first quarter of fiscal year 2023, we initiated transformation initiatives to accelerate growth and organizational agility. Certain costs relating to this transformation are included in business integration expense in the Consolidated Statements of Income.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Standards

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02: “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The guidance was issued as improvements to Accounting Standards Codification (“ASC”) 326. The vintage disclosure changes are relevant to Adtalem and require an entity to disclose current-period gross write-offs by year of origination for financing receivables. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The amendments should be applied prospectively. Early adoption of the amendments is permitted, including adoption in an interim period. We adopted this guidance on July 1, 2023. The amendments impacted our disclosures and did not otherwise impact Adtalem’s Consolidated Financial Statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our Consolidated Financial Statements.

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Table of Contents

Revision to Previously Issued Financial Statements

During the third quarter of fiscal year 2023, Adtalem identified an error in its revenue recognition related to certain scholarship programs within its Medical and Veterinary segment. Certain scholarships and discounts offered within that segment provide students a discount on future tuition that constitute a material right under ASC 606 “Revenue from Contracts with Customers” that should be accounted for as a separate performance obligation within a contract. Adtalem assessed the materiality of this error individually and in the aggregate with other previously identified errors to prior periods’ Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99 “Materiality” and SAB 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” codified in ASC 250 “Accounting Changes and Error Corrections.” Adtalem concluded that the errors were not material to prior periods and therefore, amendments of previously filed reports were not required. However, Adtalem determined it was appropriate to revise its previously issued financial statements. Treating the discount on future tuition as a material right results in the deferral of revenue for a portion of tuition to future periods. In accordance with ASC 250, Adtalem corrected the prior period presented herein by revising the financial statement line item amounts previously disclosed in SEC filings in order to achieve comparability in the Consolidated Financial Statements. The impact of this revision of Adtalem’s previously reported Consolidated Financial Statements are detailed below. In connection with this revision, Adtalem also corrected other immaterial errors in the prior period, including certain errors that had previously been adjusted for as out of period corrections in the period identified.

The following table summarizes the effect of the revisions on the affected line items within the Consolidated Statements of Income (in thousands, except per share data):

Three Months Ended September 30, 2022

As reported

Adjustment

As revised

Revenue

$

354,559

$

(290)

$

354,269

Operating cost and expense:

Student services and administrative expense

 

148,341

(1,956)

 

146,385

Business integration expense

 

8,415

1,125

 

9,540

Total operating cost and expense

 

331,466

(831)

 

330,635

Operating income

 

23,093

541

 

23,634

Other income, net

1,567

(806)

761

Income from continuing operations before income taxes

 

6,900

(265)

 

6,635

Provision for income taxes

 

(1,054)

(68)

 

(1,122)

Income from continuing operations

 

5,846

(333)

 

5,513

Discontinued operations:

Loss from discontinued operations before income taxes

(3,438)

173

(3,265)

Benefit from income taxes

3,143

(1,440)

1,703

Loss from discontinued operations

(3,654)

(1,267)

(4,921)

Net income

 

2,192

(1,600)

 

592

Earnings (loss) per share:

Basic:

Continuing operations

$

0.13

$

(0.01)

$

0.12

Discontinued operations

$

(0.08)

$

(0.03)

$

(0.11)

Total basic earnings per share

$

0.05

$

(0.04)

$

0.01

Diluted:

 

 

 

Continuing operations

$

0.13

$

(0.01)

$

0.12

Discontinued operations

$

(0.08)

$

(0.03)

$

(0.11)

Total diluted earnings per share

$

0.05

$

(0.04)

$

0.01

To conform to current period presentation, the previously reported interest income line is now included within other income, net.

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Table of Contents

The following table summarizes the effect of the revisions on the affected line items within the previously reported Consolidated Statements of Comprehensive Income (in thousands):

Three Months Ended September 30, 2022

As reported

Adjustment

As revised

Net income

$

2,192

$

(1,600)

$

592

Other comprehensive income (loss), net of tax:

Loss on foreign currency translation adjustments

(1,267)

1,267

Comprehensive income before reclassification

 

925

(333)

 

592

Comprehensive income

 

925

(333)

 

592

The following table summarizes the effect of the revisions on the affected line items within the Consolidated Statements of Cash Flows (in thousands):

Three Months Ended September 30, 2022

As reported

Adjustment

As revised

Operating activities:

Net income

$

2,192

$

(1,600)

$

592

Loss from discontinued operations

3,654

1,267

4,921

Income from continuing operations

5,846

(333)

5,513

Adjustments to reconcile net income to net cash provided by operating activities:

Loss on investments

901

901

Changes in assets and liabilities:

Prepaid expenses and other current assets

(1,602)

(881)

(2,483)

Accounts payable

7,586

1,125

8,711

Accrued payroll and benefits

(11,593)

(1,150)

(12,743)

Deferred revenue

82,398

290

82,688

Net cash provided by operating activities-continuing operations

91,524

(48)

91,476

Net cash provided by operating activities

91,394

(48)

91,346

Investing activities:

Proceeds from sales of marketable securities

356

356

Purchases of marketable securities

(308)

(308)

Net cash used in investing activities-continuing operations

(5,551)

48

(5,503)

Net cash used in investing activities

(6,362)

48

(6,314)

The following table summarizes the effect of the revisions on the affected line items within the Consolidated Statements of Shareholders’ Equity (in thousands):

As reported

Adjustment

As revised

June 30, 2022

Retained earnings

 

2,322,810

(12,414)

 

2,310,396

Accumulated other comprehensive loss

 

(960)

(1,267)

 

(2,227)

Total shareholders' equity

 

1,505,067

(13,681)

 

1,491,386

September 30, 2022

Retained earnings

 

2,325,002

(14,014)

 

2,310,988

Total shareholders' equity

 

1,510,039

(14,014)

 

1,496,025

Three Months Ended September 30, 2022

Net income

 

2,192

(1,600)

 

592

Other comprehensive loss, net of tax

 

(1,267)

1,267

 

3. Discontinued Operations

On December 11, 2018, Adtalem completed the sale of DeVry University to Cogswell Education, LLC (“Cogswell”) for de minimis consideration. As the sale represented a strategic shift that had a major effect on Adtalem’s operations and financial results, DeVry University is presented in Adtalem’s Consolidated Financial Statements as a discontinued operation. The purchase agreement includes an earn-out entitling Adtalem to payments of up to $20.0 million over a ten-year period payable based on DeVry University’s free cash flow. Adtalem received $4.1 million and $2.9 million during

8

Table of Contents

the second quarter of fiscal year 2023 and 2022, respectively, related to the earn-out, resulting in a total of $7.0 million being received thus far.

On March 10, 2022, Adtalem completed the sale of the Association of Certified Anti-Money Laundering Specialists (“ACAMS”), Becker Professional Education (“Becker”), and OnCourse Learning (“OCL”) to Wendel Group and Colibri Group (“Purchaser”), pursuant to the Equity Purchase Agreement (“Purchase Agreement”) dated January 24, 2022. Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, Adtalem sold the issued and outstanding shares of ACAMS, Becker, and OCL to the Purchaser for $962.7 million, net of cash of $21.5 million, subject to certain post-closing adjustments. In addition, on June 17, 2022, Adtalem completed the sale of EduPristine for de minimis consideration, which resulted in a transfer of $1.9 million in cash. We recorded a loss of $3.4 million in the first quarter of fiscal year 2023 for post-closing working capital adjustments to the initial sales price for ACAMS, Becker, and OCL, which is included in loss on disposal of discontinued operations before income taxes in the Consolidated Statements of Income. These divestitures are the culmination of a long-term strategy to sharpen the focus of our portfolio and enhance our ability to address the growing and unmet demand for healthcare professionals in the U.S. As these sales represented a strategic shift that had a major effect on Adtalem’s operations and financial results, these businesses previously included in our former Financial Services segment are presented in Adtalem’s Consolidated Financial Statements as discontinued operations.

The following is a summary of income statement information of operations reported as discontinued operations, which includes expense from ongoing litigation costs and settlements related to the DeVry University divestiture and a loss on the sale of ACAMS, Becker, and OCL for working capital adjustments to the initial sales prices (in thousands):

Three Months Ended

September 30, 

2023

2022

Revenue

$

$

Operating cost and expense:

 

 

Student services and administrative expense

 

1,765

 

3,265

Total operating cost and expense

 

1,765

 

3,265

Loss from discontinued operations before income taxes

(1,765)

(3,265)

Loss on disposal of discontinued operations before income taxes

(3,359)

Benefit from income taxes

 

452

 

1,703

Loss from discontinued operations

$

(1,313)

$

(4,921)

4. Revenue

Revenue is recognized when control of the promised goods or services is transferred to our customers (students), in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following tables disaggregate revenue by source (in thousands):

Three Months Ended September 30, 2023

Chamberlain

Walden

 

Medical and
Veterinary

Consolidated

Tuition and fees

 

$

142,596

 

$

141,608

 

$

81,157

 

$

365,361

Other

3,484

3,484

Total

 

$

142,596

 

$

141,608

 

$

84,641

 

$

368,845

Three Months Ended September 30, 2022

Chamberlain

Walden

 

Medical and
Veterinary

Consolidated

Tuition and fees

$

135,405

 

$

130,901

 

$

85,224

 

$

351,530

Other

2,739

2,739

Total

 

$

135,405

 

$

130,901

 

$

87,963

 

$

354,269

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In addition, see Note 18 “Segment Information” for a disaggregation of revenue by geographical region.

Performance Obligations and Revenue Recognition

Tuition and fees: The majority of revenue is derived from tuition and fees, which is recognized on a straight-line basis over the academic term as instruction is delivered.

Other: Other revenue consists of housing and other miscellaneous services. Other revenue is recognized over the period in which the applicable performance obligation is satisfied.

Arrangements for payment are agreed to prior to registration of the student’s first academic term. The majority of U.S. students obtain Title IV or other financial aid resulting in institutions receiving a significant amount of the transaction price at the beginning of the academic term. Students not utilizing Title IV or other financial aid funding may pay after the academic term is complete.

Transaction Price

Revenue, or transaction price, is measured as the amount of consideration expected to be received in exchange for transferring goods or services.

Students may receive discounts, scholarships, or refunds, which gives rise to variable consideration. The amounts of discounts or scholarships are generally applied to individual student accounts when such amounts are awarded. Therefore, the transaction price is immediately reduced directly by these discounts or scholarships from the amount of the standard tuition rate charged. Scholarships and discounts that are only applied to future tuition charged are considered a separate performance obligation if they represent a material right in accordance with ASC 606. In those instances, we defer the value of the related performance obligation associated with the future scholarship or discount based on estimates of future redemption based on our historical experience of student persistence toward completion of study. The contract liability associated with these material rights is presented as deferred revenue within current liabilities and other liabilities within noncurrent liabilities on the Consolidated Balance Sheets based on the amounts expected to be redeemed in the next 12 months. The contract liability amount associated with these material rights within current liabilities is $12.0 million and $10.6 million as of September 30, 2023 and June 30, 2023, respectively, and the amount within noncurrent liabilities is $12.3 million and $10.4 million as of September 30, 2023 and June 30, 2023, respectively. The noncurrent contract liability associated with these material rights is expected to be earned over approximately the next four fiscal years.

Upon withdrawal, a student may be eligible to receive a refund, or partial refund, the amount of which is dependent on the timing of the withdrawal during the academic term. If a student withdraws prior to completing an academic term, federal and state regulations and accreditation criteria permit Adtalem to retain only a set percentage of the total tuition received from such student, which varies with, but generally equals or exceeds, the percentage of the academic term completed by such student. Payment amounts received by Adtalem in excess of such set percentages of tuition are refunded to the student or the appropriate funding source. For contracts with similar characteristics and historical data on refunds, the expected value method is applied in determining the variable consideration related to refunds. Estimates of Adtalem’s expected refunds are determined at the outset of each academic term, based upon actual refunds in previous academic terms. Reserves related to refunds are presented as refund liabilities within accrued liabilities on the Consolidated Balance Sheets. All refunds are netted against revenue during the applicable academic term.

Management reassesses collectability on a student-by-student basis throughout the period revenue is recognized. This reassessment is based upon new information and changes in facts and circumstances relevant to a student’s ability to pay. Management also reassesses collectability when a student withdraws from the institution and has unpaid tuition charges. Such unpaid charges do not meet the threshold of reasonably collectible and are recognized as revenue on a cash basis.

We believe it is probable that no significant reversal will occur in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is subsequently resolved. Therefore, the estimate of variable consideration is not constrained.

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Contract Balances

Students are billed at the beginning of each academic term and payment is due at that time. Adtalem’s performance obligation is to provide educational services in the form of instruction during the academic term and to provide for any scholarships or discounts that are deemed a material right under ASC 606. As instruction is provided or the deferred value of material rights are redeemed, deferred revenue is reduced. A significant portion of student payments are from Title IV financial aid and other programs and are generally received during the first month of the respective academic term. For students utilizing Adtalem’s credit extension programs (see Note 9 “Accounts Receivable and Credit Losses”), payments are generally received after the academic term, and the corresponding performance obligation, is complete. When payments are received, accounts receivable is reduced.

Deferred revenue within current liabilities is $250.6 million and $153.9 million as of September 30, 2023 and June 30, 2023, respectively, and deferred revenue within noncurrent liabilities is $12.3 million and $10.4 million as of September 30, 2023 and June 30, 2023, respectively. Revenue of $150.1 million and $142.2 million was recognized during the first three months of fiscal year 2024 and 2023, respectively, that was included in the deferred revenue balance at the beginning of fiscal year 2024 and 2023, respectively.

The difference between the opening and closing balances of deferred revenue includes decreases from revenue recognized during the period, increases from charges related to the start of academic terms beginning during the period, increases from payments received related to academic terms commencing after the end of the reporting period, and increases from recognizing additional performance liabilities for material rights.

5. Restructuring Charges

During the first quarter of fiscal year 2024, Adtalem recorded restructuring charges primarily driven by prior real estate consolidations at Adtalem’s home office. We continue to incur restructuring charges or reversals related to exited leased space from previous restructuring activities. During the first quarter of fiscal year 2023, Adtalem recorded restructuring charges primarily driven by real estate consolidations at Walden, Medical and Veterinary, and Adtalem’s home office resulting in impairments on operating lease assets and property and equipment. When estimating costs of exiting lease space, estimates are made which could differ materially from actual results and may result in additional restructuring charges or reversals in future periods. Termination benefit charges represent severance pay and benefits for employees impacted by workforce reductions. Adtalem’s home office is classified as “Home Office and Other” in Note 18 “Segment Information.” Pre-tax restructuring charges by segment were as follows (in thousands):

Three Months Ended September 30, 2023

Real Estate
and Other

Termination
Benefits

Total

Medical and Veterinary

$

74

 

$

40

 

$

114

Home Office and Other

562

 

 

562

Total

$

636

$

40

$

676

Three Months Ended September 30, 2022

Real Estate
and Other

Termination
Benefits

Total

Chamberlain

$

818

 

$

 

$

818

Walden

3,026

 

54

 

3,080

Medical and Veterinary

6,826

 

 

6,826

Home Office and Other

4,069

 

272

 

4,341

Total

$

14,739

$

326

$

15,065

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The following table summarizes the separation and restructuring plan activity for fiscal years 2023 and 2024, for which cash payments are required (in thousands):

Liability balance as of June 30, 2022

$

813

Increase in liability (separation and other charges)

 

1,620

Reduction in liability (payments and adjustments)

 

(1,692)

Liability balance as of June 30, 2023

 

741

Increase in liability (separation and other charges)