UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | |
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024 | |
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or | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _____ to _____ | |
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Commission File Number: 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.) |
|
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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 April 26, 2024, there were 37,606,468 shares of the registrant’s common stock, $0.01 par value per share outstanding.
Adtalem Global Education Inc.
Form 10-Q
Table of Contents
| Page | |
Item 1. | 1 | |
1 | ||
2 | ||
3 | ||
4 | ||
5 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 |
Item 3. | 51 | |
Item 4. | 51 | |
Item 1. | 51 | |
Item 1A. | 51 | |
Item 2. | 52 | |
Item 3. | 52 | |
Item 4. | 52 | |
Item 5. | 52 | |
Item 6. | 53 | |
54 |
Part I. Financial Information
Item 1. Financial Statements
Adtalem Global Education Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except par value)
March 31, | June 30, | |||||
2024 | 2023 | |||||
Assets: | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 179,762 | $ | 273,689 | ||
Restricted cash |
| 7,562 |
| 1,386 | ||
Accounts and financing receivables, net |
| 140,909 |
| 102,749 | ||
Prepaid expenses and other current assets |
| 59,401 |
| 100,715 | ||
Total current assets |
| 387,634 |
| 478,539 | ||
Noncurrent assets: |
|
| ||||
Property and equipment, net | 272,792 | 258,522 | ||||
Operating lease assets |
| 169,498 |
| 174,677 | ||
Deferred income taxes |
| 64,213 |
| 56,694 | ||
Intangible assets, net |
| 784,042 |
| 812,338 | ||
Goodwill |
| 961,262 |
| 961,262 | ||
Other assets, net |
| 67,768 |
| 68,509 | ||
Assets held for sale | 7,825 | — | ||||
Total noncurrent assets |
| 2,327,400 |
| 2,332,002 | ||
Total assets | $ | 2,715,034 | $ | 2,810,541 | ||
Liabilities and shareholders' equity: |
| |||||
Current liabilities: |
| |||||
Accounts payable | $ | 92,198 | $ | 81,812 | ||
Accrued payroll and benefits |
| 67,647 |
| 52,041 | ||
Accrued liabilities |
| 114,224 |
| 105,806 | ||
Deferred revenue |
| 202,566 |
| 153,871 | ||
Current operating lease liabilities |
| 32,475 |
| 37,673 | ||
Total current liabilities |
| 509,110 |
| 431,203 | ||
Noncurrent liabilities: |
|
|
|
| ||
Long-term debt |
| 648,106 |
| 695,077 | ||
Long-term operating lease liabilities |
| 159,717 |
| 163,441 | ||
Deferred income taxes |
| 28,937 |
| 26,068 | ||
Other liabilities |
| 48,201 |
| 37,416 | ||
Total noncurrent liabilities |
| 884,961 |
| 922,002 | ||
Total liabilities |
| 1,394,071 |
| 1,353,205 | ||
Commitments and contingencies |
|
|
|
| ||
Shareholders' equity: |
|
|
|
| ||
Common stock, $0.01 par value per share, 200,000 shares authorized; 37,765 and 42,310 shares outstanding as of March 31, 2024 and June 30, 2023, respectively |
| 831 |
| 822 | ||
Additional paid-in capital |
| 603,671 |
| 568,761 | ||
Retained earnings |
| 2,491,090 |
| 2,403,750 | ||
Accumulated other comprehensive loss |
| (2,227) |
| (2,227) | ||
Treasury stock, at cost, 45,335 and 39,922 shares as of March 31, 2024 and June 30, 2023, respectively |
| (1,772,402) |
| (1,513,770) | ||
Total shareholders' equity |
| 1,320,963 |
| 1,457,336 | ||
Total liabilities and shareholders' equity | $ | 2,715,034 | $ | 2,810,541 | ||
See accompanying Notes to Consolidated Financial Statements.
1
Adtalem Global Education Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||
March 31, | March 31, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
Revenue | $ | 412,658 | $ | 369,082 | $ | 1,174,745 | $ | 1,086,185 | ||||
Operating cost and expense: |
|
| ||||||||||
Cost of educational services |
| 175,321 |
| 165,820 |
| 516,008 |
| 484,768 | ||||
Student services and administrative expense |
| 156,689 |
| 144,526 |
| 478,368 |
| 432,713 | ||||
Restructuring expense |
| 473 |
| 1,278 |
| 1,217 |
| 17,706 | ||||
Business integration expense |
| 18,450 |
| 11,346 |
| 30,621 |
| 35,702 | ||||
Gain on sale of assets | — | (13,317) | — | (13,317) | ||||||||
Total operating cost and expense |
| 350,933 |
| 309,653 |
| 1,026,214 |
| 957,572 | ||||
Operating income |
| 61,725 |
| 59,429 |
| 148,531 |
| 128,613 | ||||
Interest expense |
| (16,560) |
| (14,457) |
| (48,910) |
| (47,806) | ||||
Other income, net |
| 2,871 |
| 3,980 |
| 8,648 |
| 3,301 | ||||
Income from continuing operations before income taxes |
| 48,036 |
| 48,952 |
| 108,269 |
| 84,108 | ||||
Provision for income taxes |
| (10,595) |
| (389) |
| (21,156) |
| (5,906) | ||||
Income from continuing operations |
| 37,441 |
| 48,563 |
| 87,113 |
| 78,202 | ||||
Discontinued operations: |
|
| ||||||||||
(Loss) income from discontinued operations before income taxes |
| (832) |
| (3,993) |
| 329 |
| (6,734) | ||||
Loss on disposal of discontinued operations before income taxes | — |
| (402) |
| — |
| (3,576) | |||||
Benefit from (provision for) income taxes |
| 212 |
| 1,701 |
| (84) |
| 3,222 | ||||
(Loss) income from discontinued operations |
| (620) |
| (2,694) |
| 245 |
| (7,088) | ||||
Net income and comprehensive income | $ | 36,821 | $ | 45,869 | $ | 87,358 | $ | 71,114 | ||||
Earnings (loss) per share: |
|
| ||||||||||
Basic: |
|
| ||||||||||
Continuing operations | $ | 0.97 | $ | 1.08 | $ | 2.18 | $ | 1.73 | ||||
Discontinued operations | $ | (0.02) | $ | (0.06) | $ | 0.01 | $ | (0.16) | ||||
Total basic earnings per share | $ | 0.95 | $ | 1.02 | $ | 2.18 | $ | 1.57 | ||||
Diluted: |
|
|
|
| ||||||||
Continuing operations | $ | 0.94 | $ | 1.06 | $ | 2.13 | $ | 1.70 | ||||
Discontinued operations | $ | (0.02) | $ | (0.06) | $ | 0.01 | $ | (0.15) | ||||
Total diluted earnings per share | $ | 0.93 | $ | 1.00 | $ | 2.14 | $ | 1.54 | ||||
Weighted-average shares outstanding: | ||||||||||||
Basic shares | 38,713 | 45,125 | 40,000 | 45,276 | ||||||||
Diluted shares | 39,636 | 45,801 | 40,874 | 46,089 | ||||||||
See accompanying Notes to Consolidated Financial Statements.
2
Adtalem Global Education Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Operating activities: | ||||||
Net income | $ | 87,358 | $ | 71,114 | ||
(Income) loss from discontinued operations |
| (245) |
| 7,088 | ||
Income from continuing operations | 87,113 | 78,202 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
| ||||
Stock-based compensation expense |
| 19,405 |
| 10,908 | ||
Amortization and impairments to operating lease assets | 24,705 | 37,928 | ||||
Depreciation |
| 32,106 |
| 31,618 | ||
Amortization of intangible assets |
| 28,296 |
| 48,936 | ||
Amortization and write-off of debt discount and issuance costs | 4,550 | 7,974 | ||||
Provision for bad debts | 35,741 | 23,391 | ||||
Deferred income taxes |
| (4,650) |
| (1,718) | ||
Loss on disposals, accelerated depreciation, and impairments to property and equipment |
| 50 |
| 3,999 | ||
Gain on extinguishment of debt |
| — |
| (71) | ||
(Gain) loss on investments | (1,281) | 4,122 | ||||
Gain on sale of assets | — | (13,317) | ||||
Unrealized loss on assets held for sale | 647 | — | ||||
Changes in assets and liabilities: |
|
| ||||
Accounts and financing receivables |
| (73,661) |
| (56,477) | ||
Prepaid expenses and other current assets |
| (2,484) |
| 7,034 | ||
Accounts payable |
| 10,841 |
| 12,286 | ||
Accrued payroll and benefits | 15,671 | (11,719) | ||||
Accrued liabilities |
| 39,748 |
| (20,275) | ||
Deferred revenue |
| 60,935 |
| 26,038 | ||
Operating lease liabilities | (28,448) | (37,758) | ||||
Other assets and liabilities |
| (2,475) |
| (1,280) | ||
Net cash provided by operating activities-continuing operations |
| 246,809 |
| 149,821 | ||
Net cash provided by (used in) operating activities-discontinued operations |
| 8,396 |
| (404) | ||
Net cash provided by operating activities |
| 255,205 |
| 149,417 | ||
Investing activities: |
| |||||
Capital expenditures |
| (52,014) |
| (19,056) | ||
Proceeds from sales of marketable securities |
| 626 |
| 7,635 | ||
Purchases of marketable securities |
| (498) |
| (1,508) | ||
Proceeds from note receivable related to property sold |
| — |
| 46,800 | ||
Net cash (used in) provided by investing activities-continuing operations |
| (51,886) |
| 33,871 | ||
Payment for working capital adjustment for sale of business |
| — |
| (3,174) | ||
Net cash (used in) provided by investing activities |
| (51,886) |
| 30,697 | ||
Financing activities: |
| |||||
Proceeds from exercise of stock options |
| 15,412 |
| 1,622 | ||
Employee taxes paid on withholding shares |
| (6,600) |
| (4,214) | ||
Proceeds from stock issued under Colleague Stock Purchase Plan |
| 581 |
| 451 | ||
Repurchases of common stock for treasury |
| (250,463) |
| (44,710) | ||
Payment on equity forward contract |
| — |
| (13,162) | ||
Proceeds from issuance of long-term debt |
| 1,896 |
| — | ||
Repayments of long-term debt |
| (51,896) |
| (150,861) | ||
Net cash used in financing activities |
| (291,070) |
| (210,874) | ||
Net decrease in cash, cash equivalents and restricted cash |
| (87,751) |
| (30,760) | ||
Cash, cash equivalents and restricted cash at beginning of period |
| 275,075 |
| 347,937 | ||
Cash, cash equivalents and restricted cash at end of period | $ | 187,324 | $ | 317,177 | ||
Non-cash investing and financing activities: | ||||||
Accrued capital expenditures | $ | 11,086 | $ | 10,474 | ||
Accrued liability for repurchases of common stock | $ | 2,995 | $ | 2,699 | ||
Accrued excise tax on share repurchases | $ | 3,257 | $ | 361 | ||
Settlement of financing liability with assets | $ | — | $ | 38,606 | ||
See accompanying Notes to Consolidated Financial Statements.
3
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 | |||||||||||||||||
December 31, 2022 | 82,156 | $ | 822 | $ | 561,376 | $ | 2,335,641 | $ | (2,227) | 36,713 | $ | (1,386,395) | $ | 1,509,217 | ||||||||||
Net income |
|
|
|
| 45,869 |
|
|
|
| 45,869 | ||||||||||||||
Stock-based compensation |
|
|
| 2,795 |
|
|
|
|
| 2,795 | ||||||||||||||
Net activity from stock-based compensation awards |
| 15 |
|
| 199 |
| 2 |
| (106) |
| 93 | |||||||||||||
Proceeds from stock issued under Colleague Stock Purchase Plan | (7) | (4) | (5) | 192 | 181 | |||||||||||||||||||
Repurchases of common stock for treasury | 1,229 | (47,770) | (47,770) | |||||||||||||||||||||
March 31, 2023 | 82,171 | $ | 822 | $ | 564,363 | $ | 2,381,506 | $ | (2,227) | 37,939 | $ | (1,434,079) | $ | 1,510,385 | ||||||||||
December 31, 2023 | 83,092 | $ | 831 | $ | 597,587 | $ | 2,454,269 | $ | (2,227) | 43,566 | $ | (1,681,061) | $ | 1,369,399 | ||||||||||
Net income |
| 36,821 |
|
| 36,821 | |||||||||||||||||||
Stock-based compensation |
| 5,900 |
|
| 5,900 | |||||||||||||||||||
Net activity from stock-based compensation awards |
| 8 | 98 | 2 | (95) |
| 3 | |||||||||||||||||
Proceeds from stock issued under Colleague Stock Purchase Plan |
| 86 | (5) | 162 |
| 248 | ||||||||||||||||||
Repurchases of common stock for treasury | 1,772 | (91,408) | (91,408) | |||||||||||||||||||||
March 31, 2024 | 83,100 | $ | 831 | $ | 603,671 | $ | 2,491,090 | $ | (2,227) | 45,335 | $ | (1,772,402) | $ | 1,320,963 | ||||||||||
June 30, 2022 | 81,796 | $ | 818 | $ | 521,848 | $ | 2,310,396 | $ | (2,227) | 36,619 | $ | (1,339,449) | $ | 1,491,386 | ||||||||||
Net income |
|
|
|
| 71,114 |
|
|
|
| 71,114 | ||||||||||||||
Stock-based compensation |
|
|
| 10,908 |
|
|
|
|
| 10,908 | ||||||||||||||
Net activity from stock-based compensation awards |
| 375 |
| 4 |
| 1,617 |
|
|
| 105 |
| (4,214) |
| (2,593) | ||||||||||
Proceeds from stock issued under Colleague Stock Purchase Plan | (10) | (4) | (14) | 516 | 502 | |||||||||||||||||||
Settlement of equity forward contract | 30,000 | (43,162) | (13,162) | |||||||||||||||||||||
Repurchases of common stock for treasury | 1,229 | (47,770) | (47,770) | |||||||||||||||||||||
March 31, 2023 | 82,171 | $ | 822 | $ | 564,363 | $ | 2,381,506 | $ | (2,227) | 37,939 | $ | (1,434,079) | $ | 1,510,385 | ||||||||||
June 30, 2023 | 82,232 | $ | 822 | $ | 568,761 | $ | 2,403,750 | $ | (2,227) | 39,922 | $ | (1,513,770) | $ | 1,457,336 | ||||||||||
Net income |
| 87,358 |
|
| 87,358 | |||||||||||||||||||
Stock-based compensation |
| 19,405 |
| 19,405 | ||||||||||||||||||||
Net activity from stock-based compensation awards |
| 868 | 9 | 15,402 | 147 | (6,600) |
| 8,811 | ||||||||||||||||
Proceeds from stock issued under Colleague Stock Purchase Plan |
| 103 | (18) | (15) | 562 |
| 647 | |||||||||||||||||
Repurchases of common stock for treasury | 5,281 | (252,594) | (252,594) | |||||||||||||||||||||
March 31, 2024 | 83,100 | $ | 831 | $ | 603,671 | $ | 2,491,090 | $ | (2,227) | 45,335 | $ | (1,772,402) | $ | 1,320,963 | ||||||||||
See accompanying Notes to Consolidated Financial Statements.
4
Adtalem Global Education Inc.
Notes to Consolidated Financial Statements
(unaudited)
Table of Contents
Note |
| Page |
1 | 6 | |
2 | 6 | |
3 | 7 | |
4 | 8 | |
5 | 10 | |
6 | 11 | |
7 | 11 | |
8 | 12 | |
9 | 12 | |
10 | 15 | |
11 | 15 | |
12 | 17 | |
13 | 19 | |
14 | 23 | |
15 | 24 | |
16 | 26 | |
17 | 27 | |
18 | 28 |
5
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 the leading healthcare educator in the U.S. 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
Our significant accounting policies are 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. 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. 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 fiscal year 2023 Form 10-K. Prior period amounts have been revised to conform with the current period presentation.
Business integration expense was $18.5 million and $30.6 million in the three and nine months ended March 31, 2024, respectively, and $11.3 million and $35.7 million in the three and nine months ended March 31, 2023, 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. We adopted this guidance on July 1, 2023. The amendments impacted our disclosures and did not otherwise impact Adtalem’s Consolidated Financial Statements.
In November 2023, the FASB issued ASU No. 2023-07: “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The guidance was issued to improve disclosures about reportable segments and addresses requests from investors for additional, more detailed information about a reportable segment’s expenses by requiring entities to
6
provide disclosures of significant segment expenses and other segment items. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively. Early adoption of the amendments is permitted, including adoption in an interim period. The amendments will impact our segment disclosures but will not otherwise impact Adtalem’s Consolidated Financial Statements.
In December 2023, the FASB issued ASU No. 2023-09: “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The guidance was issued to enhance the transparency and decision usefulness of income tax disclosures by requiring entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2024. The amendments should be applied prospectively and retrospective application is permitted. Early adoption of the amendments is permitted. The amendments will impact our income tax disclosures but will 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.
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 financial results. Adtalem received $5.5 million and $4.1 million during the second quarter of fiscal year 2024 and the second quarter of fiscal year 2023, respectively, related to the earn-out. We have received a total of $12.5 million related to the earn-out 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 $0.4 million and $3.6 million in the three and nine months ended March 31, 2023, respectively, for post-closing working capital adjustments to the initial sales prices for ACAMS, Becker, and OCL and a tax return to provision adjustment, 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.
7
The following is a summary of income statement information reported as discontinued operations, which includes expense from ongoing litigation costs and settlements related to the DeVry University and Carrington College divestitures, a loss on sale of ACAMS, Becker, and OCL for working capital adjustments to the initial sales prices and a tax return to provision adjustment, and the earn-outs we received (in thousands):
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):
Nine Months Ended March 31, 2024 | ||||||||||||
Chamberlain | Walden |
| Medical and | Consolidated | ||||||||
Tuition and fees |
| $ | 466,487 |
| $ | 439,023 |
| $ | 258,866 |
| $ | 1,164,376 |
Other | — | — | 10,369 | 10,369 | ||||||||
Total |
| $ | 466,487 |
| $ | 439,023 |
| $ | 269,235 |
| $ | 1,174,745 |
Three Months Ended March 31, 2023 | ||||||||||||
Chamberlain | Walden |
| Medical and | Consolidated | ||||||||
Tuition and fees | $ | 149,737 |
| $ | 132,874 |
| $ | 83,359 | $ | 365,970 | ||
Other | — | — | 3,112 | 3,112 | ||||||||
Total |
| $ | 149,737 |
| $ | 132,874 |
| $ | 86,471 |
| $ | 369,082 |
Nine Months Ended March 31, 2023 | ||||||||||||
Chamberlain | Walden |
| Medical and | Consolidated | ||||||||
Tuition and fees | $ | 426,538 |
| $ | 395,715 |
| $ | 255,312 |
| $ | 1,077,565 | |
Other | — | — | 8,620 | 8,620 | ||||||||
Total |
| $ | 426,538 |
| $ | 395,715 |
| $ | 263,932 |
| $ | 1,086,185 |
In addition, see Note 18 “Segment Information” for a disaggregation of revenue by geographical region.
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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 $15.1 million and $10.6 million as of March 31, 2024 and June 30, 2023, respectively, and the amount within noncurrent liabilities is $22.6 million and $10.4 million as of March 31, 2024 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.
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 and Financing Receivables”), payments are
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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 $202.6 million and $153.9 million as of March 31, 2024 and June 30, 2023, respectively, and deferred revenue within noncurrent liabilities is $22.6 million and $10.4 million as of March 31, 2024 and June 30, 2023, respectively. Revenue of $0.9 million and $153.0 million was recognized during the third quarter and first nine months of fiscal year 2024, respectively, that was included in the deferred revenue balance at the beginning of fiscal year 2024. Revenue of $2.0 million and $147.6 million was recognized during the third quarter and first nine months of fiscal year 2023, respectively, that was included in the deferred revenue balance at the beginning of fiscal year 2023.
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 period, and increases from recognizing additional performance liabilities for material rights during the period.
5. Restructuring Charges
During the third quarter and first nine months 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 third quarter and first nine months 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.” Restructuring charges by segment were as follows (in thousands):
Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2023 | |||||||||||||||||
Real Estate | Termination | Total | Real Estate | Termination | Total | |||||||||||||
Chamberlain |
| $ | — |
| $ | — |
| $ | — | $ | 818 |
| $ | — |
| $ | 818 | |
Walden |
| 53 |
| — |
| 53 | 3,120 |
| 54 |
| 3,174 | |||||||
Medical and Veterinary |
| 81 |
| 340 |
| 421 | 6,994 |
| 340 |
| 7,334 | |||||||
Home Office and Other |
| 804 |
| — |
| 804 | 5,430 |
| 950 |
| 6,380 | |||||||
Total | $ | 938 | $ | 340 | $ | 1,278 | $ | 16,362 | $ | 1,344 | $ | 17,706 | ||||||
The following table summarizes the separation and restructuring plan activity for fiscal years 2023 and 2024, for which cash payments are required (in thousands):
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These liability balances are recorded as accrued liabilities on the Consolidated Balance Sheets.
6. Other Income, Net
Other income, net consisted of the following (in thousands):
Investment gain (loss) includes trading gains and losses related to the rabbi trust used to fund nonqualified deferred compensation plan obligations. In addition, investment gain (loss) includes an impairment of $5.0 million in the nine months ended March 31, 2023 on an equity investment with no readily determinable fair value (see Note 16 “Fair Value Measurements” for additional information).
7. Income Taxes
Our effective tax rates from continuing operations were 22.1% and 19.5% in the three and nine months ended March 31, 2024, respectively, and 0.8% and 7.0% in the three and nine months ended March 31, 2023, respectively. The income tax provision for the third quarter and first nine months of fiscal year 2024 increased compared to the year-ago periods primarily due to us recording a net tax benefit of $6.2 million in the year-ago periods primarily for the release of a valuation allowance on certain deferred tax assets based on our reassessment of the amount of state net operating loss carryforwards that are more likely than not to be realized. The current year income tax provision also increased due to an increase in the percentage of earnings from domestic operations, which are generally taxed at higher rates than foreign earnings. The income tax provisions reflect the U.S. federal tax rate of 21% adjusted for taxes related to global intangible low-taxed income (“GILTI”), state and local taxes, benefits of the foreign rate differences, tax credits related to research and development expenditures, and benefits associated with local tax incentives. During the next 6 months our unrecognized tax benefits may decrease by approximately $7 million to $8 million due to the settlement of various audits and the lapsing of statutes of limitation.
Three of Adtalem’s businesses benefit from local tax incentives: AUC, which operates in St. Maarten, RUSM, which operates in Barbados, and RUSVM, which operates in St. Kitts. AUC’s effective tax rate reflects benefits derived from investment incentives. RUSM and RUSVM each have agreements with their respective domestic governments that exempt them from local income taxation. RUSM has an exemption in Barbados until 2039. RUSVM has an exemption in St. Kitts until 2037.
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8. Earnings per Share
As further described in Note 14 “Share Repurchases,” on March 14, 2022, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase $150.0 million of common stock. For purposes of calculating earnings per share, Adtalem reflected the ASR agreement as a repurchase of Adtalem common stock and as a forward contract indexed to its own common stock. Based on the volume-weighted average price of Adtalem’s common stock per the terms of the ASR agreement, common stock of 102 thousand shares were contingently issuable by Adtalem under the ASR agreement and were included in the diluted earnings per share calculation for the nine months ended March 31, 2023 because the effect would have been dilutive. As of October 14, 2022, the ASR agreement is no longer outstanding. Diluted earnings per share was computed using the treasury stock method for stock awards. Certain shares related to stock awards were excluded from the computation of earnings per share because the effect would have been antidilutive. The following table sets forth the computations of basic and diluted earnings per share and antidilutive shares (in thousands, except per share data):
9. Accounts and Financing Receivables
Our accounts receivables relate to student balances occurring in the normal course of business. Accounts receivables have a term of less than one year and are included in accounts and financing receivables, net on our Consolidated Balance Sheets. Our financing receivables relate to credit extension programs where the student is provided payment terms in excess of one year with their respective school and are included in accounts and financing receivables, net and other assets, net on our Consolidated Balance Sheets.
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The classification of our accounts and financing receivable balances was as follows (in thousands):
June 30, 2023 | |||||||||
Gross | Allowance | Net | |||||||
Accounts receivables, current | $ | 129,318 | $ | (29,190) | $ | 100,128 | |||
Financing receivables, current | 4,757 | (2,136) | 2,621 | ||||||
Accounts and financing receivables, current | $ | 134,075 | $ | (31,326) | $ | 102,749 | |||
Financing receivables, current | $ | 4,757 | $ | (2,136) | $ | 2,621 | |||
Financing receivables, noncurrent | 36,368 | (9,332) | 27,036 | ||||||
Total financing receivables | $ | 41,125 | $ | (11,468) | $ | 29,657 | |||
Our financing receivables relate to credit extension programs available to students at Chamberlain, AUC, RUSM, and RUSVM. These credit extension programs are designed to assist students who are unable to completely cover educational costs consisting of tuition, fees, and books, and are available only after all other student financial assistance has been applied toward those purposes. In addition, AUC, RUSM, and RUSVM allow students to finance their living expenses. Repayment plans for financing agreements are developed to address the financial circumstances of the particular student. Interest charges at rates from 3.0% to 12.0% per annum accrue each month on the unpaid balance once a student withdraws or graduates from a program. Most students are required to begin repaying their loans while they are still in school with a minimum payment level designed to demonstrate their capability to repay, which reduces the possibility of over borrowing. Payments may increase upon completing or departing school. After a student leaves school, the student typically will have a monthly installment repayment plan.
Credit Quality
The primary credit quality indicator for our financing receivables is delinquency. Balances are considered delinquent when contractual payments on the loan become past due. We write-off financing receivable balances after they have been sent to a third-party collector, the timing of which varies by the institution granting the loan, but in most cases is when the financing agreement is at least 181 days past due. Payments are applied first to outstanding interest and then to the unpaid principal balance.
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The credit quality analysis of financing receivables as of March 31, 2024 was as follows (in thousands):
The credit quality analysis of financing receivables as of June 30, 2023 was as follows (in thousands):
Allowance for Credit Losses
The allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in our accounts and financing receivable balances as of each balance sheet date. In evaluating the collectability of all our accounts and financing receivable balances, we utilize historical events, current conditions, and reasonable and supportable forecasts about the future.
For our accounts receivables, we primarily use historical loss rates based on an aging schedule and a student’s status to determine the allowance for credit losses. As these accounts receivables are short-term in nature, management believes a student’s status provides the best credit loss estimate, while also factoring in delinquency. Students still attending classes, recently graduated, or current on payments are more likely to pay than those who are inactive due to being on a leave of absence, withdrawing from school, or not current on payments.
For our financing receivables, we primarily use historical loss rates based on an aging schedule. As these financing receivables are based on long-term financing agreements offered by Adtalem, management believes that delinquency provides the best credit loss estimate. As the financing receivable balances become further past due, it is less likely we will receive payment, causing our estimate of credit losses to increase.
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The following tables provide a roll-forward of the allowance for credit losses (in thousands):
Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2023 | |||||||||||||||||
Accounts | Financing | Total | Accounts | Financing | Total | |||||||||||||
Beginning balance |
| $ | 27,516 | $ | 16,045 |
| $ | 43,561 | $ | 30,897 | $ | 14,891 |
| $ | 45,788 | |||
Write-offs | (11,575) | (161) | (11,736) | (31,751) | (777) | (32,528) | ||||||||||||
Recoveries | 3,613 | 402 | 4,015 | 7,869 | 436 | 8,305 | ||||||||||||
Provision for credit losses | 8,212 | 904 | 9,116 | 20,751 | 2,640 | 23,391 | ||||||||||||
Ending balance | $ | 27,766 | $ | 17,190 | $ | 44,956 | $ | 27,766 | $ | 17,190 | $ | 44,956 | ||||||
10. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
During the second quarter of fiscal year 2024, management committed to a plan to sell a building owned by Adtalem located in Naperville, Illinois, and the building met criteria to be classified as assets held for sale. As a result, the building’s carrying value of $8.4 million was adjusted to its estimated fair value less cost to sell of $7.8 million, and the resulting $0.6 million charge was recognized within student services and administrative expense in the Consolidated Statements of Income for the nine months ended March 31, 2024. In addition, the building is presented as assets held for sale on the Consolidated Balance Sheets as of March 31, 2024.
11. Leases
We determine if a contract contains a lease at inception. We have entered into operating leases for academic sites, housing facilities, and office space which expire at various dates through November 2039, most of which include options to terminate for a fee or extend the leases for an additional five-year period. The lease term includes the noncancelable period of the lease, as well as any periods for which we are reasonably certain to exercise extension options. We elected to account for lease and non-lease components (e.g., common-area maintenance costs) as a single lease component for all operating leases. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. We have not entered into any financing leases.
Operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets represent our right to use an underlying asset during the lease term. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. Operating lease assets are adjusted for any prepaid or accrued lease payments, lease incentives, initial direct costs, and impairments. Our incremental borrowing rate is utilized in determining the present value of the lease payments based upon the information available at the commencement date. Our incremental borrowing rate is determined using a secured borrowing rate for the
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same currency and term as the associated lease. Operating lease expense is recognized on a straight-line basis over the lease term.
As of March 31, 2024, we had entered into one operating lease that has not yet commenced. The lease is expected to commence during the second quarter of fiscal year 2025, has a 15-year lease term, and will result in an additional operating lease and operating lease liability of approximately $6.3 million.
The components of lease cost were as follows (in thousands):
Maturities of lease liabilities as of March 31, 2024 were as follows (in thousands):
Lease term and discount rate were as follows:
March 31, | |||
2024 | |||
Weighted-average remaining operating lease term (years) | 6.8 | ||
Weighted-average operating lease discount rate | 7.3% | ||
Supplemental disclosures of cash flow information related to leases were as follows (in thousands):
Adtalem maintains agreements to sublease either a portion or the full leased space at four of its operating lease locations. Most of these subleases are a result of Adtalem retaining leases associated with restructured lease activities at DeVry University and Carrington College prior to their divestitures during fiscal year 2019. All sublease expirations with DeVry University and Carrington College coincide with Adtalem’s original head lease expiration dates. At that time, Adtalem will be relieved of its obligations. In addition, Adtalem has entered into subleases with non-affiliated entities for vacated or partially vacated space from restructuring activities. Adtalem’s sublease agreements expire at various dates through December 2025. We record sublease income as an offset against our lease expense recorded on the head lease. For leases
16
which Adtalem vacated or partially vacated space, we recorded estimated restructuring charges in prior periods. Actual results may differ from these estimates, which could result in additional restructuring charges or reversals in future periods. Future minimum sublease rental income under these agreements as of March 31, 2024 were as follows (in thousands):
Fiscal Year | Amount | ||
2024 (remaining) | $ | 1,735 | |
2025 | 5,255 | ||
2026 |
| 2,038 | |
Total sublease rental income | $ | 9,028 | |
12. Goodwill and Intangible Assets
Goodwill balances by reporting unit were as follows (in thousands):
March 31, | June 30, | |||||
2024 | 2023 | |||||
Chamberlain | $ | 4,716 | $ | 4,716 | ||
Walden | 651,052 | 651,052 | ||||
AUC |
| 68,321 |
| 68,321 | ||
RUSM |
| 180,089 |
| 180,089 | ||
RUSVM |
| 57,084 |
| 57,084 | ||
Total | $ | 961,262 | $ | 961,262 | ||
Goodwill balances by reportable segment were as follows (in thousands):
March 31, | June 30, | |||||
2024 | 2023 | |||||
Chamberlain | $ | 4,716 | $ | 4,716 | ||
Walden | 651,052 | 651,052 | ||||
Medical and Veterinary | 305,494 | 305,494 | ||||
Total | $ | 961,262 | $ | 961,262 | ||
Amortizable intangible assets consisted of the following (in thousands):
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Indefinite-lived intangible assets consisted of the following (in thousands):
Indefinite-lived intangible asset balances by reportable segment were as follows (in thousands):
March 31, | June 30, | |||||
2024 | 2023 | |||||
Chamberlain | $ | 1,200 | $ | 1,200 | ||
Walden | 615,360 | 615,360 | ||||
Medical and Veterinary | 136,300 | 136,300 | ||||
Total | $ | 752,860 | $ | 752,860 | ||
Amortization expense for amortized intangible assets was $8.3 million and $28.3 million in the three and nine months ended March 31, 2024, respectively, and $14.2 million and $48.9 million in the three and nine months ended March 31, 2023, respectively. Future intangible asset amortization expense, by reporting unit, is expected to be as follows (in thousands):
Fiscal Year | Walden | ||
2024 (remaining) | $ | 7,348 | |
2025 |
| 11,220 | |
2026 |
| 11,220 | |
2027 |
| 1,394 | |
Total | $ | 31,182 | |
Curriculum is amortized on a straight-line basis. Student relationships is amortized based on the estimated retention of the students and considers the revenue and cash flow associated with these existing students.
Indefinite-lived intangible assets related to trade names and Title IV eligibility and accreditations are not amortized, as there are no legal, regulatory, contractual, economic, or other factors that limit the useful life of these intangible assets to the reporting entity.
Goodwill and indefinite-lived intangible assets 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 is May 31.
Adtalem has five reporting units that contain goodwill and indefinite-lived intangible assets. These reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management. We have the option to assess goodwill for impairment by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is determined that the reporting unit fair value is more likely than not less than its carrying value, or if we do not elect the option to perform an initial qualitative assessment, we perform a quantitative assessment of the reporting unit’s fair value. If the carrying value of a reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized equal to the difference between the carrying value of the reporting unit and its fair value, not to exceed
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the carrying value of goodwill. We also have the option to perform a qualitative assessment to test indefinite-lived intangible assets for impairment by determining whether it is more likely than not that the indefinite-lived intangible assets are impaired. If it is determined that the indefinite-lived intangible asset is more likely than not impaired, or if we do not elect the option to perform an initial qualitative assessment, we perform a quantitative assessment of the indefinite-lived intangible assets. If the carrying value of the indefinite-lived intangible assets exceeds its fair value, an impairment loss is recognized to the extent the carrying value exceeds fair value. After analyzing the results of operations and business conditions of all five reporting units, we determined that no triggering event had occurred that would indicate the carrying value of a reporting unit had exceeded its fair value as of March 31, 2024.
These interim triggering event conclusions were based on the fact that the annual impairment review of Adtalem’s reporting units and indefinite-lived intangible assets resulted in no impairments as of the end of fiscal year 2023, and that no interim events or deviations from planned operating results occurred as of March 31, 2024 that would cause management to reassess these conclusions.
If economic conditions deteriorate, interest rates rise, or operating performance of our reporting units do not meet expectations such that we revise our long-term forecasts, we may recognize impairments of goodwill and other intangible assets in future periods.
13. Debt
Long-term debt consisted of the following senior secured credit facilities (in thousands):
March 31, | June 30, | |||||
2024 | 2023 | |||||
Senior Secured Notes due 2028 | $ | 404,950 | $ | 404,950 | ||
Term Loan B |
| 253,333 |
| 303,333 | ||
Total principal |
| 658,283 |
| 708,283 | ||
Unamortized debt discount and issuance costs |
| (10,177) |
| (13,206) | ||
Long-term debt | $ | 648,106 | $ | 695,077 | ||
Scheduled future maturities of long-term debt were as follows (in thousands):
Maturity | |||
Fiscal Year | Payments | ||
2024 (remaining) | $ | — | |
2025 |
| — | |
2026 |
| — | |
2027 |
| — | |
2028 | 404,950 | ||
2029 | 253,333 | ||
Total | $ | 658,283 | |
Senior Secured Notes due 2028
On March 1, 2021, Adtalem issued $800.0 million aggregate principal amount of 5.50% Senior Secured Notes due 2028 (the “Notes”), which mature on March 1, 2028, pursuant to an indenture, dated as of March 1, 2021 (the “Indenture”), by and between Adtalem and U.S. Bank National Association, as trustee and notes collateral agent. The Notes were sold within the U.S. only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the U.S. to non-U.S. persons in reliance on Regulation S under the Securities Act.
The Notes were issued at 100.0% of their par value. The Notes bear interest at a rate of 5.50% per year, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2021, to holders of record on the preceding February 15 and August 15, as the case may be. The Notes are guaranteed by certain of Adtalem’s subsidiaries that are borrowers or guarantors under its senior secured credit facilities and certain of its other senior indebtedness, subject to certain exceptions (the “Guarantors”). As of August 12, 2021, the Notes were secured, subject to
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permitted liens and certain other exceptions, by first priority liens on the same collateral that secures the obligations under Adtalem’s senior secured credit facilities.
At any time prior to March 1, 2024, we could have redeemed all or a part of the Notes at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus a make-whole premium set forth in the Indenture and accrued and unpaid interest, if any, to, but not including, the redemption date. We may redeem the Notes, in whole or in part, at any time on or after March 1, 2024 at redemption prices equal to 102.75%, 101.375%, and 100% of the principal amount of the Notes redeemed if the redemption occurs during the twelve-month periods beginning on March 1 of the years 2024, 2025, and 2026 and thereafter, respectively, in each case plus accrued and unpaid interest, if any, thereon to, but not including, the applicable redemption date. In addition, at any time prior to March 1, 2024, Adtalem could have redeemed up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 105.5% of the aggregate principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, with the net cash proceeds from one or more qualifying equity offerings.
On April 11, 2022, we repaid $373.3 million of Notes at a price equal to 100% of the principal amount of the Notes. During June 2022, we repurchased on the open market an additional $20.8 million of Notes at a price equal to approximately 90% of the principal amount of the Notes. This debt was subsequently retired. During the first quarter of fiscal year 2023, we repurchased on the open market an additional $0.9 million of Notes at a price equal to approximately 92% of the principal amount of the Notes, resulting in a gain on extinguishment of debt of $0.1 million recorded within interest expense in the Consolidated Statements of Income for the nine months ended March 31, 2023. This debt was subsequently retired. The principal balance of the Notes is $405.0 million as of March 31, 2024.
Accrued interest on the Notes of $1.9 million and $7.4 million is recorded within accrued liabilities on the Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023, respectively.
Credit Agreement
On August 12, 2021, in connection with the Walden acquisition, Adtalem entered into its new credit agreement (the “Credit Agreement”) that provides for (1) a $850.0 million senior secured term loan (“Term Loan B”) with a maturity date of August 12, 2028 and (2) a $400.0 million senior secured revolving loan facility (“Revolver”) with a maturity date of August 12, 2026. We refer to the Term Loan B and Revolver collectively as the “Credit Facility.” The Revolver has availability for letters of credit and currencies other than U.S. dollars of up to $400.0 million.
On June 27, 2023, Adtalem entered into Amendment No. 1 to Credit Agreement, identifying the Secured Overnight Financing Rate (“SOFR”) as the benchmark rate to replace LIBOR for eurocurrency rate loans within the Credit Agreement effective the first quarter of fiscal year 2024.
Term Loan B
Prior to January 26, 2024, borrowings under the Term Loan B bore interest at Adtalem’s option at a rate per annum equal to SOFR, subject to a SOFR floor of 0.75%, plus an applicable margin ranging from 4.00% to 4.50% for eurocurrency term loan borrowings or 3.00% to 3.50% for alternative base rate (“ABR”) borrowings depending on Adtalem’s net first lien leverage ratio for such period. On January 26, 2024, we repriced our Term Loan B loan resulting in a 0.50% reduction in our margin interest rate. As of January 26, 2024, borrowings under the Term Loan B bear interest at Adtalem’s option at a rate per annum equal to SOFR, subject to a SOFR floor of 0.75%, plus an applicable margin ranging from 3.50% to 4.00% for eurocurrency term loan borrowings or 2.50% to 3.00% for ABR borrowings depending on Adtalem’s net first lien leverage ratio for such period.
As of March 31, 2024, the interest rate for borrowings under the Term Loan B facility was 8.83%, which approximated the effective interest rate. The Term Loan B originally required quarterly installment payments of $2.125 million beginning on March 31, 2022. On March 11, 2022, we made a prepayment of $396.7 million on the Term Loan B. With that prepayment, we are no longer required to make quarterly installment payments. We made additional Term Loan B prepayments of $100.0 million, $50.0 million, and $50.0 million on September 22, 2022, November 22, 2022, and January 26, 2024, respectively. The principal balance of the Term Loan B is $253.3 million as of March 31, 2024.
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Revolver
Borrowings under the Revolver bear interest at a rate per annum equal to SOFR, subject to a SOFR floor of 0.75%, plus an applicable margin ranging from 3.75% to 4.25% for SOFR borrowings or 2.75% to 3.25% for ABR borrowings depending on Adtalem’s net first lien leverage ratio for such period. There were no borrowings under the Revolver during the nine months ended March 31, 2024 and 2023.
The Credit Agreement requires payment of a commitment fee equal to 0.25% as of March 31, 2024, of the unused portion of the Revolver. The commitment fee expense is recorded within interest expense in the Consolidated Statements of Income. The amount unused under the Revolver was $242.1 million as of March 31, 2024.
Debt Discount and Issuance Costs
The Term Loan B was issued at a price of 99% of its principal amount, resulting in an original issue discount of 1%. The debt discount and issuance costs related to the Notes and Term Loan B are presented as a direct deduction from the face amount of the debt, while the debt issuance costs related to the Revolver are classified as other assets, net on the Consolidated Balance Sheets. The debt discount and issuance costs are amortized as interest expense over seven years for the Notes and Term Loan B and over five years for the Revolver. Based on the $100.0 million and $50.0 million Term Loan B prepayments on September 22, 2022 and November 22, 2022, respectively, we expensed $4.3 million in interest expense in the Consolidated Statements of Income in the nine months ended March 31, 2023, which was the proportionate amount of the remaining unamortized debt discount and issuance costs related to the Term Loan B as of the prepayment dates. Based on the $50.0 million Term Loan B prepayment on January 26, 2024, we expensed $1.1 million in interest expense in the Consolidated Statements of Income in the three and nine months ended March 31, 2024, which was the proportionate amount of the remaining unamortized debt discount and issuance costs related to the Term Loan B as of the prepayment date. The following table summarizes the unamortized debt discount and issuance costs activity for the nine months ended March 31, 2024 (in thousands):
Off-Balance Sheet Arrangements
The U.S. Department of Education (“ED”) has recently allowed reductions in our letters of credit totaling $90.8 million. On January 31, 2024, ED allowed a $76.2 million letter of credit in favor of ED to expire without any requirement for Adtalem to renew it. Adtalem had a surety-backed letter of credit outstanding of $84.0 million as of March 31, 2024, in favor of ED on behalf of Walden, which allows Walden to participate in Title IV programs. In addition, Adtalem had a letter of credit outstanding under its Revolver in the amount of $157.9 million as of March 31, 2024, in favor of ED, which allows Adtalem institutions to participate in Title IV programs. As of March 31, 2024, Adtalem had $241.9 million of letters of credit outstanding in favor of ED. On April 26, 2024, ED indicated that it will permit Adtalem to reduce the surety-backed letter of credit from $84.0 million to $69.4 million and requested that this letter of credit be extended through December 31, 2024. As of when this further reduction takes place, Adtalem will have $227.3 million of letters of credit outstanding in favor of ED.
Many states require private-sector postsecondary education institutions to post surety bonds for licensure. In the U.S., Adtalem has posted $42.5 million of surety bonds as of March 31, 2024 with regulatory authorities on behalf of Chamberlain, Walden, AUC, RUSM, and RUSVM.
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Interest Expense
Interest expense consisted of the following (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||
March 31, | March 31, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
Notes interest expense | $ | 5,568 | $ | 5,568 | $ | 16,704 | $ | 16,733 | ||||
Term Loan B interest expense | 6,097 | 6,468 | 20,673 | 19,919 | ||||||||
Term Loan B debt discount and issuance costs write-off | 1,113 | — | 1,113 | 4,282 | ||||||||
Notes issuance costs write-off | — | — | — | 15 | ||||||||
Gain on extinguishment of debt | — | — | — | (71) | ||||||||
Amortization of debt discount and issuance costs | 1,127 | 1,155 | 3,437 | 3,677 | ||||||||
Letters of credit fees | 2,488 | 1,005 | 6,407 | 2,424 | ||||||||
Other | 167 | 261 | 576 | 827 | ||||||||
Total | $ | 16,560 | $ | 14,457 | $ | 48,910 | $ | 47,806 | ||||
Covenants and Guarantees
The Credit Agreement and Notes contain customary covenants, including restrictions on our restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interest on assets, make acquisitions, loans, advances or investments, or sell or otherwise transfer assets.
Under the terms of the Credit Agreement, beginning on the fiscal quarter ending December 31, 2021 and through December 31, 2023, Adtalem was required to maintain a Total Net Leverage Ratio of equal to or less than 4.00 to 1.00, which changed to 3.25 to 1.00 for the fiscal quarter ending March 31, 2024 and thereafter. The Total Net Leverage Ratio under the Credit Agreement is defined as the ratio of (a) the aggregate principal amount of Consolidated Debt (as defined in the Credit Agreement) of Adtalem and its subsidiaries as of the last day of the most recently ended Test Period (as defined in the Credit Agreement) minus Unrestricted Cash (as defined in the Credit Agreement) and Permitted Investments (as defined in the Credit Agreement) of the Borrower and its subsidiaries for such Test Period to (b) EBITDA (as defined in the Credit Agreement) for such Test Period. EBITDA for purposes of these restrictive covenants includes incremental adjustments beyond those included in traditional EBITDA calculations. Specifically, the Credit Agreement EBITDA definition includes the pro forma impact of EBITDA to be received from certain acquisition-related synergies and cost optimization activities, subject to a 20% cap.
Obligations under the Credit Agreement are secured by a first-priority lien on substantially all of the assets of Adtalem and certain of its domestic wholly-owned subsidiaries (the “Subsidiary Guarantors”), which Subsidiary Guarantors also guarantee the obligations of Adtalem under the Credit Agreement, subject to certain exceptions. The Credit Agreement contains customary affirmative and negative covenants customary for facilities of its type, which, among other things, generally limit (with certain exceptions): mergers, amalgamations, or consolidations; the incurrence of additional indebtedness (including guarantees); the incurrence of additional liens; the sale, assignment, lease, conveyance or transfer of assets; certain investments; dividends and stock redemptions or repurchases in excess of certain amounts; transactions with affiliates; engaging in materially different lines of business; payments and modifications of indebtedness or the governing documents of Adtalem or any Subsidiary Guarantor; and other activities customarily restricted in such agreements.
The Credit Agreement contains customary events of default for facilities of this type. If an event of default under the Credit Agreement occurs and is continuing, the commitments thereunder may be terminated and the principal amount outstanding thereunder, together with all accrued and unpaid interest and other amounts owed thereunder, may be declared immediately due and payable.
The Term Loan B requires mandatory prepayments equal to the net cash proceeds from an asset sale or disposition which is not reinvested in assets within one-year from the date of disposition if the asset sale or disposition is in excess of $20.0 million, among other mandatory prepayment terms (see the Credit Agreement, as filed under Form 8-K dated August 12, 2021, for additional information and term definitions). With the $396.7 million prepayment on March 11, 2022 on the
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Term Loan B, the $394.1 million prepayment on the Notes during the fourth quarter of fiscal year 2022, and the $100.0 million prepayment on September 22, 2022 on the Term Loan B, we satisfied the mandatory prepayment requirement resulting from the sale proceeds received from the sale of our previous Financial Services segment. No other mandatory prepayments have been required since the execution of the Credit Agreement.
The Notes contain covenants that limit the ability of Adtalem and each of the Guarantors to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the Guarantors to make dividends or other payments to Adtalem; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Indenture and the Notes also provide for certain customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Notes to become or be declared due and payable or would allow the trustee or the holders of at least 25% in principal amount of the then outstanding Notes to declare the principal of and accrued and unpaid interest, if any, on all the Notes to be due and payable by notice in writing to Adtalem and, upon such declaration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
Adtalem was in compliance with the Credit Agreement debt covenants and the Notes covenants as of March 31, 2024.
14. Share Repurchases
Open Market Share Repurchase Programs
On March 1, 2022, we announced that the Board of Directors (the “Board”) authorized Adtalem’s thirteenth share repurchase program, which allowed Adtalem to repurchase up to $300.0 million of its common stock through February 25, 2025. On January 16, 2024, Adtalem completed its thirteenth share repurchase program. On January 19, 2024, we announced that the Board authorized Adtalem’s fourteenth share repurchase program, which allows Adtalem to repurchase up to $300.0 million of its common stock through January 16, 2027. Adtalem made share repurchases under its share repurchase programs as follows, which includes the market price of the shares, commissions, and excise tax (in thousands, except shares and per share data):
As of March 31, 2024, $220.2 million of authorized share repurchases were remaining under the fourteenth share repurchase program. The timing and amount of any future repurchases will be determined based on an evaluation of market conditions and other factors. These repurchases may be made through open market purchases, accelerated share repurchases, privately negotiated transactions, or otherwise. Repurchases will be funded through available cash balances and ongoing business operating cash generation and may be suspended or discontinued at any time. Shares of stock repurchased under the programs are held as treasury shares. Repurchases under our share repurchase programs reduce the weighted-average number of shares of common stock outstanding for basic and diluted earnings per share calculations.
ASR Agreement
On March 14, 2022, we entered into an ASR agreement to repurchase $150.0 million of common stock. We received an initial delivery of 4,709,576 shares of common stock representing approximately 80% of the total shares expected to be delivered at the time of executing the ASR based on the per share price on the day prior to the execution date. This initial delivery of shares reduced the weighted-average number of shares of common stock outstanding for basic and diluted earnings per share calculations. The final number of shares to be repurchased was based on the volume-weighted average price of Adtalem’s common stock during the term of the ASR agreement, less a discount and subject to adjustments pursuant to the terms of the ASR agreement. See Note 8 “Earnings per Share” for information on the ASR impact to earnings per share for the nine months ended March 31, 2023. The ASR agreement ended on October 14, 2022. Based on
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the volume-weighted average price of Adtalem’s common stock during the term of the ASR agreement, Adtalem owed the counter party 332,212 shares of common stock. We elected to settle the contract in cash instead of delivering shares by making a cash payment of $13.2 million on November 2, 2022.
On March 14, 2022, we recorded the $150.0 million purchase price of the ASR as a reduction to shareholders’ equity, consisting of a $120.0 million increase in treasury stock and a $30.0 million reduction in additional paid-in capital, which represented an equity forward contract, on the Consolidated Balance Sheets. During the second quarter of fiscal year 2023, the $30.0 million initially recorded as a reduction in additional paid-in capital was reclassified to treasury stock and an additional $13.2 million was recorded in treasury stock, which represented our final cash settlement payment.
15. Stock-Based Compensation
Adtalem’s current stock-based incentive plan is its Fourth Amended and Restated Incentive Plan of 2013, which is administered by the Compensation Committee of the Board. Under the plan, directors, key executives, and managerial employees are eligible to receive stock options, restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and other forms of stock awards. As of March 31, 2024, 2,084,378 shares of common stock were available for future issuance under this plan.
Stock-based compensation expense is recognized on a straight-line basis over the required service period. Adtalem accounts for stock-based compensation granted to retirement eligible employees that fully vests upon an employee’s retirement under the non-substantive vesting period approach. Under this approach, the entire stock-based compensation expense is recognized at the grant date for stock-based grants issued to retirement eligible employees. For non-retirement eligible employees, stock-based compensation expense is recognized as expense over the requisite service period. We account for forfeitures of unvested awards in the period they occur. Adtalem issues new shares of common stock to satisfy stock option exercises, RSU vests, and PSU vests.
Stock-based compensation expense, which is included in student services and administrative expense, and the related income tax benefit were as follows (in thousands):
There was no capitalized stock-based compensation cost as of March 31, 2024 and June 30, 2023.
Stock Options
Beginning in fiscal year 2023, the Compensation Committee of the Board determined to no longer grant stock options. Prior to fiscal year 2023, we granted stock options generally with a four-year graduated vesting from the grant date and expire ten years from the grant date. The fair value of stock options was estimated using a binomial model. The following table summarizes stock option activity for the nine months ended March 31, 2024:
Weighted-Average | ||||||||||
Number of | Remaining | Aggregate | ||||||||
Stock | Weighted-Average | Contractual Life | Intrinsic Value | |||||||
Options | Exercise Price | (in years) | (in thousands) | |||||||
Outstanding as of July 1, 2023 |
| 1,045,801 | $ | 36.02 |
| |||||
Exercised |
| (453,040) | 34.02 |
| ||||||
Expired |
| (1,144) | 28.32 |
| ||||||
Outstanding as of March 31, 2024 |
| 591,617 |
| 37.57 |
| 6.1 | $ | 8,183 | ||
Exercisable as of March 31, 2024 |
| 451,942 | $ | 38.31 |
| 5.9 | $ | 5,917 | ||
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The fair value of stock options that vested during the nine months ended March 31, 2024 and 2023 was $1.9 million and $2.1 million, respectively. As of March 31, 2024, $0.5 million of unrecognized stock-based compensation expense related to unvested stock options is expected to be recognized over a remaining weighted-average period of 1.3 years. The total intrinsic value of stock options exercised for the nine months ended March 31, 2024 and 2023 was $9.1 million and $0.8 million, respectively.
RSUs
Prior to fiscal year 2023, we granted RSUs generally with a four-year graduated vesting from the grant date. Beginning in fiscal year 2023, we grant RSUs generally with a three-year graduated vesting from the grant date. We also regularly grant RSUs to our Board members with a one-year cliff vest from the grant date. The fair value per share of RSUs is the closing market price of our common stock on the grant date. The following table summarizes RSU activity for the nine months ended March 31, 2024:
Weighted-Average | |||||
Number of | Grant Date | ||||
RSUs | Fair Value | ||||
Unvested as of July 1, 2023 |
| 737,733 | $ | 37.22 | |
Granted |
| 394,890 |
| 44.23 | |
Vested |
| (288,175) |
| 37.62 | |
Forfeited |
| (28,648) |
| 40.56 | |
Unvested as of March 31, 2024 |
| 815,800 | $ | 40.35 | |
The weighted-average grant date fair value per share of RSUs granted in the nine months ended March 31, 2024 and 2023 was $44.23 and $39.87, respectively. The grant date fair value of RSUs that vested during the nine months ended March 31, 2024 and 2023 was $10.9 million and $8.4 million, respectively. As of March 31, 2024, $17.3 million of unrecognized stock-based compensation expense related to unvested RSUs is expected to be recognized over a remaining weighted-average period of 1.8 years.
PSUs
We issue PSUs generally with a three-year cliff vest from the grant date. The fair value per share of PSUs is the closing market price of our common stock on the grant date. We estimate the number of shares that will vest under our PSU awards when recognizing stock-based compensation expense for each reporting period. The final number of shares that vest under our PSUs is based on metrics approved by the Compensation Committee of the Board. The following table summarizes PSU activity for the nine months ended March 31, 2024:
Weighted-Average | |||||
Number of | Grant Date | ||||
PSUs | Fair Value | ||||
Unvested as of July 1, 2023 |
| 490,300 | $ | 35.17 | |
Granted (1) |
| 333,210 |
| 50.07 | |
Vested |
| (126,918) |
| 29.92 | |
Forfeited |
| (52,212) |
| 32.10 | |
Unvested as of March 31, 2024 |
| 644,380 | $ | 43.81 | |
(1) Includes incremental PSUs awarded upon achievement of metrics. | |||||
The weighted-average grant date fair value per share of PSUs granted in the nine months ended March 31, 2024 and 2023 was $50.07 and $40.43, respectively. The grant date fair value of PSUs that vested during the nine months ended March 31, 2024 and 2023 was $4.1 million and $3.4 million, respectively. As of March 31, 2024, $16.3 million of unrecognized stock-based compensation expense related to unvested PSUs is expected to be recognized over a remaining weighted-average period of 1.8 years.
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16. Fair Value Measurements
Adtalem has elected not to measure any assets or liabilities at fair value other than those required to be measured at fair value on a recurring basis. Assets measured at fair value on a nonrecurring basis include goodwill, intangible assets, and assets of businesses where the long-term value of the operations have been impaired.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The guidance specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The guidance establishes fair value measurement classifications under the following hierarchy:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Observable inputs other than prices included in Level 1, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
Level 3 –Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
When available, Adtalem uses quoted market prices to determine fair value, and such measurements are classified within Level 1. In cases where market prices are not available, Adtalem makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates and yield curves. These measurements are classified within Level 3.
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
The carrying value of our cash, cash equivalents, and restricted cash approximates fair value because of their short-term nature and is classified as Level 1.
Adtalem maintains a rabbi trust with investments in stock and bond mutual funds to fund obligations under a nonqualified deferred compensation plan. The fair value of the investments in the rabbi trust included in prepaid expenses and other current assets on the Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023 was $14.0 million and $12.5 million, respectively. These investments are recorded at fair value based upon quoted market prices using Level 1 inputs.
The carrying value of the credit extension programs, which approximates its fair value, is included in accounts receivable, net and other assets, net on the Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023 of $29.5 million and $29.7 million, respectively, and is classified as Level 2. See Note 9 “Accounts and Financing Receivables” for additional information on these credit extension programs.
Adtalem has a nonqualified deferred compensation plan for highly compensated employees and its Board members. The participant’s “investments” are in a hypothetical portfolio of investments which are tracked by an administrator. Changes in the fair value of the nonqualified deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. Total liabilities under the plan included in accrued liabilities on the Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023 were $12.6 million and $12.6 million, respectively. The fair value of the nonqualified deferred compensation obligation is classified as Level 2 because their inputs are derived principally from observable market data by correlation to the hypothetical investments.
As of March 31, 2024 and June 30, 2023, borrowings under our long-term debt agreements were $658.3 million and $708.3 million, respectively. The fair value of the Notes was $388.8 million as of March 31, 2024, which is based upon
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quoted market prices and is classified as Level 1. The fair value of the Term Loan B was $254.3 million as of March 31, 2024, which is based upon quoted market prices in a non-active market and is classified as Level 2. See Note 13 “Debt” for additional information on our long-term debt agreements.
As of March 31, 2024 and June 30, 2023, there were no assets or liabilities measured at fair value using Level 3 inputs.
We recorded an impairment of $5.0 million on an equity investment with no readily determinable fair value within other income, net in the Consolidated Statements of Income in the nine months ended March 31, 2023 as the carrying value was no longer recoverable. Since initial recognition of the investment, there had been no upward or downward adjustments as a result of observable price changes. Following the impairment, the carrying amount of $5.0 million was reduced to zero.
Assets measured at fair value on a nonrecurring basis include goodwill and indefinite-lived intangible assets arising from a business combination. These assets are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangible assets must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. This impairment review was most recently completed as of May 31, 2023. See Note 12 “Goodwill and Intangible Assets” for additional information.
17. Commitments and Contingencies
Adtalem is subject to lawsuits, administrative proceedings, regulatory reviews, and investigations associated with financial assistance programs and other matters arising in the conduct of its business and certain of these matters are discussed below. Descriptions of certain matters from prior SEC filings may not be carried forward in this report to the extent we believe such matters no longer are required to be disclosed or there has not been, to our knowledge, significant activity relating to them. As of March 31, 2024, we have adequately reserved for matters that management has determined a loss is probable and that loss 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. The continued defense, resolution, or settlement of any of the following matters could require us to expend significant resources and could have a material adverse effect on our business, financial condition, results of operations, and cash flows, and result in the imposition of significant restrictions on us and our ability to operate.
On January 12, 2022, Walden was served with a complaint filed in the United States District Court for the District of Maryland by Aljanal Carroll, Claudia Provost Charles, and Tiffany Fair against Walden for damages, injunctive relief, and declaratory relief on behalf of themselves and all other similarly-situated individuals alleging violations of Title VI of the Civil Rights Act of 1964, the Equal Credit Opportunity Act, the Minnesota Prevention of Consumer Fraud Act, the Minnesota Uniform Deceptive Trade Practices Act, Minnesota statutes prohibiting false statements in advertising, and for common law fraudulent misrepresentation. Plaintiffs allege that Walden has targeted, deceived, and exploited Black and female Doctor of Business Administration (“DBA”) students by knowingly misrepresenting and understating the number of “capstone” credits required to complete the DBA program and obtain a degree. On March 23, 2022, Walden filed a Motion to Dismiss the Plaintiffs’ claims for failure to state a claim upon which relief can be granted. On November 27, 2022, the Court denied Walden’s motion to dismiss the complaint. Plaintiffs filed an amended complaint to add an additional plaintiff, Tareion Fluker. Walden answered the amended complaint on February 2, 2023. The parties participated in a non-binding mediation on May 4, 2023 and settlement discussions continued. At a second non-binding mediation held on September 21, 2023, the parties agreed on a $28.5 million payment to resolve the issues in the case, subject to agreement on non-financial terms. The parties subsequently agreed to the non-financial terms including an agreement by Walden to implement certain website disclosures and verifications and to make certain programmatic changes. A settlement agreement has been executed by the parties. The settlement agreement in no way constitutes an admission of wrongdoing or liability by Walden. Plaintiffs filed a motion for preliminary approval of the settlement agreement on March 28, 2024. On April 17, 2024, the District Court preliminarily approved the settlement, which includes the provisional certification of the settlement class (the “Class”). The Court has scheduled a fairness hearing on July 23, 2024 to determine, among other things, whether the requirements for certification of the Class have been met, whether the settlement should be approved as fair and reasonable, and whether the order and final judgment approving the settlement should be entered. We recorded a $28.5 million loss contingency accrual for this matter within accrued liabilities on the Consolidated Balance Sheets as of March 31, 2024. In January 2024, Adtalem made a claim for indemnification under the Membership Interest Purchase Agreement with Laureate Education, Inc. (“Laureate”), dated September 11, 2020, pursuant to which Adtalem
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purchased Walden. If a settlement is approved by the Court, Adtalem expects to receive $5.5 million from Laureate in connection with such indemnification claim.
On June 6, 2022, plaintiff Rajesh Verma filed a lawsuit on behalf of himself and a class of similarly situated individuals in the Circuit Court of the Fourth Judicial Circuit, Duval County Florida, against Walden alleging that Walden was placing telephonic sales calls to persons on the National Do-Not-Call Registry, in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. Although originally filed in state court, Walden removed the case to federal court and filed a motion to dismiss plaintiff’s complaint. On August 26, 2022, plaintiff filed a motion to remand Count I of the complaint to state court. On March 2, 2023, plaintiff filed an amended complaint to add a Florida state law claim against Walden under the Florida Telephone Solicitation Act (“FTSA”). On March 16, 2023, Walden filed its answer to the amended complaint. On March 29, 2023, Walden’s motion to dismiss plaintiff’s complaint and plaintiff’s motion to remand Count I of the complaint were denied. A non-binding mediation was held on September 18, 2023. The parties reached a settlement for an immaterial amount, subject to Court approval. On November 27, 2023, the parties filed a motion for preliminary approval of the settlement agreement. The motion is still pending before the Court.
As previously disclosed, pursuant to the terms of the Stock Purchase Agreement (“SPA”) by and between Adtalem and Cogswell, dated as of December 4, 2017, as amended, Adtalem sold DeVry University to Cogswell and Adtalem agreed to indemnify DeVry University for certain losses up to $340.0 million (the “Liability Cap”). Adtalem has previously disclosed DeVry University related matters that have consumed a portion of the Liability Cap.
In late January 2024 and early February 2024, ED sent notice to Chamberlain, RUSM, RUSVM, and Walden that it had received approximately 3,225, 1,700, 1,900, and 7,740 borrower defense to repayment applications filed by students at Chamberlain, RUSM, RUSVM, and Walden respectively between June 23, 2022 and November 15, 2022. Each application seeks forgiveness of federal student loans made to these students. In the notices received, ED indicated that: (1) the notification was occurring prior to any substantive review of the application as well as its adjudication; (2) it would send the applications to each institution in batches of 500 per week; (3) it is optional for institutions to respond to the applications; and (4) not responding will result in no negative inference by ED. ED has also explained that it will separately decide whether to seek recoupment on any approved claim and that any recoupment actions ED chooses to initiate will have their own notification and response processes, which include an opportunity to provide additional evidence to the institutions. ED has indicated that an institution will learn of ED’s determination to forgive student loans only if it approves a borrower defense to repayment application and ED seeks recoupment. Chamberlain, RUSM, RUSVM, and Walden are responding to all of the applications received and they believe that none properly stated a claim for loan forgiveness.
18. Segment Information
We present three reportable segments as follows:
Chamberlain – Offers degree and non-degree programs in the nursing and health professions postsecondary education industry. This segment includes the operations of Chamberlain.
Walden – Offers online certificate programs and bachelor’s, master’s, and doctoral degrees, including those in nursing, education, counseling, business, psychology, public health, social work and human services, public administration and public policy, and criminal justice. This segment includes the operations of Walden, which was acquired by Adtalem on August 12, 2021.
Medical and Veterinary – Offers degree and non-degree programs in the medical and veterinary postsecondary education industry. This segment includes the operations of AUC, RUSM, and RUSVM, which are collectively referred to as the “medical and veterinary schools.”
These segments are consistent with the method by which the Chief Operating Decision Maker (Adtalem’s President and Chief Executive Officer) evaluates performance and allocates resources. Performance evaluations are based on each segment’s adjusted operating income. Adjusted operating income excludes special items, which consists of restructuring expense, business integration expense, intangible amortization expense, litigation reserve, loss on assets held for sale, debt modification costs, and gain on sale of assets. Adtalem’s management excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. “Home Office and
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Other” includes activities not allocated to a reportable segment and is included to reconcile segment results to the Consolidated Financial Statements. Total assets by segment is not presented as our CODM does not review or allocate resources based on segment assets. The accounting policies of the segments are the same as those described in Note 2 “Summary of Significant Accounting Policies.”
Summary financial information by reportable segment is as follows (in thousands):
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Adtalem conducts its educational operations in the U.S., Barbados, St. Kitts, and St. Maarten. Revenue by geographic area is as follows (in thousands):
No one customer accounted for more than 10% of Adtalem’s consolidated revenue for all periods presented.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), Adtalem Global Education Inc., together with its subsidiaries, is collectively referred to as “Adtalem,” “we,” “our,” “us,” or similar references.
Discussions within this MD&A may contain forward-looking statements. See the “Forward-Looking Statements” section for details about the uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements.
Throughout this MD&A, we sometimes use information derived from the Consolidated Financial Statements and the notes thereto but not presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these items are considered “non-GAAP financial measures” under the Securities and Exchange Commission (“SEC”) rules. See the “Non-GAAP Financial Measures and Reconciliations” section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.
Certain items presented in tables may not sum due to rounding. Percentages presented are calculated from the underlying numbers in thousands. Discussions throughout this MD&A are based on continuing operations unless otherwise noted. The MD&A should be read in conjunction with the Consolidated Financial Statements and the notes thereto.
Available Information
We use our website (www.adtalem.com) as a routine channel of distribution of company information, including press releases, presentations, and supplemental information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings, and public conference calls and webcasts. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts. You may also access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as well as other reports relating to us that are filed with or furnished to the SEC, free of charge in the investor relations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The content of the websites mentioned above is not incorporated into and should not be considered a part of this report.
Segments
We present three reportable segments as follows:
Chamberlain – Offers degree and non-degree programs in the nursing and health professions postsecondary education industry. This segment includes the operations of Chamberlain University (“Chamberlain”).
Walden – Offers online certificate programs and bachelor’s, master’s, and doctoral degrees, including those in nursing, education, counseling, business, psychology, public health, social work and human services, public administration and
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public policy, and criminal justice. This segment includes the operations of Walden University (“Walden”), which was acquired by Adtalem on August 12, 2021.
Medical and Veterinary – Offers degree and non-degree programs in the medical and veterinary postsecondary education industry. This segment includes the operations of American University of the Caribbean School of Medicine (“AUC”), Ross University School of Medicine (“RUSM”), and Ross University School of Veterinary Medicine (“RUSVM”), which are collectively referred to as the “medical and veterinary schools.”
“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 18 “Segment Information” to the Consolidated Financial Statements.
Third Quarter Highlights
Financial and operational highlights for the third quarter of fiscal year 2024 include:
| ● | Adtalem revenue increased $43.6 million, or 11.8%, in the third quarter of fiscal year 2024 compared to the year-ago period driven by increased revenue at Chamberlain, Walden, and Medical and Veterinary. |
| ● | Net income of $36.8 million ($0.93 diluted earnings per share) decreased $9.0 million ($0.07 diluted earnings per share) in the third quarter of fiscal year 2024 compared to net income of $45.9 million in the year-ago period. This decrease was primarily driven by increases in business integration expense, incentive compensation expense, provision for bad debts, and income tax expense in the current period and a gain on assets held for sale and a tax valuation allowance release recorded in the year-ago period. These were partially offset by an increase in revenue and a decrease in intangible amortization expense in the current year period. |
| ● | Adjusted net income of $59.4 million increased $7.8 million, or 15.1%, in the third quarter of fiscal year 2024 compared to the year-ago period. This increase was primarily driven by an increase in revenue, partially offset by increases in costs to deliver instruction, investments to support growth initiatives, incentive compensation expense, provision for bad debts, and income tax expense. |
| ● | Diluted adjusted earnings per share of $1.50 increased $0.37, or 32.7%, in the third quarter of fiscal year 2024 compared to the year-ago period driven by lower diluted shares due to share repurchases and the increase in adjusted net income. |
| ● | For the January 2024 and March 2024 sessions, total student enrollment at Chamberlain increased 7.0% and 9.0%, respectively, compared to the same sessions last year. |
| ● | As of March 31, 2024, total student enrollment at Walden increased 8.4% compared to March 31, 2023. |
| ● | For the January 2024 semester, total student enrollment at the medical and veterinary schools decreased 4.5% compared to the same semester last year. |
| ● | On January 26, 2024, we made a prepayment of $50.0 million on our Term Loan B debt. |
| ● | Adtalem repurchased a total of 1,771,603 shares of Adtalem’s common stock under its share repurchase programs at an average cost of $51.60 per share during the third quarter of fiscal year 2024. On January 16, 2024, Adtalem completed its thirteenth share repurchase program. On January 19, 2024, we announced that the Board of Directors authorized Adtalem’s fourteenth share repurchase program, which allows repurchase of up to $300.0 million of its common stock through January 16, 2027. The timing and amount of any future repurchases will be determined based on an evaluation of market conditions and other factors. |
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Results of Operations
The following table presents selected Consolidated Statements of Income data as a percentage of revenue:
Three Months Ended | Nine Months Ended | |||||||||
March 31, | March 31, | |||||||||
2024 | 2023 | 2024 | 2023 | |||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||
Cost of educational services | 42.5 | % | 44.9 | % | 43.9 | % | 44.6 | % | ||
Student services and administrative expense | 38.0 | % | 39.2 | % | 40.7 | % | 39.8 | % | ||
Restructuring expense | 0.1 | % | 0.3 | % | 0.1 | % | 1.6 | % | ||
Business integration expense | 4.5 | % | 3.1 | % | 2.6 | % | 3.3 | % | ||
Gain on sale of assets | — | % | (3.6) | % | — | % | (1.2) | % | ||
Total operating cost and expense | 85.0 | % | 83.9 | % | 87.4 | % | 88.2 | % | ||
Operating income | 15.0 | % | 16.1 | % | 12.6 | % | 11.8 | % | ||
Interest expense | (4.0) | % | (3.9) | % | (4.2) | % | (4.4) | % | ||
Other income, net | 0.7 | % | 1.1 | % | 0.7 | % | 0.3 | % | ||
Income from continuing operations before income taxes | 11.6 | % | 13.3 | % | 9.2 | % | 7.7 | % | ||
Provision for income taxes | (2.6) | % | (0.1) | % | (1.8) | % | (0.5) | % | ||
Income from continuing operations | 9.1 | % | 13.2 | % | 7.4 | % | 7.2 | % | ||
(Loss) income from discontinued operations, net of tax | (0.2) | % | (0.7) | % | 0.0 | % | (0.7) | % | ||
Net income | 8.9 | % | 12.4 | % | 7.4 | % | 6.5 | % | ||
Revenue
The following tables present revenue by segment detailing the changes from the year-ago periods (in thousands):
Three Months Ended March 31, 2024 |
| ||||||||||||
Chamberlain |
| Walden |
| Medical and |
| Consolidated |
| ||||||
Fiscal year 2023 | $ | 149,737 | $ | 132,874 | $ | 86,471 | $ | 369,082 | |||||
Growth | 20,601 | 17,733 | 5,242 | 43,576 | |||||||||
Fiscal year 2024 | $ | 170,338 | $ | 150,607 | $ | 91,713 | $ | 412,658 | |||||
% change from prior year | 13.8 | % | 13.3 | % | 6.1 | % | 11.8 | % | |||||
Nine Months Ended March 31, 2024 |
| ||||||||||||
Chamberlain |
| Walden |
| Medical and |
| Consolidated |
| ||||||
Fiscal year 2023 | $ | 426,538 | $ | 395,715 | $ | 263,932 | $ | 1,086,185 | |||||
Growth | 39,949 | 43,308 | 5,303 | 88,560 | |||||||||
Fiscal year 2024 | $ | 466,487 | $ | 439,023 | $ | 269,235 | $ | 1,174,745 | |||||
% change from prior year | 9.4 | % | 10.9 | % | 2.0 | % | 8.2 | % | |||||
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Chamberlain
Chamberlain Student Enrollment:
Fiscal Year 2024 | |||||||||||||
Session | July 2023 | Sept. 2023 | Nov. 2023 | Jan. 2024 | Mar. 2024 | ||||||||
Total students | 32,175 | 34,889 | 35,592 | 37,196 | 37,985 | ||||||||
% change from prior year | 2.6 | % | 5.2 | % | 6.6 | % | 7.0 | % | 9.0 | % | |||
Fiscal Year 2023 | |||||||||||||
Session | July 2022 | Sept. 2022 | Nov. 2022 | Jan. 2023 | Mar. 2023 | May 2023 |
| ||||||
Total students | 31,371 | 33,153 | 33,390 | 34,760 | 34,847 | 33,284 | |||||||
% change from prior year | (4.1) | % | (4.0) | % | (0.8) | % | 1.8 | % | 2.0 | % | 1.2 | % | |
Chamberlain revenue increased 13.8%, or $20.6 million, to $170.3 million in the third quarter and increased 9.4%, or $39.9 million, to $466.5 million in the first nine months of fiscal year 2024 compared to the year-ago periods, driven by an increase in enrollment and higher tuition rates. Enrollment has improved in several graduate and doctoral programs and the undergraduate Bachelor of Science in Nursing (“BSN”) programs. In the March 2024 session, the Registered Nurse to Bachelor of Science in Nursing (“RN-to-BSN”) online degree program also saw increased total enrollment. Management believes Chamberlain is achieving growth through leveraging scale and national footprint and providing a full breadth of nursing programs and modalities.
Tuition Rates:
Tuition for the BSN onsite and online degree program ranges from $705 to $753 per credit hour. Tuition for the RN-to-BSN online degree program is $635 per credit hour. Tuition for the online Master of Science in Nursing (“MSN”) degree program is $695 per credit hour. Tuition for the online Family Nurse Practitioner (“FNP”) degree program is $710 per credit hour. Tuition for the online Doctor of Nursing Practice (“DNP”) degree program is $806 per credit hour. Tuition for the online Master of Public Health (“MPH”) degree program is $590 per credit hour. Tuition for the online Master of Social Work (“MSW”) degree program is $695 per credit hour. Tuition for the onsite Master of Physician Assistant Studies (“MPAS”) is $8,000 per session. In some cases, these tuition rates increased by approximately 3% to 8% from the prior year for new students. These tuition rates do not include the cost of course fees, books, supplies, transportation, clinical fees, living expenses, or other fees as listed in the Chamberlain academic catalog.
Walden
Walden Student Enrollment:
Fiscal Year 2024 | |||||||||
September 30, | December 31, | March 31, | |||||||
Period | 2023 | 2023 | 2024 | ||||||
Total students | 40,975 | 40,971 | 42,751 | ||||||
% change from prior year | 0.5 | % | 7.9 | % | 8.4 | % | |||
Fiscal Year 2023 | |||||||||
September 30, | December 31, | March 31, | June 30, | ||||||
Period | 2022 | 2022 | 2023 | 2023 | |||||
Total students | 40,772 | 37,956 | 39,427 | 37,582 | |||||
% change from prior year | (9.2) | % | (7.8) | % | (7.9) | % | (4.8) | % | |
Walden total student enrollment represents those students attending instructional sessions as of the dates identified above. Walden revenue increased 13.3%, or $17.7 million, to $150.6 million in the third quarter and increased 10.9%, or $43.3 million, to $439.0 million in the first nine months of fiscal year 2024 compared to the year-ago periods, driven by an increase in enrollment, higher tuition rates, and an increase in average credit hours per student. Management believes Walden’s performance turnaround in enrollment in the first nine months of fiscal year 2024 has been accelerated by
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investments in student experience and brand along with providing flexibility to working adults through part-time and Tempo Learning® competency-based programs.
Tuition Rates:
On a per credit hour basis, tuition for Walden programs range from $130 per credit hour to $1,060 per credit hour, with the wide range due to the nature of the programs. General education courses are charged at $340 per credit hour. Other programs such as those with a subscription-based learning modality or those billed on a subscription period or term basis range from $1,550 to $7,325 per term. Students are charged a program fee that ranges from $50 to $230 per term as well as a clinical fee of $160 per course for specific programs. Some programs require students to attend residencies, skills labs, and pre-practicum labs, which are charged at a range of $1,000 to $2,550 per event. In most cases, these tuition rates, event charges, and fees represent increases of approximately 0% to 4% with an average of approximately 2% from the prior year. These tuition rates, event charges, and fees do not include the cost of books or personal technology, supplies, transportation, or living expenses.
Medical and Veterinary
Medical and Veterinary Student Enrollment:
Fiscal Year 2024 | |||||||
Semester | Sept. 2023 | Jan. 2024 | |||||
Total students | 5,209 | 5,073 | |||||
% change from prior year | (7.5) | % | (4.5) | % | |||
Fiscal Year 2023 | |||||||
Semester | Sept. 2022 | Jan. 2023 | May 2023 |
| |||
Total students | 5,634 | 5,312 | 4,869 | ||||
% change from prior year | 3.4 | % | 1.6 | % | (8.2) | % | |
Medical and Veterinary revenue increased 6.1%, or $5.2 million, to $91.7 million in the third quarter and increased 2.0%, or $5.3 million, to $269.2 million in the first nine months of fiscal year 2024 compared to the year-ago periods, driven by tuition rate increases at all three institutions in this segment, partially offset by decreased enrollment.
Management’s plan to increase enrollment centers around renewed focus on operational efficiency, specifically academic support and the enrollment experience.
Tuition Rates:
| ● | Effective for semesters beginning in September 2023, for students first enrolled prior to May 2022, tuition rates for the beginning basic sciences and final clinical rotation portions of AUC’s medical program are $26,680 and $31,328, respectively, per semester, which represents a 6.8% and 12.0% increase, respectively, from the prior academic year. Effective for semesters beginning in September 2023, for students first enrolled in May 2022 and after, tuition rates for the beginning basic sciences and final clinical rotation portions of AUC’s medical program are $21,568 and $28,146, respectively, per semester, which represents a 6.8% and 12.0% increase, respectively, from the prior academic year. In addition, students first enrolled in May 2022 and after are charged administrative fees of $5,430 and $3,841 for the basic sciences and final clinical rotation portions of the program, respectively, per semester, which represents a 6.8% and 12.0% increase, respectively, from the prior academic year. |
| ● | Effective for semesters beginning in September 2023, for students first enrolled prior to May 2022, tuition rates for the beginning basic sciences and final clinical rotation portions of RUSM’s medical program are $27,547 and $30,397, respectively, per semester. These tuition rates represent a 6.0% increase from the prior academic year. Effective for semesters beginning in September 2023, for students first enrolled in May 2022 and after, tuition rates for the beginning basic sciences and final clinical rotation portions of RUSM’s medical program are $23,284 and $27,447, respectively, per semester. In addition, students first enrolled in May 2022 and after are charged administrative fees ranging from $5,883 to $6,662 for the basic sciences portion of the program and $3,420 for the |
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| final clinical rotation portion of the program, per semester. These tuition rates and fees represent a 6.0% increase from the prior academic year. |
| ● | Effective for semesters beginning in September 2023, for students who first enrolled prior to September 2018, tuition rates for the pre-clinical (semesters 1-7) and clinical curriculum (semesters 8-10) of RUSVM’s veterinary program are $22,334 and $28,034, respectively, per semester. Effective for semesters beginning in September 2023, for students first enrolled in September 2018 and after, tuition rates for the pre-clinical and clinical curriculum of RUSVM’s veterinary program are $24,044 per semester. All of these tuition rates represent a 6.0% increase from the prior academic year. |
The respective tuition rates for AUC, RUSM, and RUSVM do not include the cost of transportation, living expenses, or health insurance.
Cost of Educational Services
The largest component of cost of educational services is the cost of faculty and staff who support educational operations. This expense category also includes the costs of facilities, adjunct faculty, supplies, housing, bookstore, other educational materials, student education-related support activities, and the provision for bad debts. We have not experienced significant inflationary pressures on wages or other costs of delivering our educational services; however, should inflation persist in the overall economy, cost increases could affect our results of operations in the future. The following tables present cost of educational services by segment detailing the changes from the year-ago periods (in thousands):
Nine Months Ended March 31, 2024 |
| ||||||||||||
| Chamberlain |
| Walden |
| Medical and |
| Consolidated | ||||||
Fiscal year 2023 |
| $ | 186,069 | $ | 149,605 |
| $ | 149,094 | $ | 484,768 | |||
Cost increase (decrease) |
|
| 17,175 |
| 15,632 |
| (1,567) |
| 31,240 | ||||
Fiscal year 2024 |
| $ | 203,244 | $ | 165,237 |
| $ | 147,527 | $ | 516,008 | |||
% change from prior year |
| 9.2 | % |
| 10.4 | % | (1.1) | % | 6.4 | % | |||
Cost of educational services increased 5.7%, or $9.5 million, to $175.3 million in the third quarter and increased 6.4%, or $31.2 million, to $516.0 million in the first nine months of fiscal year 2024 compared to the year-ago periods. These cost increases were primarily driven by an increase in labor and other costs to support increased enrollment, and an increase in provision for bad debts at Chamberlain and Walden.
As a percentage of revenue, cost of educational services was 42.5% and 43.9% in the third quarter and first nine months of fiscal year 2024, respectively, compared to 44.9% and 44.6% in the year-ago periods. The decreases in the percentages were primarily the result of revenue growth accompanied with cost efficiencies.
Student Services and Administrative Expense
The student services and administrative expense category includes expenses related to student admissions, marketing and advertising, general and administrative, and amortization expense of finite-lived intangible assets related to business acquisitions. We have not experienced significant inflationary pressures on wages or other costs of providing services to our students and educational institutions; however, should inflation persist in the overall economy, cost increases could affect our results of operations in the future. The following tables present student services and administrative expense by segment detailing the changes from the year-ago periods (in thousands):
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Nine Months Ended March 31, 2024 |
| |||||||||||||||
| Chamberlain |
| Walden |
| Medical and |
| Home Office | Consolidated | ||||||||
Fiscal year 2023 | $ | 140,649 | $ | 216,865 | $ | 58,333 | $ | 16,866 | $ | 432,713 | ||||||
Cost increase |
| 25,281 |
| 12,716 |
| 3,854 |
| 4,449 |
| 46,300 | ||||||
Intangible amortization expense change | — | (20,640) | — | — | (20,640) | |||||||||||
Litigation reserve change | — | 18,500 | — | — | 18,500 | |||||||||||
Loss on assets held for sale change | — | — | — | 647 | 647 | |||||||||||
Debt modification costs change | — | — | — | 848 | 848 | |||||||||||
Fiscal year 2024 | $ | 165,930 | $ | 227,441 | $ | 62,187 | $ | 22,810 | $ | 478,368 | ||||||
Fiscal year 2024 % change: |
|
| ||||||||||||||
Cost increase | 18.0 | % |
| 5.9 | % | 6.6 | % |
| NM | 10.7 | % | |||||
Intangible amortization expense change |
| — |
| (9.5) | % |
| — |
| NM |
| (4.8) | % | ||||
Litigation reserve change |
| — |
| 8.5 | % |
| — |
| NM |
| 4.3 | % | ||||
Loss on assets held for sale change |
| — |
| — |
| — |
| NM |
| 0.1 | % | |||||
Debt modification costs change |
| — |
| — |
| — |
| NM |
| 0.2 | % | |||||
Fiscal year 2024 % change |
| 18.0 | % |
| 4.9 | % |
| 6.6 | % |
| NM |
| 10.6 | % | ||
Student services and administrative expense increased 8.4%, or $12.2 million, to $156.7 million in the third quarter and increased 10.6%, or $45.7 million, to $478.4 million in the first nine months of fiscal year 2024 compared to the year-ago periods. Excluding intangible amortization expense and debt modification costs, student services and administrative expense increased 11.9%, or $17.3 million, in the third quarter of fiscal year 2024 compared to the year-ago period. Excluding intangible amortization expense, litigation reserve, loss on assets held for sale, and debt modification costs, student services and administrative expense increased 10.7%, or $46.3 million, in the first nine months of fiscal year 2024 compared to the year-ago period. These cost increases were primarily driven by an increase in incentive compensation expense, marketing expense, and investments to support growth initiatives.
As a percentage of revenue, student services and administrative expense was 38.0% and 40.7% in the third quarter and first nine months of fiscal year 2024, respectively, compared to 39.2% and 39.8% in the year-ago periods. The decrease in the percentage for the third quarter of fiscal year 2024 was primarily the result of efficiencies in marketing spend and a decrease in intangible amortization expense. The increase in the percentage for the first nine months of fiscal year 2024 was primarily the result of increased incentive compensation expense and litigation reserves in the first nine months of fiscal year 2024, partially offset by a decrease in intangible amortization expense.
Restructuring Expense
Restructuring expense in the third quarter and first nine months of fiscal year 2024 was $0.5 million and $1.2 million, respectively, compared to $1.3 million and $17.7 million in the year-ago periods. The restructuring expense decreases in the third quarter and first nine months of fiscal year 2024 were primarily driven by higher real estate consolidations in the
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third quarter and first nine months of fiscal year 2023 at Walden, Medical and Veterinary, and Adtalem’s home office resulting in impairments on operating lease assets and property and equipment. See Note 5 “Restructuring Charges” to the Consolidated Financial Statements for additional information on restructuring charges. We continue to incur restructuring charges or reversals related to exited leased space from previous restructuring activities.
Business Integration Expense
Business integration expense in the third quarter and first nine months of fiscal year 2024 was $18.5 million and $30.6 million, respectively, compared to $11.3 million and $35.7 million in the year-ago periods. 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. We expect to incur additional business integration expense through the remainder of fiscal year 2024 at a decreasing rate.
Gain on Sale of Assets
On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (“DePaul College Prep”) for $52.0 million. Adtalem received $5.2 million of cash at the time of closing and held a mortgage, secured by the property, from DePaul College Prep for $46.8 million. The mortgage was due on July 31, 2024 as a balloon payment and bore interest at a rate of 4% per annum, payable monthly. DePaul College Prep had an option to make prepayments. Due to Adtalem’s involvement with financing the sale, the transaction did not qualify as a sale for accounting purposes at the time of closing. Adtalem continued to maintain the assets associated with the sale on the Consolidated Balance Sheets. We recorded a note receivable of $40.3 million and a financing payable of $45.5 million at the time of the sale, which were classified as other assets, net and other liabilities, respectively, on the Consolidated Balance Sheets. On February 23, 2023, DePaul College Prep paid the mortgage in full. Upon receiving full repayment of the mortgage, Adtalem no longer is involved in the financing of the sale and therefore derecognized the note receivable, the financing payable, and the assets associated with the campus facility, which resulted in recognizing a gain on sale of assets of $13.3 million in the three and nine months ended March 31, 2023. This gain was recorded at Adtalem’s home office, which is classified as “Home Office and Other” in Note 18 “Segment Information” to the Consolidated Financial Statements.
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Operating Income
The following tables present operating income by segment detailing the changes from the year-ago periods (in thousands):
Three Months Ended March 31, 2024 | |||||||||||||||
Chamberlain |
| Walden |
| Medical and |
| Home Office | Consolidated | ||||||||
Fiscal year 2023 | $ | 39,589 | $ | 10,343 | $ | 16,472 | $ | (6,975) | $ | 59,429 | |||||
Organic change | 3,760 | 7,243 | 6,060 | (249) | 16,814 | ||||||||||
Restructuring expense change | — | 53 | 227 | 525 | 805 | ||||||||||
Business integration expense change | — | — | — | (7,104) | (7,104) | ||||||||||
Intangible amortization expense change | — | 5,946 | — | — | 5,946 | ||||||||||
Debt modification costs change | — | — | — | (848) | (848) | ||||||||||
Gain on sale of assets change | — | — | — | (13,317) | (13,317) | ||||||||||
Fiscal year 2024 | $ | 43,349 | $ | 23,585 | $ | 22,759 | $ | (27,968) | $ | 61,725 | |||||
Nine Months Ended March 31, 2024 | |||||||||||||||
Chamberlain |
| Walden |
| Medical and |
| Home Office | Consolidated | ||||||||
Fiscal year 2023 | $ | 99,002 | $ | 26,071 | $ | 49,172 | $ | (45,632) | $ | 128,613 | |||||
Organic change | (2,507) | 14,960 | 3,015 | (4,448) | 11,020 | ||||||||||
Restructuring expense change | 818 | 3,950 | 6,955 | 4,766 | 16,489 | ||||||||||
Business integration expense change | — | — | — | 5,081 | 5,081 | ||||||||||
Intangible amortization expense change | — | 20,640 | — | — | 20,640 | ||||||||||
Litigation reserve change | — | (18,500) | — | — | (18,500) | ||||||||||
Loss on assets held for sale change | — | — | — | (647) | (647) | ||||||||||
Debt modification costs change | — | — | — | (848) | (848) | ||||||||||
Gain on sale of assets change | — | — | — | (13,317) | (13,317) | ||||||||||
Fiscal year 2024 | $ | 97,313 | $ | 47,121 | $ | 59,142 | $ | (55,045) | $ | 148,531 | |||||
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The following table presents a reconciliation of operating income (GAAP) to adjusted operating income (non-GAAP) by segment (in thousands):
Consolidated operating income increased 3.9%, or $2.3 million, to $61.7 million in the third quarter and increased 15.5%, or $19.9 million, to $148.5 million in the first nine months of fiscal year 2024 compared to the year-ago periods. The operating income increase in the third quarter of fiscal year 2024 was primarily driven by an increase in revenue and decreases in restructuring expense and intangible amortization expense, partially offset by increases in incentive compensation expense, business integration expense, marketing expense, provision for bad debts, and labor and other costs to support increased enrollment, and the gain on sale of assets in the year-ago period. The operating income increase in the first nine months of fiscal year 2024 was primarily driven by an increase in revenue and decreases in restructuring expense, business integration expense, and intangible amortization expense, partially offset by increases in litigation reserves, incentive compensation expense, marketing expense, provision for bad debts, and labor and other costs to support increased enrollment, and the gain on sale of assets in the year-ago period. The decrease in intangible amortization expense is driven by the decrease in amortization relating to the Walden student relationships intangible asset. This intangible asset
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is amortized based on the estimated retention of the students and considers the revenue and cash flow associated with these existing students, which are concentrated at the beginning of the asset’s useful life.
Consolidated adjusted operating income increased 23.0%, or $16.8 million, to $89.8 million in the third quarter and increased 5.1%, or $11.0 million, to $228.7 million in the first nine months of fiscal year 2024 compared to the year-ago periods. The adjusted operating income increases in the third quarter and first nine months of fiscal year 2024 were primarily driven by an increase in revenue, partially offset by increases in labor and other costs to support increased enrollment, marketing expense, provision for bad debts, and incentive compensation expense.
Chamberlain
Chamberlain operating income increased 9.5%, or $3.8 million, to $43.3 million in the third quarter and decreased 1.7%, or $1.7 million, to $97.3 million in the first nine months of fiscal year 2024 compared to the year-ago periods. Segment adjusted operating income increased 9.5%, or $3.8 million, to $43.3 million in the third quarter and decreased 2.5%, or $2.5 million, to $97.3 million in the first nine months of fiscal year 2024 compared to the year-ago periods. The adjusted operating income increase in the third quarter of fiscal year 2024 was primarily driven by an increase in revenue, partially offset by increases in labor and other costs to support increased enrollment, marketing expense, and provision for bad debts. The adjusted operating income decrease in the first nine months of fiscal year 2024 was primarily driven by the increases in labor and other costs to support increased enrollment, marketing expense, and provision for bad debts, partially offset by an increase in revenue.
Walden
Walden operating income increased 128.0%, or $13.2 million, to $23.6 million in the third quarter and increased 80.7%, or $21.1 million, to $47.1 million in the first nine months of fiscal year 2024 compared to the year-ago periods. Segment adjusted operating income increased 29.4%, or $7.2 million, to $31.9 million in the third quarter and increased 19.1%, or $15.0 million, to $93.1 million in the first nine months of fiscal year 2024 compared to the year-ago periods. The adjusted operating income increase in the third quarter and first nine months of fiscal year 2024 was primarily driven by the increase in revenue, partially offset by increases in labor and other costs to support increased enrollment, provision for bad debts, and graduation expense.
Medical and Veterinary
Medical and Veterinary operating income increased 38.2%, or $6.3 million, to $22.8 million in the third quarter and increased 20.3%, or $10.0 million, to $59.1 million in the first nine months of fiscal year 2024 compared to the year-ago periods. Segment adjusted operating income increased 35.9%, or $6.1 million, to $23.0 million in the third quarter and increased 5.3%, or $3.0 million, to $59.5 million in the first nine months of fiscal year 2024 compared to the year-ago periods. The adjusted operating income increase in the third quarter and first nine months of fiscal year 2024 was primarily driven by an increase in revenue and a decrease in provision for bad debts.
Interest Expense
Interest expense in the third quarter and first nine months of fiscal year 2024 was $16.6 million and $48.9 million, respectively, compared to $14.5 million and $47.8 million in the year-ago periods. The interest expense increase in the third quarter of fiscal year 2024 was primarily driven by the increase in letter of credit fees and a write-off of debt discount and issuance costs on the Term Loan B upon repayment of a portion of the debt. The interest expense increase in the first nine months of fiscal year 2024 was primarily driven by the increase in letter of credit fees and a higher interest rate on outstanding Term Loan B debt (as defined and discussed in Note 13 “Debt” to the Consolidated Financial Statements), partially offset by a decrease in write-off of debt discount and issuance costs on the Term Loan B upon repayment of a portion of the debt.
Other Income, Net
Other income, net in the third quarter and first nine months of fiscal year 2024 was $2.9 million and $8.6 million, respectively, compared to $4.0 million and $3.3 million in the year-ago periods. The other income, net, increase in the first
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nine months of fiscal year 2024 was primarily driven by the year-ago period incurring a $5.0 million investment impairment of an equity investment.
Provision for Income Taxes
Our effective income tax rate (“ETR”) from continuing operations can differ from the 21% U.S. federal statutory rate due to several factors, including tax on global intangible low-taxed income (“GILTI”), limitation of tax benefits on certain executive compensation, the rate of tax applied by state and local jurisdictions, the rate of tax applied to earnings outside the U.S., tax incentives, tax credits related to research and development expenditures, changes in valuation allowance, liabilities for uncertain tax positions, and tax benefits on stock-based compensation awards.
Our effective tax rates from continuing operations were 22.1% and 19.5% in the three and nine months ended March 31, 2024, respectively, and 0.8% and 7.0% in the three and nine months ended March 31, 2023, respectively. The income tax provision for the third quarter and first nine months of fiscal year 2024 increased compared to the year-ago periods primarily due to us recording a net tax benefit of $6.2 million in the year-ago periods primarily for the release of a valuation allowance on certain deferred tax assets based on our reassessment of the amount of state net operating loss carryforwards that are more likely than not to be realized. The current year income tax provision also increased due to an increase in the percentage of earnings from domestic operations, which are generally taxed at higher rates than foreign earnings.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) requires taxpayers to capitalize and subsequently amortize research and experimental (“R&E”) expenditures that fall within the scope of Internal Revenue Code Section 174 for tax years starting after December 31, 2021. This rule became effective for Adtalem during fiscal year 2023 and resulted in the deferred tax asset for capitalization of R&E costs of $8.1 million, based on interpretation of the law as currently enacted. Adtalem will capitalize and amortize these costs for tax purposes over 5 years for R&E performed in the U.S. and over 15 years for R&E performed outside of the U.S.
Discontinued Operations
Beginning in the second quarter of fiscal year 2022, the Association of Certified Anti-Money Laundering Specialists (“ACAMS”), Becker Professional Education (“Becker”), OnCourse Learning (“OCL”), and EduPristine operations were classified as discontinued operations. In addition, we continue to incur costs associated with ongoing litigation and settlements related to the DeVry University and Carrington College divestitures, which were completed during fiscal year 2019, and are classified as expense within discontinued operations.
Loss from discontinued operations in the third quarter of fiscal year 2024 was $0.6 million. This loss consisted of the following: (i) loss of $0.8 million driven by ongoing litigation costs and settlements related to the DeVry University divestiture and (ii) a benefit from income taxes of $0.2 million associated with the items listed above.
Loss from discontinued operations in the third quarter of fiscal year 2023 was $2.7 million. This loss consisted of the following: (i) loss of $4.0 million driven by ongoing litigation costs and settlements related to the DeVry University divestiture; (ii) a loss on the sale of ACAMS, Becker, and OCL of $0.4 million for a tax return to provision adjustment; and (iii) a benefit from income taxes of $1.7 million associated with the items listed above.
Income from discontinued operations in the first nine months of fiscal year 2024 was $0.2 million. This income consisted of the following: (i) income of $0.3 million driven from the DeVry University earn-out, partially offset by ongoing litigation costs and settlements related to DeVry University and Carrington College divestitures; and (ii) a provision from income taxes of $0.1 million associated with the items listed above.
Loss from discontinued operations in the first nine months of fiscal year 2023 was $7.1 million. This loss consisted of the following: (i) loss of $6.7 million driven by ongoing litigation costs and settlements related to the DeVry University divestiture, partially offset by income from the DeVry University earn-out; (ii) a loss on the sale of ACAMS, Becker, and OCL of $3.6 million for working capital adjustments to the initial sales prices and a tax return to provision adjustment; and (iii) a benefit from income taxes of $3.2 million associated with the items listed above.
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Regulatory Environment
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 the U.S., the Higher Education Act (“HEA”) guides the federal government’s support of postsecondary education. If there are changes to financial aid programs that restrict student eligibility or reduce funding levels, Adtalem’s financial condition and cash flows could be materially and adversely affected. See Item 1A. “Risk Factors” in our fiscal year 2023 Form 10-K for a discussion of student financial aid related risks.
In addition, government-funded financial assistance programs are governed by extensive and complex regulations in the U.S. Like any other educational institution, Adtalem’s administration of these programs is periodically reviewed by various regulatory agencies and is subject to audit or investigation by other governmental authorities. Any violation could be the basis for penalties or other disciplinary action, including initiation of a suspension, limitation, or termination proceeding.
If the U.S. Department of Education (“ED”) determines that we have failed to demonstrate either financial responsibility or administrative capability in any pending program review, or otherwise determines that an institution has violated the terms of its Program Participation Agreement (“PPA”), we could be subject to sanctions including: fines, penalties, reimbursement for discharged loan obligations, a requirement to post a letter of credit, and/or suspension or termination of our eligibility to participate in the Title IV programs.
Passage of an ED-defined financial responsibility test, also known as a “composite score,” is required for continued participation by an institution in Title IV aid programs. For Adtalem’s institutions, this test is calculated at the consolidated Adtalem level. Applying various financial elements from the fiscal year audited financial statements, 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 had exceeded the required minimum of 1.5. However, on September 25, 2023, Adtalem was notified by ED that its fiscal year 2022 composite score had declined to 0.2. As previously disclosed, this was expected due to the acquisition of Walden. ED advised that Adtalem’s five institutions will be permitted to continue to participate in Title IV under provisional certifications with heightened cash monitoring and continued reporting. A letter of credit in the amount of $157.9 million, representing 10% of the consolidated Title IV funds Adtalem’s institutions received during fiscal year 2022, was delivered to ED on November 1, 2023. Management does not believe these conditions will have a material adverse effect on Adtalem’s operations.
Chamberlain was most recently recertified and issued an unrestricted PPA in September 2020, with a reapplication date that has been extended by ED to June 30, 2024, due to a delay in ED’s system platform implementation used for such applications. 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 of December 31, 2022, March 31, 2023, and June 30, 2023, respectively. AUC and RUSM have been notified that their applications to renew their participation in Title IV programs have been completed and approved by ED. The lengthy PPA recertification process is such that ED allows unhampered continued access to Title IV funding after PPA expiration, so long as materially complete applications are submitted at least 90 days in advance of expiration. A complete application for RUSVM’s PPA recertification has been timely submitted to ED. RUSVM is awaiting an update on its renewal application from ED.
Walden must apply periodically to ED for continued certification to participate in Title IV programs. Such recertification generally is required every six years, but may be required earlier, including when an institution undergoes a change in control. ED may place an institution on provisional certification status if it finds that the institution does not
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fully satisfy all of the eligibility and certification standards and in certain other circumstances, such as when an institution is certified for the first time or undergoes a change in control. During the period of provisional certification, the institution must comply with any additional conditions included in the institution’s PPA. In addition, ED may more closely review an institution that is provisionally certified if it applies for recertification or approval to open a new location, add an educational program, acquire another institution, or make any other significant change. Students attending provisionally certified institutions remain eligible to receive Title IV program funds. If ED determines that a provisionally certified institution is unable to meet its responsibilities under its PPA, it may seek to revoke the institution’s certification to participate in Title IV programs without advance notice or opportunity for the institution to challenge the action. Walden was issued a Temporary Provisional PPA (“TPPPA”) on September 17, 2021 in connection with its acquisition by Adtalem. Walden’s provisional certification prior to acquisition was due to Walden’s prior parent company (Laureate Education, Inc.) failing composite score under ED’s financial responsibility standards, previously described above, and ED’s approval of Laureate’s initial public offering in February 2017, which it viewed as a change in control. As a result of Adtalem’s acquisition of Walden, the provisional nature of Walden’s PPA remains in effect on a month-to-month basis while ED reviews the change in ownership application relating to the acquisition of Walden by Adtalem. Walden’s TPPPA included financial requirements, which were in place prior to acquisition, such as a letter of credit, heightened cash monitoring, and additional reporting. Walden also is subject to a restriction on changes to its educational programs, including a prohibition on the addition of new programs or locations that had not been approved by ED prior to the change in ownership during the period in which Walden participates under provisional certification (either as a result of the change in ownership or because of the continuation of the financial responsibility letter of credit).
ED has recently allowed reductions in our letters of credit totaling $90.8 million. On January 31, 2024, ED allowed a $76.2 million letter of credit in favor of ED to expire without any requirement for Adtalem to renew it. Adtalem had a surety-backed letter of credit outstanding of $84.0 million as of March 31, 2024, in favor of ED on behalf of Walden, which allows Walden to participate in Title IV programs. In addition, Adtalem had a letter of credit outstanding under its Revolver in the amount of $157.9 million as of March 31, 2024, in favor of ED, which allows Adtalem institutions to participate in Title IV programs. As of March 31, 2024, Adtalem had $241.9 million of letters of credit outstanding in favor of ED. On April 26, 2024, ED indicated that it will permit Adtalem to reduce the surety-backed letter of credit from $84.0 million to $69.4 million and requested that this letter of credit be extended through December 31, 2024. As of when this further reduction takes place, Adtalem will have $227.3 million of letters of credit outstanding in favor of ED. See Note 13 “Debt” to the Consolidated Financial Statements for additional information on the Notes and our Credit Agreement.
The provisional nature of the existing agreements for AUC, RUSM, and RUSVM stemmed from increased and/or repeated Title IV compliance audit findings. While corrective actions have been taken to resolve past compliance matters and eliminate the incidence of repetition, if Walden, 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.
On September 27, 2023, ED announced a final Gainful Employment (“GE”) regulation effective July 1, 2024. The regulation applies to all Title IV certificate programs at all institutions and to all Title IV degree programs at proprietary institutions. Covered programs must meet a debt-to-earnings test in which graduates’ annual debt payments must not exceed 8% of their annual earnings or 20% of their discretionary earnings and must also pass an earnings premium test in which graduates’ earnings must exceed those of a typical high school graduate. Under the regulation, programs that fail either metric must provide warnings to students and prospective students that the program is at risk of losing Title IV eligibility and programs that fail the same measure in two out of three consecutive years lose Title IV eligibility. The GE regulation also includes a transparency framework in which debt-to-earnings, earnings premium, and a wide range of other program outcomes are disclosed on a website to be hosted by ED. We are reviewing the regulation to determine what impact, if any, the regulation will have on our programs.
An ED regulation known as the “90/10 Rule” affects only proprietary postsecondary institutions, such as Chamberlain, Walden, AUC, RUSM, and RUSVM. Under this regulation, an institution that derives more than 90% of its revenue on a cash basis from Title IV student financial assistance programs in two consecutive fiscal years loses eligibility to participate in these programs for at least two fiscal years. The American Rescue Plan Act of 2021 (the “Rescue Act”) enacted on March 11, 2021 amended the 90/10 rule to require that a proprietary institution derive no more than 90% of its revenue
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from federal education assistance funds, including but not limited to previously excluded U.S. Department of Veterans Affairs and military tuition assistance benefits. This change was subject to negotiated rulemaking, which ended in March 2022. The amended rule applies to institutional fiscal years beginning on or after January 1, 2023. The following table details the percentage of revenue on a cash basis from federal financial assistance programs as calculated under the current regulations (excluding the U.S. Department of Veterans Affairs and military tuition assistance benefits) for each of Adtalem’s institutions for fiscal years 2023 and 2022. As an institution’s 90/10 compliance must be calculated using the financial results of an entire fiscal year, we are including Walden’s amounts for the full fiscal year 2022 in the table below, including the portion of the year not under Adtalem’s ownership.
Liquidity and Capital Resources
Adtalem’s primary source of liquidity is the cash received from payments for student tuition, fees, books, and other educational materials. These payments include funds originating as financial aid from various federal and state loan and grant programs, student and family educational loans, employer educational reimbursements, scholarships, and student and family financial resources. Adtalem continues to provide financing options for its students, including Adtalem’s credit extension programs.
The 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.
Adtalem’s consolidated cash and cash equivalents balance of $179.8 million and $273.7 million as of March 31, 2024 and June 30, 2023, respectively, included cash and cash equivalents held at Adtalem’s international operations of $5.4 million and $7.2 million as of March 31, 2024 and June 30, 2023, respectively, which is available to Adtalem for general corporate purposes.
Cash Flow Summary
Operating Activities
The following table provides a summary of cash flows from operating activities (in thousands):
Nine Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Income from continuing operations | $ | 87,113 | $ | 78,202 | ||
Non-cash items |
| 139,569 |
| 153,770 | ||
Changes in assets and liabilities |
| 20,127 |
| (82,151) | ||
Net cash provided by operating activities-continuing operations | $ | 246,809 | $ | 149,821 | ||
Net cash provided by operating activities from continuing operations in the nine months ended March 31, 2024 was $246.8 million compared to $149.8 million in the year-ago period. The increase was driven by an increase in income from continuing operations and changes in working capital, partially offset by lower non-cash items. The decrease of $14.2 million in non-cash items between the nine months ended March 31, 2024 and the nine months ended March 31, 2023 was primarily driven by decreases in impairments to operating lease assets and amortization of intangible assets. The increase of $102.3 million in cash generated from changes in assets and liabilities was primarily due to timing differences in accounts and financing receivables, prepaid assets, prepaid income taxes, accounts payable, accrued payroll and benefits, accrued liabilities, accrued interest, and deferred revenue.
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Investing Activities
Capital expenditures in the first nine months of fiscal year 2024 and 2023 were $52.0 million and $19.1 million, respectively. The capital expenditures in the first nine months of fiscal year 2024 primarily consisted of spending for information technology investments and Chamberlain’s campus development. For the remainder of fiscal year 2024, we expect capital spending on information technology, new campus development at Chamberlain, and facility improvements at the medical and veterinary schools. Management anticipates full fiscal year 2024 capital spending to be in the $65 to $70 million range. The source of funds for this capital spending will be from operations or the Credit Facility (as defined and discussed in Note 13 “Debt” to the Consolidated Financial Statements).
During the first nine months of fiscal year 2024 and 2023, we received proceeds from the sale of marketable securities held in a Rabbi Trust of $0.6 million and $7.6 million, respectively, and made additional investments in marketable securities held by this trust of $0.5 million and $1.5 million, respectively.
On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep for $52.0 million. Adtalem received $5.2 million of cash at the time of closing and held a mortgage loan, secured by the property, from DePaul College Prep for $46.8 million. The mortgage loan was due on July 31, 2024 as a balloon payment and bore interest at a rate of 4% per annum, payable monthly. The buyer had an option to make prepayments. On February 23, 2023, DePaul College Prep paid the mortgage loan in full. The $46.8 million received during the third quarter of fiscal year 2023 is classified as an investing activity in the Consolidated Statements of Cash Flows.
During the first nine months of fiscal year 2023, we paid $3.2 million for a working capital adjustment to the initial sales prices for ACAMS, Becker, and OCL.
Financing Activities
The following table provides a summary of cash flows from financing activities (in thousands):
Nine Months Ended | ||||||
March 31, | ||||||
2024 | 2023 | |||||
Repurchases of common stock for treasury | $ | (250,463) | $ | (44,710) | ||
Payment on equity forward contract | — | (13,162) | ||||
Net repayments of long-term debt | (50,000) | (150,861) | ||||
Other |
| 9,393 |
| (2,141) | ||
Net cash used in financing activities | $ | (291,070) | $ | (210,874) | ||
On March 1, 2022, we announced that the Board authorized Adtalem’s thirteenth share repurchase program, which allows Adtalem to repurchase up to $300.0 million of its common stock through February 25, 2025. On January 16, 2024, Adtalem completed its thirteenth share repurchase program. On January 19, 2024, we announced that the Board authorized Adtalem’s fourteenth share repurchase program, which allows Adtalem to repurchase up to $300.0 million of its common stock through January 16, 2027. As of March 31, 2024, after repurchases that were made during the nine months ended March 31, 2024, there remained $220.2 million for additional share repurchases under the fourteenth share repurchase program. The timing and amount of any future repurchases will be determined based on an evaluation of market conditions and other factors. See Note 14 “Share Repurchases” to the Consolidated Financial Statements for additional information on our share repurchase programs.
On March 14, 2022, we entered into an ASR agreement to repurchase $150.0 million of common stock. We received an initial delivery of 4,709,576 shares of common stock representing approximately 80% of the total shares expected to be delivered at the time of executing the ASR based on the per share price on the day prior to the execution date. The final number of shares to be repurchased was based on the volume-weighted average price of Adtalem’s common stock during the term of the ASR agreement, less a discount and subject to adjustments pursuant to the terms of the ASR agreement. The ASR agreement ended on October 14, 2022. Based on the volume-weighted average price of Adtalem’s common stock during the term of the ASR agreement, Adtalem owed the counter party 332,212 shares of common stock. We elected to settle the contract in cash instead of delivering shares by making a cash payment of $13.2 million on November 2, 2022.
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On March 1, 2021, we issued $800.0 million aggregate principal amount of 5.50% Senior Secured Notes due 2028 (the “Notes”), which mature on March 1, 2028. On August 12, 2021, Adtalem entered into its new credit agreement (the “Credit Agreement”) that provides for (1) a $850.0 million senior secured term loan (“Term Loan B”) with a maturity date of August 12, 2028 and (2) a $400.0 million senior secured revolving loan facility (“Revolver”) with a maturity date of August 12, 2026. We refer to the Term Loan B and Revolver collectively as the “Credit Facility.” The Revolver will be used to finance ongoing working capital and for general corporate purposes. During fiscal year 2022, we made a prepayment of $396.7 million on the Term Loan B. With that prepayment, we are no longer required to make quarterly installment payments. On April 11, 2022, we repaid $373.3 million of Notes at a price equal to 100% of the principal amount of the Notes. During June 2022, we repurchased on the open market an additional $20.8 million of Notes at a price equal to approximately 90% of the principal amount of the Notes. In July 2022, we repurchased an additional $0.9 million of Notes. On September 22, 2022, November 22, 2022, and January 26, 2024, we made prepayments of $100.0 million, $50.0 million, and $50.0 million, respectively, on the Term Loan B. As of March 31, 2024, the principal balance of the Notes and Term Loan B was $405.0 million and $253.3 million, respectively. See Note 13 “Debt” to the Consolidated Financial Statements for additional information on the Notes and our Credit Agreement.
In the event of unexpected market conditions or negative economic changes that could negatively affect Adtalem’s earnings and/or operating cash flow, Adtalem maintains a $400.0 million revolving credit facility with availability of $242.1 million as of March 31, 2024.
Material Cash Requirements
Long-Term Debt – As of March 31, 2024, we have principal balances of $405.0 million of Notes and $253.3 million of Term Loan B, which requires interest payments. With the Term Loan B prepayment noted above, we are no longer required to make quarterly principal installment payments on the Term Loan B. In addition, we maintain a $400.0 million revolving credit facility with availability of $242.1 million as of March 31, 2024.
ED has recently allowed reductions in our letters of credit totaling $90.8 million. On January 31, 2024, ED allowed a $76.2 million letter of credit in favor of ED to expire without any requirement for Adtalem to renew it. Adtalem had a surety-backed letter of credit outstanding of $84.0 million as of March 31, 2024, in favor of ED on behalf of Walden, which allows Walden to participate in Title IV programs. In addition, Adtalem had a letter of credit outstanding under its Revolver in the amount of $157.9 million as of March 31, 2024, in favor of ED, which allows Adtalem institutions to participate in Title IV programs. As of March 31, 2024, Adtalem had $241.9 million of letters of credit outstanding in favor of ED. On April 26, 2024, ED indicated that it will permit Adtalem to reduce the surety-backed letter of credit from $84.0 million to $69.4 million and requested that this letter of credit be extended through December 31, 2024. As of when this further reduction takes place, Adtalem will have $227.3 million of letters of credit outstanding in favor of ED. See Note 13 “Debt” to the Consolidated Financial Statements for additional information on our Notes and Credit Agreement.
Many states require private-sector postsecondary education institutions to post surety bonds for licensure. In the U.S., Adtalem has posted $42.5 million of surety bonds as of March 31, 2024 with regulatory authorities on behalf of Chamberlain, Walden, AUC, RUSM, and RUSVM.
Operating Lease Obligations – We have operating lease obligations for the minimum payments required under various lease agreements which are recorded on the Consolidated Balance Sheets. 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 for additional information on our lease agreements.
Critical Accounting Estimates
There have been no material changes in our critical accounting estimates as disclosed in our fiscal year 2023 Form 10-K.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements.
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Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact, which includes statements regarding Adtalem’s future growth. Forward-looking statements can also be identified by words such as “future,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “may,” “will,” “would,” “could,” “can,” “continue,” “preliminary,” “range,” and similar terms. These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include the risk factors described in Item 1A. “Risk Factors” of our fiscal year 2023 Form 10-K and that might be contained in this Quarterly Report on Form 10-Q, which should be read in conjunction with these forward-looking statements. These forward-looking statements are based on information available to us as of the date any such statements are made, and Adtalem assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized, except as required by law.
Non-GAAP Financial Measures and Reconciliations
We believe that certain non-GAAP financial measures provide investors with useful supplemental information regarding the underlying business trends and performance of Adtalem’s ongoing operations as seen through the eyes of management and are useful for period-over-period comparisons. We use these supplemental non-GAAP financial measures internally in our assessment of performance and budgeting process. However, these non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The following are non-GAAP financial measures used in this Quarterly Report on Form 10-Q:
Adjusted net income (most comparable GAAP measure: net income) – Measure of Adtalem’s net income adjusted for restructuring expense, business integration expense, intangible amortization expense, gain on sale of assets, write-off of debt discount and issuance costs, gain on extinguishment of debt, litigation reserve, investment impairment, loss on assets held for sale, debt modification costs, net tax benefit related to a valuation allowance release, and loss (income) from discontinued operations.
Adjusted earnings per share (most comparable GAAP measure: diluted earnings per share) – Measure of Adtalem’s diluted earnings per share adjusted for restructuring expense, business integration expense, intangible amortization expense, gain on sale of assets, write-off of debt discount and issuance costs, gain on extinguishment of debt, litigation reserve, investment impairment, loss on assets held for sale, debt modification costs, net tax benefit related to a valuation allowance release, and loss (income) from discontinued operations.
Adjusted operating income (most comparable GAAP measure: operating income) – Measure of Adtalem’s operating income adjusted for restructuring expense, business integration expense, intangible amortization expense, litigation reserve, loss on assets held for sale, debt modification costs, and gain on sale of assets. This measure is applied on a consolidated and segment basis, depending on the context of the discussion.
Adjusted EBITDA (most comparable GAAP measure: net income) – Measure of Adtalem’s net income adjusted for loss (income) from discontinued operations, interest expense, other income, net, provision for income taxes, depreciation and amortization, stock-based compensation, restructuring expense, business integration expense, litigation reserve, loss on assets held for sale, debt modification costs, and gain on sale of assets. This measure is applied on a consolidated and segment basis, depending on the context of the discussion. Provision for income taxes, interest expense, and other income, net is not recorded at the reportable segments, and therefore, the segment adjusted EBITDA reconciliations begin with operating income.
A description of special items in our non-GAAP financial measures described above are as follows:
| ● | Restructuring expense primarily related to real estate consolidations at Walden, Medical and Veterinary, and Adtalem’s home office. We do not include normal, recurring, cash operating expenses in our restructuring expense. |
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| ● | Business integration expense include expenses related to the Walden acquisition and certain costs related to growth transformation initiatives. We do not include normal, recurring, cash operating expenses in our business integration expense. |
| ● | Intangible amortization expense on acquired intangible assets. |
| ● | Gain on sale of Adtalem’s Chicago, Illinois, campus facility. |
| ● | Write-off of debt discount and issuance costs and gain on extinguishment of debt related to prepayments of debt, reserves related to significant litigation, impairment of an equity investment, loss on assets held for sale related to a fair value write-down on assets, and debt modification costs related to refinancing our Term Loan B loan. |
| ● | Net tax benefit related to a valuation allowance release. |
| ● | Loss (income) from discontinued operations includes expense from ongoing litigation costs and settlements related to the DeVry University and Carrington College divestitures, a loss on sale of ACAMS, Becker, and OCL for working capital adjustments to the initial sales prices and a tax return to provision adjustment, and the earn-outs we received. |
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 reconciliation to adjusted net income (in thousands):
| (1) | Represents the income tax impact of non-GAAP continuing operations adjustments that is recognized in our GAAP financial statements. |
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Diluted earnings per share reconciliation to adjusted earnings per share (shares in thousands):
| (1) | Represents the income tax impact of non-GAAP continuing operations adjustments that is recognized in our GAAP financial statements. |
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Reconciliation to adjusted EBITDA (in thousands):
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in Adtalem’s market risk exposure during the first nine months of fiscal year 2024 from those set forth in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” contained in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)) that was conducted under the supervision and with the participation of Adtalem’s management, including our Chief Executive Officer and Chief Financial Officer, our Chief Executive Officer and Chief Financial Officer concluded that Adtalem’s disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes during the third quarter of fiscal year 2024 in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
For information regarding legal proceedings, see Note 17 “Commitments and Contingencies” to the Consolidated Financial Statements included in Item 1. “Financial Statements.”
Item 1A. Risk Factors
Except for the risk factor discussed below, there have been no material changes to Adtalem’s risk factors from those set forth since Item 1A. “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.
We are currently, and may in the future be, subject to short selling strategies that may drive down the market price of our common stock.
Short sellers are currently and may attempt in the future to drive down the market price of our common stock. Short selling is the practice of selling securities that the seller does not own but may have borrowed with the intention of buying identical securities back at a later date. The short seller hopes to profit from a decline in the value of the securities between the time the securities are borrowed and the time they are replaced. As it is in the short seller’s best interests for the price of the stock to decline, many short sellers publish negative opinions regarding the relevant issuer and its business prospects to create negative market momentum.
On January 30, 2024, a short seller report was published about us, which contained certain allegations against us. The publication of the short seller report adversely affected our share price. The allegations contained in the report, even if untrue, could result in legal proceedings such as shareholder suits and regulatory investigations.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||||
January 1, 2024 - January 31, 2024 | 426,771 | $ | 58.11 | 426,771 | $ | 286,759,833 | ||||
February 1, 2024 - February 29, 2024 | 681,400 | $ | 48.87 | 681,400 | $ | 253,461,530 | ||||
March 1, 2024 - March 31, 2024 | 663,432 | $ | 50.21 | 663,432 | $ | 220,152,216 | ||||
Total | 1,771,603 | $ | 51.60 | 1,771,603 | ||||||
(1) | See Note 14 “Share Repurchases” to the Consolidated Financial Statements for additional information on our share repurchase programs. |
Other Purchases of Equity Securities
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||
January 1, 2024 - January 31, 2024 | — | $ | — | NA | NA | ||||
February 1, 2024 - February 29, 2024 | 1,963 | $ | 48.14 | NA | NA | ||||
March 1, 2024 - March 31, 2024 | — | $ | — | NA | NA | ||||
Total | 1,963 | $ | 48.14 | NA | NA | ||||
(1) | Represents shares delivered back to Adtalem for payment of withholding taxes from employees for vesting restricted stock units and shares swapped for payment on exercise of incentive stock options pursuant to the terms of Adtalem’s stock incentive plans. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
* Filed or furnished herewith.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Adtalem Global Education Inc. | ||
Date: May 2, 2024 | By: | /s/ Robert J. Phelan |
Robert J. Phelan | ||
Senior Vice President and Chief Financial Officer | ||
(Principal Financial Officer) | ||
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Exhibit 4(a)
AMENDMENT NO. 2 TO CREDIT AGREEMENT
This AMENDMENT NO. 2 TO CREDIT AGREEMENT (this “Agreement”), dated as of January 26, 2024, is made by and among Adtalem Global Education Inc., a Delaware corporation (the “Borrower”), the Loan Parties party hereto, Morgan Stanley Senior Funding, Inc., as Administrative Agent under the Existing Credit Agreement (as defined below), and the 2024 Repricing Term Lender (as defined below).
PRELIMINARY STATEMENTS:
(1)The Borrower, the Lenders party thereto from time to time, Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent are party to that certain Credit Agreement, dated as of August 12, 2021 (as amended by that certain Amendment No. 1 to Credit Agreement, dated as of June 27, 2023, and as further amended, restated, supplemented or otherwise modified prior to the date hereof, the “Existing Credit Agreement”).
(2)The Borrower has requested that the 2024 Repricing Term Lender (as defined below) provide 2024 Repricing Term Loans (as defined below) in an aggregate principal amount of $253,333,000.00, as a Refinancing Term Loan (as defined in the Existing Credit Agreement) in accordance with Section 2.21 of the Existing Credit Agreement.
(3) On the Amendment No. 2 Effective Date (as defined below), the financial institution that executes and delivers this Agreement as the 2024 Repricing Term Lender will make 2024 Repricing Term Loans to the Borrower in an aggregate principal amount equal to its 2024 Repricing Term Loan Commitment (as defined below), the proceeds of which will be used by the Borrower to repay in full the aggregate principal amount of Existing Term Loans (as defined below) and any accrued and unpaid interest thereon outstanding immediately prior to the Amendment No. 2 Effective Date.
(4) With respect to this Agreement, Morgan Stanley Senior Funding, Inc. will act as the sole lead arranger and bookrunner (in such capacities, the “Refinancing Arranger”).
(5)Each Existing Term Lender that executes and delivers a consent in the form of the Lender New Commitment attached to the Election Notice Memorandum (as defined in the Cashless Roll Letter (as defined below)) (a “Lender Consent”) will be deemed (i) to have agreed to the terms of this Agreement and the Amended Credit Agreement (as defined below), (ii) to have agreed to exchange (as further described in the applicable Lender Consent), upon the Amendment No. 2 Effective Date, the Allocated Amount (as defined in the Cashless Settlement of Existing Term Loans Letter, dated as of January 26, 2024 (the “Cashless Roll Letter”), by and among the Borrower, the 2024 Repricing Term Lender and the Administrative Agent) of its Existing Term Loans for 2024 Repricing Term Loans in an equal principal amount, which will be effectuated either by exercising a cashless exchange option or through a cash settlement option selected by such Existing Term Lender in its Lender Consent and (iii) to have waived the rights to any breakage costs that would have otherwise been payable by the Borrower under Section 2.16 of the Existing Credit Agreement as a result of the refinancing of the Term B Loans as contemplated hereby.
(6)The Administrative Agent, the Borrower, the other Loan Parties party hereto and the 2024 Repricing Term Lender party hereto desire to memorialize the terms of this Agreement and to make certain other changes set forth herein and in the Amended Credit Agreement by amending, in accordance with Section 10.08 of the Existing Credit Agreement, the Existing Credit Agreement as set forth below.
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NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto hereby agree as follows:
“Existing Term Lender” shall mean each Lender with Existing Term Loans outstanding immediately prior to the Amendment No. 2 Effective Date.
“Existing Term Loans” shall mean the Term B Loans outstanding under the Existing Credit Agreement immediately prior to the Amendment No. 2 Effective Date.
“2024 Repricing Term Lender” shall mean the financial institution set forth on Schedule 1 hereto with a 2024 Repricing Term Loan Commitment on the Amendment No. 2 Effective Date.
“2024 Repricing Term Loan” shall mean a Term Loan that is made pursuant to Section 2 of this Agreement.
“2024 Repricing Term Loan Commitment” shall mean, with respect to the 2024 Repricing Term Lender, the Commitment of the 2024 Repricing Term Lender to make 2024 Repricing Term Loans to the Borrower on the Amendment No. 2 Effective Date. The amount of the 2024 Repricing Term Lender’s 2024 Repricing Term Loan Commitment as of the Amendment No. 2 Effective Date is set forth on Schedule 1 hereto (it being understood that certain Lenders who hold Existing Term Loans (the “Converting Lenders”) may agree to convert, exchange or “cashless roll” all or a portion of their Existing Term Loans to or for 2024 Repricing Term Loans). The aggregate amount of the 2024 Repricing Term Loan Commitments as of the Amendment No. 2 Effective date is $253,333,000.00.
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the Administrative Agent (or its counsel) shall have received counterparts of this Agreement, duly executed and delivered by (i) the Administrative Agent, (ii) the 2024 Repricing Term Lender and (iii) the Borrower and each Guarantor;
the Administrative Agent shall have received a Borrowing Request as set forth in Section 3 above and setting forth the information required by Section 2.03 of the Existing Credit Agreement;
the Administrative Agent shall have received, on behalf of itself, the Collateral Agent and the 2023 Repricing Term Lender, a customary opinion of (i) Skadden, Arps, Slate, Meager & Flom LLP, special New York and Delaware counsel for the Loan Parties and (ii) in-house counsel of the Loan Parties serving as General Counsel or Corporate Secretary, in each case, dated as of the Amendment No. 2 Effective Date, addressed to the Agents and the 2023 Repricing Term Lender in form and substance reasonably acceptable to the Administrative Agent;
no Default or Event of Default shall have occurred and be continuing as of the Amendment No. 2 Effective Date or immediately after giving effect to the transactions contemplated herein;
each of the representations and warranties set forth in Section 4 of this Agreement shall be true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the Amendment No. 2 Effective Date;
the Administrative Agent shall have received a certificate of the secretary or assistant secretary (or equivalent officer) on behalf of each Loan Party, dated the Amendment No. 2 Effective Date, certifying (i) that either (1) attached thereto is a true and complete copy of the organizational documents of such Loan Party and, with respect to the articles or certificate of incorporation or organization (or similar document) certified (to the extent applicable) as of a recent date by the Secretary of State of the state of its organization, or (2) the organizational documents of such Loan Party, copies of which were previously delivered and certified to the Administrative Agent in connection with the incurrence of the Term B Loans, remain in full force and effect and have not been modified or amended in any manner, (ii) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors (or equivalent governing body) of such Loan Party authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which such Loan Party is a party, and that such resolutions have not been modified, rescinded or amended and are in full force and effect on the Amendment No. 2 Effective Date, and (iii) either (1) as to the incumbency and specimen signature of each officer or authorized person executing this Agreement or any other Loan Document or any other document delivered in connection herewith on behalf of such Loan Party (together with a certificate of another officer or authorized person as to the incumbency and specimen signature of the officer or authorized person executing the certificate in this clause (f)) or (2) that the officers of such Loan Party that have been
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previously certified to the Administrative Agent in connection with the incurrence of the Term B Loans remain so authorized and continue to hold the offices previously identified;
the Administrative Agent shall have received a certificate dated the Amendment No. 2 Effective Date and signed by a Responsible Officer of the Borrower, confirming that the conditions set forth in Sections 5(d) and (e) of this Agreement have been satisfied;
the 2024 Repricing Term Lender, the Refinancing Arranger and the Administrative Agent shall have received the fees in the amounts previously agreed in writing by the Borrower and the 2024 Repricing Term Lender, the Refinancing Arranger and/or the Administrative Agent, as applicable, due and payable to them on or prior to the Amendment No. 2 Effective Date, including, to the extent invoiced, reimbursement for all reasonable and documented out-of-pocket costs and expenses required to be paid or reimbursed under Section 10.05 of the Existing Credit Agreement for which invoices have been received by the Borrower at least three (3) Business Days in advance of the Amendment No. 2 Effective Date;
the Administrative Agent shall have received a notice of prepayment with respect to the Existing Term Loans at least three (3) Business Days prior to the Amendment No. 2 Effective Date;
the Borrower shall have paid to the Administrative Agent, for the ratable account of each Existing Term Lender immediately prior to the Amendment No. 2 Effective Date, simultaneously with the making of the 2024 Repricing Term Loans, all accrued and unpaid interest and, to the extent required to be paid by the Loan Parties under the Loan Documents, fees and other amounts accrued and unpaid on the Existing Term Loans to, but not including, the Amendment No. 2 Effective Date, and substantially simultaneously with the borrowing of the 2024 Repricing Term Loans, the Existing Term Loans shall be paid in full; and
so long as reasonably requested in writing by the Administrative Agent or any of the Refinancing Arranger at least ten (10) Business Days prior to the Amendment No. 2 Effective Date, the Administrative Agent and the Refinancing Arranger shall have received prior to the Amendment No. 2 Effective Date, all documentation and other information with respect to the Loan Parties that is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the PATRIOT Act and the Beneficial Ownership Regulation.
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The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
The 2024 Repricing Term Lender shall constitute a “Lender” and the 2024 Repricing Term Loans shall constitute “2024 Repricing Term Loans”, “Term Loans” and “Loans” and the “2024 Repricing Term Loan Commitment” shall constitute a “Term Facility Commitment” and a “Commitment”, in each case, for all purposes of the Amended Credit Agreement and the other Loan Documents. The 2024 Repricing Term Loans shall be on the terms contemplated hereby and by the Amended Credit Agreement and shall constitute a single Class of Term Loans under the Amended Credit Agreement in accordance with the terms thereof.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
ADTALEM GLOBAL EDUCATION INC., as Borrower
By: /s/Robert J. Phelan
Name: Robert J. Phelan
Title: Senior Vice President and Chief Financial Officer
ADTALEM CANADA LLC,
ADTALEM GLOBAL HEALTH, INC.,
CHAMBERLAIN UNIVERSITY LLC,
CHAMBERLAIN COLLEGE OF NURSING AND HEALTH SCIENCES, LLC,
WALDEN E-LEARNING, LLC, each as a Guarantor
By: /s/Robert J. Phelan
Name: Robert J. Phelan
Title: Vice President and Chief Financial Officer
INTERNATIONAL EDUCATION HOLDINGS, INC.,
ROSS UNIVERSITY SERVICES, INC., each as a Guarantor
By: /s/Manjunath Gangadharan
Name: Manjunath Gangadharan
Title: Treasurer
WALDEN UNIVERSITY, LLC, as a Guarantor
By: /s/Douglas G. Beck
Name: Douglas G. Beck
Title: Secretary
[Signature Page to Amendment No. 2]
MORGAN STANLEY SENIOR FUNDING, INC.,
as Administrative Agent
By: /s/Mara MacDonald
Name: Mara MacDonald
Title: Authorized Signatory
[Signature Page to Amendment No. 2]
Morgan Stanley bank, n.a., as the 2024 Repricing Term Lender
By: /s/Mara MacDonald
Name: Mara MacDonald
Title: Authorized Signatory
[Signature Page to Amendment No. 2]
SCHEDULE 1
2024 Repricing Term Loan Commitments
2024 Repricing Term Lender | 2024 Repricing Term Loan Commitment Amount | 2024 Repricing Term Loan Commitment Percentage |
Morgan Stanley Bank, N.A. | $22,787,363.55 | 8.995% |
Converting Lenders | $230,545,636.45 | 91.005% |
Total: | $253,333,000.00 | 100% |
EXHIBIT A
Amended Credit Agreement
[See attached.]
Execution Version
Annex A
CREDIT AGREEMENT
(as amended by Amendment No. 1 to Credit Agreement, dated as of June 27, 2023, and Amendment No. 2 to Credit Agreement, dated as of January 26, 2024),
Among
ADTALEM GLOBAL EDUCATION INC.,
as Borrower,
THE LENDERS PARTY HERETO,
MORGAN STANLEY SENIOR FUNDING, INC.,
as Administrative Agent,
MORGAN STANLEY SENIOR FUNDING, INC.,
BARCLAYS BANK PLC,
CREDIT SUISSE LOAN FUNDING LLC,
and
FIFTH THIRD BANK, NATIONAL ASSOCIATION,
as Joint Lead Arrangers and Joint Bookrunners,
MORGAN STANLEY SENIOR FUNDING, INC.,
BARCLAYS BANK PLC,
CREDIT SUISSE LOAN FUNDING LLC,
MUFG BANK, LTD.,
and
FIFTH THIRD BANK, NATIONAL ASSOCIATION
as Syndication Agents,
MORGAN STANLEY SENIOR FUNDING, INC.,
as Documentation Agent
and
MORGAN STANLEY SENIOR FUNDING, INC.,
as Collateral Agent
TABLE OF CONTENTS
Article I
Definitions
Article II
The Credits
Article III
Representations and Warranties
Article VI
Negative Covenants
Article VII
[RESERVED]
Article VIII
Events of Default
Article IX
The Agents
Exhibits and Schedules
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Exhibit A | | Form of Assignment and Acceptance |
Exhibit B | | Form of Administrative Questionnaire |
Exhibit C | | Form of Solvency Certificate |
Exhibit D-1 | | Form of Borrowing Request |
Exhibit D-2 | | Form of Swingline Borrowing Request |
Exhibit E | | Form of Interest Election Request |
Exhibit F | | Form of Mortgage |
Exhibit G | | Form of Permitted Loan Purchase Assignment and Acceptance |
Exhibit H | | Form of First Lien/Second Lien Intercreditor Agreement |
Exhibit I | | Form of U.S. Tax Compliance Certificate |
Exhibit J | | Form of Intercompany Subordination Terms |
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Schedule 1.01(A) | | Certain Excluded Equity Interests |
Schedule 1.01(B) | | Mortgaged Properties |
Schedule 1.01(C) | | Immaterial Subsidiaries |
Schedule 1.01(E) | | Closing Date Unrestricted Subsidiaries |
Schedule 1.01 (F) | | Deemed EBITDA |
Schedule 2.01 | | Commitments |
Schedule 3.01 | | Organization and Good Standing |
Schedule 3.04 | | Governmental Approvals |
Schedule 3.05 | | Financial Statements |
Schedule 3.08(a) | | Subsidiaries |
Schedule 3.08(b) | | Subscriptions |
Schedule 3.13 | | Taxes |
Schedule 3.16 | | Environmental Matters |
Schedule 3.21 | | Insurance |
Schedule 3.23 | | Intellectual Property |
Schedule 3.26 | | Certain Regulatory Matters |
Schedule 5.10 | | Post-Closing Items |
Schedule 6.01 | | Indebtedness |
Schedule 6.02(a) | | Liens |
Schedule 6.04 | | Investments |
Schedule 6.07 | | Transactions with Affiliates |
Schedule 10.01 | | Notice Information |
CREDIT AGREEMENT dated as of August 12, 2021 (as amended by that certain Amendment No. 1 to Credit Agreement, dated as of June 27, 2023 and that certain Amendment No. 2 to Credit Agreement, dated as of January 26, 2024, this “Agreement”), among ADTALEM GLOBAL EDUCATION INC., a Delaware corporation (the “Borrower”), the LENDERS party hereto from time to time, and MORGAN STANLEY SENIOR FUNDING, INC., as Administrative Agent (together with any successor entity in such capacity, the “Administrative Agent”) for the Lenders and as Collateral Agent (as defined herein).
WHEREAS, the Borrower has entered into the Membership Interest Purchase Agreement dated as of September 11, 2020 (as amended from time to time prior to the date hereof, the “MIPA”) with Laureate Education, Inc., a Delaware public benefit corporation (the “Seller”), pursuant to which the Borrower will directly or indirectly acquire all of the issued and outstanding limited liability company interests of Walden e-Learning, LLC a Delaware limited liability company (the “Walden Target” and such acquisition, the “Walden Acquisition”); and
WHEREAS, in connection with the consummation of the Walden Acquisition, the Borrower has requested the Lenders to extend credit in the form of (a) Term B Loans on the Closing Date in an aggregate principal amount of $850,000,000 and (b) Revolving Facility Loans and Letters of Credit at any time and from time to time prior to the Revolving Facility Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $400,000,000;
NOW, THEREFORE, the Lenders and the Issuing Banks are willing to extend such credit to the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:
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“Applicable Law” shall mean, as to any person, all applicable Laws binding upon such person or to which such a person is subject.
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“Connection Income Taxes” shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
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“Domestic Subsidiary” shall mean any Subsidiary that is not a Foreign Subsidiary.
“EBITDA” shall mean, with respect to the Borrower and its Subsidiaries on a consolidated basis for any period, the Consolidated Net Income of the Borrower and its Subsidiaries for such period plus (a) the sum of (in each case without duplication and to the extent the respective amounts described in subclauses (i) through (xv) of this clause (a) reduced such Consolidated Net Income (and were not excluded therefrom) for the respective period for which EBITDA is being determined):
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“Existing Indebtedness Refinancing” shall mean (a) (i) the prepayment of all of the existing and outstanding indebtedness under that certain Credit Agreement, dated as of April 13, 2018 (as amended from time to time, the “Existing Borrower Credit Agreement”), among the Borrower, certain of the Borrower’s subsidiaries identified therein, the lenders party thereto and Bank of America, N.A., as administrative agent, (ii) the termination of the Existing Borrower Credit Agreement and any related agreements under which such indebtedness was issued or incurred and (iii) termination and release of all related security and guarantees (if any) and (b) (i) the termination and release of all security and guarantees (if any) with respect to the Walden Target and its subsidiaries under the Third Amended and Restated Credit Agreement, dated as of October 7, 2019 among the Seller, as borrower, the lending institutions from time to time party thereto and Citibank, N.A., as administrative agent and collateral agent and (ii) terminate and release all security and guarantees (if any) with respect to the Walden Target and its subsidiaries under the Indenture dated as of April 21, 2017 among the Seller, as issuer, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee.
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“Historical Walden Financial Statements” with respect to the Walden Target and its Subsidiaries, (i) the audited carveout consolidated statement of operations, consolidated balance sheet, consolidated statement of cash flows and consolidated statement of changes in member’s equity for the Walden Target and its Subsidiaries as of and for the fiscal years ended December 31, 2018 and 2019 and thereafter for the most recently completed fiscal years ended at least 60 days prior to the Closing Date, including the notes and schedules thereto, accompanied by the reports thereon of the Walden Target’s and its Subsidiaries’ independent auditors for the years then ended; (ii) the unaudited carveout consolidated statement of operations, consolidated balance sheet, consolidated statement of cash flows and consolidated statement of changes in member’s equity for the Walden Target and its Subsidiaries as of and for the six months ended June 30, 2020, and the comparable prior period, including the notes and schedules thereto, accompanied by the reports thereon of the Walden Target’s and its Subsidiaries’ independent auditors; and (iii) the unaudited carveout consolidated statement of operations, consolidated balance sheet, consolidated statement of cash flows and consolidated statement of changes in member’s equity for the Walden Target and its Subsidiaries as of and for each subsequent interim fiscal quarter ended since the last audited financial statements and at least 40 days prior to the Closing Date (other than the fourth fiscal quarter), and the comparable prior period, including the notes and schedules thereto, accompanied by the reports thereon of the Walden Target’s and its Subsidiaries’ independent auditors.
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“Marketing Period” shall have the meaning assigned to such term in Section 4.01(o).
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Net First Lien Leverage Ratio | Applicable | Applicable Margin | Applicable | Applicable Margin |
|---|---|---|---|---|
Greater than or equal to 2.23:1.00 | 3.25% | 4.25% | 3.50% | 4.50% |
Less than 2.23:1.00 but greater than or equal to 1.73:1.00 | 3.00% | 4.00% | 3.25% | 4.25% |
Less than 1.73:1.00 | 2.75% | 3.75% | 3.00% | 4.00% |
(b) from and after the first Adjustment Date occurring after delivery of the financial statements and certificates required by Section 5.04 upon the completion of the first full fiscal quarter of the Borrower ending after the Amendment No. 2 Effective Date, with respect to the 2024 Repricing Term Loans, the per annum rates set forth in the table below:
Applicable | Applicable Margin | |
|---|---|---|
Greater than or equal to 2.23:1.00 | 3.00% | 4.00% |
Less than 2.23:1.00 but greater than or equal to 1.73:1.00 | 2.75% | 3.75% |
Less than 1.73:1.00 | 2.50% | 3.50% |
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For the purposes of the Pricing Grid, changes in the Applicable Margin resulting from changes in the Net First Lien Leverage Ratio shall become effective on the date (the “Adjustment Date”) that is three Business Days after the date on which the relevant financial statements are delivered to the Lenders pursuant to Section 5.04 for each fiscal quarter beginning with the first full fiscal quarter of the Borrower ended after the Closing Date, and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified in Section 5.04, then, at the option of the Administrative Agent or the Required Lenders, until the date that is three Business Days after the date on which such financial statements are delivered, the pricing level that is one pricing level higher than the pricing level theretofore in effect shall apply as of the first Business Day after the date on which such financial statements were to have been delivered but were not delivered. Each determination of the Net First Lien Leverage Ratio pursuant to the Pricing Grid shall be made in a manner consistent with the determination thereof pursuant to Section 6.11.
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“Pro Forma Financial Statements” shall mean, (i) a pro forma consolidated statements of income of the Borrower for the most recently completed fiscal year ended at least 60 days prior to
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the Closing Date and a pro forma consolidated balance sheet and related pro forma consolidated statements of income for the interim period ending on the last day of the most recent fiscal quarter ended since the last audited financial statements and ending at least 40 days before the Closing Date and (ii) a pro forma consolidated balance sheet and related consolidated statement of income as of and for the 12-month period ending on the last day of the most recently completed four-fiscal quarter period for which historical financial statements of the Borrower are provided pursuant to Section 4.01(f), prepared after giving pro forma effect to each element of the Transactions as if the Transactions had occurred on the last day of such interim period (in the case of such balance sheet) or at the beginning of such period (in the case of such other financial statements).
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“Specified Acquisition Agreement Representations” shall mean the representations made by the Seller, the Walden Target, its Subsidiaries or its business in the MIPA as are material to the interests of the Lenders, but only to the extent that the Borrower or its affiliates have the right to terminate its obligations pursuant to Section 7.01(c) of the MIPA or otherwise decline to consummate the Acquisition pursuant to Section 6.02(a) of the MIPA as a result of a breach of any such Specified Acquisition Agreement Representations (after giving effect to any applicable notice and cure provisions) or any such Specified Acquisition Agreement Representations not being accurate.
“Specified Representations” shall mean those representations and warranties made by the Borrower in Sections 3.01(a) (with respect to the Loan Parties only), 3.01(b) (with respect to the Loan Parties only), 3.01(d) (with respect to the Loan Parties only), 3.02(a), 3.02(b)(i)(B) 3.03, 3.10, 3.11, 3.17 (as it relates to the creation, validity and perfection of the security interests in the Collateral), 3.19, 3.25(b) and 3.26.
“Specified Transaction” shall mean any Investment that results in a person becoming a Subsidiary, any designation of a subsidiary as a Subsidiary or an Unrestricted Subsidiary, any Permitted Business Acquisition, any Disposition that results in a Subsidiary ceasing to be a subsidiary of the Borrower, any Investment constituting an acquisition of assets constituting a business unit, line of business or division of another person or any Disposition of a business unit, line of business or division of the Borrower or a Subsidiary, in each case, whether by merger, consolidation, amalgamation or otherwise, or any incurrence or repayment of Indebtedness (other than Indebtedness incurred or repaid under any revolving credit facility in the ordinary course of business for working capital purposes), Restricted Payment, Subsidiary designation, Incremental Term Facility, Incremental Revolving Facility Commitment or other event that by the terms of this Agreement requires EBITDA or a financial ratio or test to be calculated on a “Pro Forma Basis.”
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“Walden Acquisition” shall have the meaning assigned to such term in the first recital hereto.
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For purposes of determining compliance at any time with Sections 6.01, 6.02, 6.03, 6.04, 6.05, 6.06 and 6.07, in the event that any Indebtedness, Lien, payment with respect to Junior Financing restricted by Section 6.06(b), Restricted Payment, contractual restriction, Investment, Disposition or Affiliate transaction, as applicable, meets the criteria of more than one of the categories of transactions or items permitted pursuant to any clause of such Sections 6.01, 6.02, 6.03, 6.04, 6.05, 6.06 and 6.07, the Borrower, in its sole discretion, from time to time, may classify or reclassify such transaction or item (or portion thereof) and will only be required to include the amount and type of such transaction (or portion thereof) in any one category. For purposes of determining the permissibility of any action, change, transaction or event that by the terms of the Loan Documents requires a calculation of any financial ratio or test (including the Net First Lien Leverage Ratio, the Total Net Leverage Ratio or the Net Secured Leverage Ratio), such financial ratio or test shall, except as expressly permitted under this Agreement, be calculated at the time such action is taken, such change is made, such transaction is consummated or such event occurs, as the case may be, and no Default or Event of Default shall be deemed to have occurred solely as a result of a change in such financial ratio or test occurring after the time such action is taken, such change is made, such transaction is consummated or such event occurs, as the case may be. It is understood and agreed that any Indebtedness, Lien, Restricted Payment, payment with respect to Junior Financing restricted by Section 6.06(b), Investment, Disposition or Affiliate transaction need not be permitted solely by reference to one category of permitted Indebtedness, Liens,
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Restricted Payments, payments with respect to Junior Financing, Investments, Dispositions or Affiliate transactions under Sections 6.01, 6.02, 6.03, 6.04, 6.05, 6.06 or 6.07, respectively, but may instead be permitted in part under any combination thereof (it being understood that compliance with each such section is separately required).
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occurred, is continuing or would result therefrom, (c) determining compliance with any provision of this Agreement which requires compliance with any representation or warranties set forth herein or (d) determining the satisfaction of all other conditions precedent to the incurrence of Indebtedness, the creation of Liens, the making of any Disposition, the making of an Investment or the making of a Restricted Payment, in each case in connection with a Limited Condition Transaction, the date of determination of such ratio or other provisions, determination of whether any Default or Event of Default has occurred, is continuing or would result therefrom, determination of compliance with any representations or warranties or the satisfaction of any other conditions shall, at the option of the Borrower (the Borrower’s election to exercise such option in connection with any Limited Condition Transaction, an “LCT Election,” which LCT Election may be in respect of one or more of clauses (a), (b), (c) and (d) above), be deemed to be the date the definitive agreements (or other relevant definitive documentation) for such Limited Condition Transaction are entered into (the “LCT Test Date”). If on a pro forma basis after giving effect to such Limited Condition Transaction and the other transactions to be entered into in connection therewith (including any incurrence or issuance of Indebtedness, and the use of proceeds thereof), with such ratios and other provisions calculated as if such Limited Condition Transaction or other transactions had occurred at the beginning of the most recent Test Period ending prior to the LCT Test Date for which financial statements have been (or are required to be) delivered pursuant to Section 5.04, the Borrower could have taken such action on the relevant LCT Test Date in compliance with the applicable ratios or other provisions, such provisions shall be deemed to have been complied with, unless an Event of Default pursuant to Section 8.01(a) or (b), or, solely with respect to any Borrower, Section 8.01(g) or (h) shall be continuing on the date such Limited Condition Transaction is consummated. For the avoidance of doubt, (i) if, following the LCT Test Date, any of such ratios or other provisions are exceeded or breached as a result of fluctuations in such ratio (including due to fluctuations in EBITDA or other components of such ratio) or other provisions at or prior to the consummation of the relevant Limited Condition Transactions, such ratios and other provisions will not be deemed to have been exceeded or failed to have been satisfied as a result of such fluctuations solely for purposes of determining whether the Limited Condition Transaction is permitted hereunder and (ii) such ratios and compliance with such conditions shall not be tested at the time of consummation of such Limited Condition Transaction or related Specified Transactions, unless, other than if an Event of Default pursuant to Section 8.01(a) or (b), or, solely with respect to any Borrower, Section 8.01(g) or (h), shall be continuing on such date, the Borrower elects, in its sole discretion, to test such ratios and compliance with such conditions on the date such Limited Condition Transaction or related Specified Transactions is consummated. If the Borrower has made an LCT Election for any Limited Condition Transaction, then in connection with any subsequent calculation of any ratio, basket availability or compliance with any other provision hereunder (other than actual compliance with the Financial Covenant) on or following the relevant LCT Test Date and prior to the earliest of the date on which such Limited Condition Transaction is consummated, the date that the definitive agreement for such Limited Condition Transaction is terminated or expires without consummation of such Limited Condition Transaction or the date the Borrower makes an election pursuant to clause (ii) of the immediately preceding sentence, any such ratio, basket or compliance with any other provision hereunder shall be calculated on a Pro Forma Basis assuming such Limited Condition Transaction and other transactions in connection therewith (including any incurrence or issuance of Indebtedness or Disqualified Stock, and the use of proceeds thereof) had been consummated on the LCT Test Date; provided that for purposes of any Restricted Payment or payment of a Junior
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Financing, such ratio, basket or compliance with any other provision hereunder shall also be tested as if such Limited Condition Transaction and other transactions in connection therewith (including any incurrence or issuance of Indebtedness or Disqualified Stock, and the use of proceeds thereof) had not been consummated.
On and after the date Pro Forma Basis is to be given to a Limited Condition Transaction and on which the Borrower or any Subsidiary is incurring or deemed to be incurring Indebtedness, which Limited Condition Transaction has yet to be consummated but for which a definitive agreement governing such Limited Condition Transaction has been executed and remains in effect, any ratio based conditions and baskets (including baskets that are determined on the basis of EBITDA) shall be required to be satisfied assuming both that such Limited Condition Transaction has been consummated and the related Indebtedness incurred and that such Limited Condition Transaction has not been consummated and the related Indebtedness has not been incurred, in each case until such Limited Condition Transaction is consummated or such definitive agreement is terminated.
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Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.
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L/C Disbursement as contemplated by Section 2.05(e) may be given not later than 12:00 noon, Local Time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or electronic means to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Term SOFR Borrowing, Eurocurrency Borrowing or Alternate Currency Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
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to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans.
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If any such Interest Election Request requests a Term SOFR Borrowing, Eurocurrency Borrowing or Alternate Currency Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. If less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall be in an integral multiple of the Borrowing Multiple and not less than
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the Borrowing Minimum and satisfy the limitations specified in Sections 2.02(c) regarding the maximum number of Borrowings of the relevant Type.
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is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum or, if less, the amount outstanding, subject to prior notice in accordance with Section 2.10(d).
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“Commitment Fee”) on the daily amount of the applicable Available Unused Commitment of such Lender during the preceding quarter (or other period commencing with the Closing Date or ending with the date on which the last of the Commitments of such Lender shall be terminated) at a rate equal to the Applicable Commitment Fee. All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. For the purpose of calculating any Lender’s Commitment Fee, the outstanding Swingline Loans during the period for which such Lender’s Commitment Fee is calculated shall be deemed to be zero. The Commitment Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the date on which the last of the Commitments of such Lender shall be terminated as provided herein.
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(i)(A) a Benchmark Transition Event and (B) a Benchmark Replacement Date with respect thereto have occurred prior to the Reference Time in connection with any setting of the then-current Benchmark, then:
(x)if a Benchmark Replacement is determined in accordance with clause (1) of the definition of “Benchmark Replacement” with respect to Dollars for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes under this Agreement and under any other Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without requiring any amendment to, or requiring any further action by or consent of any other party to, this Agreement or any other Loan Document, and
(y)if a Benchmark Replacement is determined in accordance with clause (2) of the definition of “Benchmark Replacement” with respect to any Alternate Currency for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes under this Agreement and under any other Loan Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without requiring any amendment to, or requiring any further action by or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection
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to such Benchmark Replacement from Lenders comprising the Required Lenders of each Class.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
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Each party hereto hereby agrees that, upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments evidenced thereby as provided for in Section 10.08(e). Any amendment to this Agreement or any other Loan Document that is necessary to effect the provisions of this Section 2.21 and any such collateral and other documentation shall be deemed “Loan Documents” hereunder and may be memorialized in writing by the Administrative Agent with the Borrower’s consent (not to be unreasonably withheld) and furnished to the other parties hereto.
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On the date of each Credit Event, the Borrower represents and warrants to each of the Lenders that:
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organized, validly existing and in good standing (or, if applicable in a foreign jurisdiction, enjoys the equivalent status under the laws of any jurisdiction of organization outside the United States of America) under the laws of the jurisdiction of its organization, except in the case of any Subsidiary where the failure to do so would not reasonably be expected to have a Material Adverse Effect, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted, except in the case of any Subsidiary where the failure to do so would not reasonably be expected to have a Material Adverse Effect, (c) is qualified to do business in each jurisdiction where such qualification is required, except where the failure so to qualify would not reasonably be expected to have a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Loan Documents to which it is a party and each other agreement or instrument contemplated thereby to which it is or will be a party and, in the case of the Borrower, to borrow and otherwise obtain credit hereunder.
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required for the execution, delivery or performance of each Loan Document, except for (a) the filing of Uniform Commercial Code financing statements, (b) filings with the United States Patent and Trademark Office and the United States Copyright Office and comparable offices in foreign jurisdictions and equivalent filings in foreign jurisdictions, (c) recordation of the Mortgages, (d) such as have been made or obtained and are in full force and effect, (e) such actions, consents and approvals the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect, (f) filings with the SEC in connection with entering into this Agreement, (g) filings or other actions listed on Schedule 3.04 and any other filings or registrations required by the Security Documents and (h) in the case of any other Person, those actions, consents, approvals, registrations, filings or actions the failure of which to obtain or make would not reasonably be expected to have a Material Adverse Effect.
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$100,000,000 and, (b) the Borrower will use the proceeds of the Term Loans, the Revolving Facility Loans and Swingline Loans, and may request the issuance of Letters of Credit on the Closing Date to finance a portion of the Transactions and for the payment of Transaction Expenses. and (c) the Borrower will use the proceeds of the 2024 Repricing Term Loans made on the Amendment No. 2 Effective Date to prepay in full the aggregate principal amount of and any accrued and unpaid interest on the Term B Loans outstanding hereunder immediately prior to the Amendment No. 2 Effective Date and to pay fees and expenses incurred in connection therewith.
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the Collateral Agent (for the benefit of the Secured Parties) shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and, subject to Section 9-315 of the New York Uniform Commercial Code, the proceeds thereof, as security for the Obligations to the extent perfection can be obtained by filing Uniform Commercial Code financing statements, in each case with the priority required by the Intercreditor Agreement (except (x) Liens having priority by operation of law and (y) Permitted Liens).
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Borrower, threatened and (ii) to the knowledge of the Borrower, no such claim or litigation regarding any other Intellectual Property described in the foregoing clauses (a) and (b) is pending or threatened.
The obligations of (a) the Lenders (including the Swingline Lender) to make Loans and (b) any Issuing Bank to issue, amend, extend or renew Letters of Credit or increase the stated amounts of Letters of Credit hereunder (each, a “Credit Event”) are subject to the satisfaction (or waiver in accordance with Section 10.08) of the following conditions:
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Notwithstanding anything herein to the contrary, it is understood that, other than with respect to any Collateral perfected by (A) the filing of a UCC financing statement, (B) the filing of a security agreement with the U.S. Patent and Trademark Office or the U.S. Copyright Office or (C) taking delivery and possession of a stock certificate, to the extent any Lien on any Collateral is not or cannot be provided or perfected on the Closing Date after the Borrower’s use of commercially reasonable efforts to do so or without undue burden or expense, the delivery and/or provision of and/or perfection of a Lien on such Collateral shall not constitute a condition precedent to the availability of the Facilities on the Closing Date, but instead shall be required to be delivered after the Closing Date in accordance with Schedule 5.10.
For purposes of determining compliance with the conditions specified in this Section 4.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Closing Date specifying its objection thereto and, in the case of a Borrowing, such Lender shall not have made available to the Administrative Agent such Lender’s ratable portion of the initial Borrowing.
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Each Borrowing and each other Credit Event that occurs after the Closing Date shall be deemed to constitute a representation and warranty by the Borrower on the date of such Borrowing, issuance, amendment, extension or renewal as applicable, as to the matters specified in paragraphs (b) and (c) of this Section 4.02; provided, however, the application of clauses (b) and (c) hereto to any Incremental Loan made in connection with any Limited Condition Transaction shall, at the Borrower’s option, be subject to Section 1.07.
The Borrower covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of its Subsidiaries to:
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The Borrower hereby acknowledges and agrees that all financial statements and certificates furnished pursuant to paragraphs (a), (b) and (d) above are hereby deemed to be Borrower Materials suitable for distribution, and to be made available, to Public Lenders as contemplated by Section 10.17 and may be treated by the Administrative Agent and the Lenders as if the same had been marked “PUBLIC” in accordance with such paragraph (unless the Borrower otherwise notifies the Administrative Agent in writing on or prior to delivery thereof).
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Effect; provided that this Section 5.06 shall not apply to Environmental Laws, which are the subject of Section 5.09, or to laws related to Taxes, which are the subject of Section 5.03.
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it being understood and agreed that such conference call may be a single conference call together with investors holding other securities or debt of the Borrower and/or its Subsidiaries, so long as the Lenders are given an opportunity to ask questions on such conference call.
All representations and warranties contained in this Agreement and the other Loan Documents shall be deemed modified to the extent necessary to effect the foregoing (and to permit the taking of the actions contemplated by this Section 5.13 within the time periods specified in Schedule 5.13, rather than as elsewhere provided in the Loan Documents); provided that (x) to the extent any representation and warranty would not be true because the foregoing actions were not taken on the Closing Date, the respective representation and warranty shall be required to be true and correct in all material respects at the time the respective action is taken (or was required to be taken) in accordance with the foregoing provisions of this Section 5.13 (and Schedule 5.13) and (y) all representations and warranties relating to the assets set forth on Schedule 5.13 pursuant to the Security Documents shall be required to be true in all material respects immediately after the actions required to be taken under this Section 5.13 (and Schedule 5.13) have been taken (or were required to be taken), except to the extent any such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date.
The Borrower covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders (or, in the case of Section 6.11, the Required Revolving Facility Lenders voting as a single Class) shall otherwise consent in writing, the Borrower will not, and will not permit any of its Subsidiaries to:
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For purposes of determining compliance with this Section 6.01, the amount of any Indebtedness denominated in any currency other than Dollars shall be calculated based on customary currency exchange rates in effect, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) on or prior to the Closing Date, on the Closing Date and, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) after the Closing Date, on the date on which such Indebtedness was incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness); provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a currency other than Dollars (or in a different currency from the Indebtedness being refinanced), and such refinancing would cause the applicable Dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such Dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i) the outstanding or committed principal amount, as applicable, of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums (including tender premiums), defeasance costs and other costs and expenses incurred in connection with such refinancing.
Further, for purposes of determining compliance with this Section 6.01, (A) Indebtedness need not be permitted solely by reference to one category of permitted Indebtedness described in Sections 6.01(a) through (hh) but may be permitted in part under any combination thereof and (B) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Indebtedness described in Sections 6.01(a) through (hh), the Borrower shall, in its sole discretion, classify or reclassify, or later divide, classify or reclassify, such item of Indebtedness (or any portion thereof) in any manner that complies with this Section 6.01 and will only be required to include the amount and type of such item of Indebtedness (or any portion thereof) in one of the above clauses and such item of Indebtedness shall be treated as having been incurred or existing pursuant to only one of such clauses; provided that (x) all Indebtedness outstanding on the Closing Date under this Agreement shall at all times be deemed to have been incurred pursuant to clause (b) of this Section 6.01 and (y) all Indebtedness outstanding on the Closing Date under the First Lien Notes shall at all times be deemed to have been incurred pursuant to clause (p) of this Section 6.01. In addition, with respect to any Indebtedness that was permitted to be incurred hereunder on the date of such incurrence, any Increased Amount of such Indebtedness shall also be permitted hereunder after the date of such incurrence.
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For purposes of determining compliance with this Section 6.02, (A) a Lien securing an item of Indebtedness need not be permitted solely by reference to one category of Liens permitted by this Agreement described in Sections 6.02(a) through (mm) but may be permitted in part under any combination thereof and (B) in the event that a Lien securing an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of Liens permitted by this Agreement described in Sections 6.02(a) through (mm), the Borrower shall, in its sole discretion, classify or reclassify, or later divide, classify or reclassify, such Lien securing such item of Indebtedness (or any portion thereof) in any manner that complies with this covenant and will only be required to include the amount and type of such Lien or such item of Indebtedness secured by such Lien in one of the above clauses and such Lien securing such item of Indebtedness will be treated as being incurred or existing pursuant to only one of such clauses. In addition, with respect to any Lien securing Indebtedness that was permitted to secure such Indebtedness at the time of the incurrence of such Indebtedness, such Lien shall also be permitted to secure any Increased Amount of such Indebtedness.
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With respect to any Indebtedness secured by Liens referred to in the proviso to Section 6.02(hh) or in the proviso to clause (h) in the definition of “Refinancing Notes” that is incurred within 12 months from the Closing Date, if the All-in Yield in respect of such Pari Term Loans exceeds the All-in Yield in respect of the Term B Loans on the Closing Date by more than 0.50% (such difference, the “Pari Yield Differential”), then the Applicable Margin (or “SOFR floor” as provided in the following proviso) applicable to such Term B Loans on the Closing Date shall be increased such that after giving effect to such increase, the Pari Yield Differential shall not exceed 0.50%; provided that, to the extent any portion of the Pari Yield Differential is attributable to a higher “SOFR floor” being applicable to such Pari Term Loans, such floor shall only be included in the calculation of the Pari Yield Differential to the extent such floor is greater than the Adjusted Term SOFR Rate in effect for an Interest Period of three months’ duration at such time, and, with respect to such excess, the “SOFR floor” applicable to such outstanding Term B Loans shall be increased to an amount not to exceed the “SOFR floor” applicable to such Pari Term Loans prior to any increase in the Applicable Margin applicable to such Term B Loans then outstanding.
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Any Investment in any person other than the Borrower or a Subsidiary Loan Party that is otherwise permitted by this Section 6.04 may be made through intermediate Investments in Subsidiaries that are not Loan Parties and such intermediate Investments shall be disregarded for purposes of determining the outstanding amount of Investments pursuant to any clause set forth above. The amount of any Investment made other than in the form of cash or Permitted Investments shall be the fair market value thereof (as determined by the Borrower in good faith) valued at the time of the making thereof, and without giving effect to any subsequent write-downs or write-offs thereof.
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Notwithstanding anything to the contrary contained in Section 6.05 above, (i) no Disposition of assets under Section 6.05(d) and Section 6.05(g) shall be permitted unless such Disposition is for fair market value (as determined in good faith by the Borrower), or if not for fair market value, the shortfall is permitted as an Investment under Section 6.04, and (ii) no Disposition of assets under Section 6.05(g) shall be permitted unless such Disposition (except to Loan Parties) is for at least 75% cash consideration; provided that the provisions of this clause (ii) shall not apply to any individual transaction or series of related transactions involving assets with a fair market value (as determined in good faith by the Borrower) of less than $40,000,000 or to other transactions involving assets with a fair market value of not more than $60,000,000 in the aggregate for all such transactions during any fiscal year; provided, further, that for purposes of this clause (ii), each of the following shall be deemed to be cash: (a) the amount of any liabilities (as shown on the Borrower’s or such Subsidiary’s most recent balance sheet or in the notes thereto) that are assumed by the transferee of any such assets or are otherwise cancelled in connection with such transaction, (b) any notes or other obligations or other securities or assets received by the Borrower or such Subsidiary from the transferee that are converted by the Borrower or such Subsidiary into cash within 180 days after receipt thereof (to the extent of the cash received) and (c) any Designated Non-Cash Consideration received by the Borrower or any of its Subsidiaries in such Disposition having an aggregate fair market value (as determined in good faith by the Borrower), taken together with all other Designated Non-Cash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of $100,000,000 and 21% of EBITDA as of the end of the fiscal quarter immediately prior to the receipt of such Designated Non-Cash Consideration for which financial statements have been delivered pursuant to Section 5.04(a) or 5.04(b) (with the fair market value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value).
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Test Periods Ending | Total Net Leverage Ratio |
|---|---|
December 31, 2021 through December 31, 2023 | 4.00:1.00 |
Thereafter | 3.25:1.00 |
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then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate forthwith the Commitments, (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding and (iii) if the Loans have been declared due and payable pursuant to clause (ii) above, demand Cash Collateral pursuant to Section 2.05(j); and in any event with respect to the Borrower described in clause (h) or (i) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable and the Administrative
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Agent shall be deemed to have made a demand for Cash Collateral to the full extent permitted under Section 2.05(j), without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding.
For purposes of clauses (h) and (i) of this Section 8.01, “Material Subsidiary” shall mean any Subsidiary that would not be an Immaterial Subsidiary under clause (a) of the definition thereof.
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on such Lender’s or Issuing Bank’s behalf. Notwithstanding any provision to the contrary elsewhere in this Agreement, neither Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent.
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connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such person’s own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by any Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. No Agent shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. No Agent shall have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing, and (b) no Agent shall, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by such Agent or any of its Affiliates in any capacity. The Agents shall be deemed not to have knowledge of any Default or Event of Default unless and until written notice describing such Default or Event of Default is given to the Administrative Agent by the Borrower, a Lender or Issuing Bank. No Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Security Documents, (v) the value or the sufficiency of any Collateral, (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent or (vii) compliance by the Borrower or any of its Subsidiaries with the terms hereof relating to Permitted Loan Purchases.
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action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Each Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all or other Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all or other Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.
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of a Loan Party that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.
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whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and Collateral Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties hereunder and under the other Loan Documents as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 30 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective (such date of resignation effectiveness, the “Resignation Effective Date”), and the Lenders shall assume and perform all of the duties of the Administrative Agent and Collateral Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. With effect from the Resignation Effective Date, except for any indemnity payments owed to the retiring Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and Issuing Bank directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 9.09 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents.
The Lenders hereby irrevocably authorize and instruct the Collateral Agent to, without any further consent of any Lender, enter into (or acknowledge and consent to) or amend, renew, extend, supplement, restate, replace, waive or otherwise modify the Intercreditor Agreement, any First Lien/Second Lien Intercreditor Agreement, any Permitted Junior Intercreditor Agreement, any Permitted Pari Passu Intercreditor Agreement or any other intercreditor agreement with the collateral agent or other representatives of the holders of Indebtedness that is permitted to be secured by a Lien on the Collateral that is permitted (including with respect to priority) under this Agreement and to subject the Liens on the Collateral securing the Obligations to the provisions thereof. The Lenders irrevocably agree that (x) the Collateral Agent may rely exclusively on a certificate of a Responsible Officer of the Borrower as to whether any such other Liens are permitted and (y) the Intercreditor Agreement, any First Lien/Second Lien Intercreditor Agreement or any other intercreditor agreement referred to in the foregoing sentence, entered into by the Collateral Agent, shall be binding on the Secured Parties, and each Lender hereby agrees
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that it will take no actions contrary to the provisions of the Intercreditor Agreement and, if entered into and if applicable, any Permitted Pari Passu Intercreditor Agreement or any Permitted Junior Intercreditor Agreement. The foregoing provisions are intended as an inducement to the holders of the First Lien Notes and any future providers of Indebtedness not prohibited by Section 6.01 hereof to extend credit to the Loan Parties and such persons are intended third-party beneficiaries of such provisions. Furthermore, the Lenders (including in their capacities as potential Cash Management Banks and potential Hedge Banks) hereby authorize the Administrative Agent and the Collateral Agent to release any Lien on any property granted to or held by the Administrative Agent or the Collateral Agent under any Loan Document (i) to the holder of any Lien on such property that is permitted by clauses (c), (i), (j) and (aa) of Section 6.02 or Section 6.02(a) (if the Liens thereunder are of a type that is contemplated by any of the foregoing clauses) in each case to the extent the contract or agreement pursuant to which such Lien is granted prohibits any other Liens on such property or (ii) that is or becomes Excluded Property; and the Administrative Agent and the Collateral Agent shall do so upon request of the Borrower; provided that prior to any such request by the Borrower, upon the reasonable request of the Administrative Agent, the Borrower shall have in each case delivered to the Administrative Agent a certificate of a Responsible Officer of the Borrower certifying (x) that such Lien is permitted under this Agreement, (y) in the case of a request pursuant to clause (i) of this sentence, that the contract or agreement pursuant to which such Lien is granted prohibits any other Lien on such property and (z) in the case of a request pursuant to clause (ii) of this sentence, that (A) such property is or has become Excluded Property and (B) if such property has become Excluded Property as a result of a contractual restriction, such restriction does not violate Section 6.09(c) and, if any restriction referred to in this clause (B) relates to property other than cash, Permitted Investments or joint venture interests, such restriction either existed at the time such property was acquired (and was not created in contemplation of such acquisition) or was permitted by Section 6.09(c)(R).
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Obligations or the rights of any Lender or Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or Issuing Bank in any such proceeding.
Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Administrative Agent, the Collateral Agent and each Secured Party hereby agree that (a) no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce the Guarantee, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by the Administrative Agent, on behalf of the Secured Parties in accordance with the terms hereof and all powers, rights and remedies under the Security Documents may be exercised solely by the Collateral Agent, and (b) in the event of a foreclosure by the Collateral Agent on any of the Collateral pursuant to a public or private sale or other disposition, the Collateral Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition and the Collateral Agent, as agent for and representative of the Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless the Required Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Collateral Agent at such sale or other Disposition.
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sent by telecopier or other electronic means as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
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For the purposes of this Section 10.04, “Approved Fund” shall mean any person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or
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manages a Lender. Notwithstanding the foregoing or anything to the contrary herein, no Lender shall be permitted to assign or transfer any portion of its rights and obligations under this Agreement to (A) any Ineligible Institution, (B) any Defaulting Lender or any of its Subsidiaries, or any person who, upon becoming a Lender hereunder, would constitute any of the foregoing persons described in this clause (B), or (C) a natural person. Notwithstanding the foregoing, each Loan Party and the Lenders acknowledge and agree that the Administrative Agent shall not have any responsibility or obligation to determine whether any Lender or potential Lender is an Ineligible Institution and the Administrative Agent shall have no liability with respect to any assignment made, or disclosure of confidential information in connection therewith, to an Ineligible Institution. Any assigning Lender shall, in connection with any potential assignment, provide to the Borrower a copy of its request (including the name of the prospective assignee) concurrently with its delivery of the same request to the Administrative Agent irrespective of whether or not an Event of Default under Section 8.01(b), (c), (h) or (i) has occurred and is continuing.
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the Administrative Agent or the Collateral Agent in connection with the administration of this Agreement and any amendments or waivers of the provisions hereof or thereof, including the reasonable and documented out-of-pocket fees, charges and disbursements of Davis Polk & Wardwell LLP, counsel for the Administrative Agent, the Collateral Agent and the Arrangers, and, if necessary, the reasonable fees, charges and disbursements of specialty counsel and one local counsel per relevant material jurisdiction, and (ii) all reasonable and documented out-of-pocket expenses incurred by the Agents or any Lender in connection with the enforcement of their rights in connection with this Agreement and the other Loan Documents, in connection with the Loans made or the Letters of Credit issued hereunder, including, if necessary, the reasonable and documented out-of-pocket fees, charges and disbursements of a single counsel for all such persons, taken as a whole, and, if necessary, specialty counsel and a single local counsel in each relevant material jurisdiction for all such persons, taken as a whole (and, solely in the case of an actual or perceived conflict of interest where such person affected by such conflict informs the Borrower of such conflict and thereafter retains its own counsel with the Borrower’s prior written consent (not to be unreasonably withheld), of another firm of such for such affected person in each relevant jurisdiction).
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rights of each Lender and each Issuing Bank under this Section 10.06 are in addition to other rights and remedies (including other rights of set-off) that such Lender or such Issuing Bank may have.
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provided, further, that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, Swingline Lender or an Issuing Bank hereunder without the prior written consent of the Administrative Agent, Swingline Lender or such Issuing Bank acting as such at the effective date of such agreement, as applicable. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section 10.08 and any consent by any Lender pursuant to this Section 10.08 shall bind any Assignee of such Lender.
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good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
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the Borrower or its Subsidiaries or any of their respective securities) (each, a “Public Lender”). The Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (i) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC”, (ii) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers, the Issuing Bank and the Lenders to treat such Borrower Materials as solely containing information that is either (A) publicly available information or (B) not material (although it may be sensitive and proprietary) with respect to the Borrower or its Subsidiaries or any of their respective securities for purposes of United States Federal and state securities laws (provided, however, that such Borrower Materials shall be treated as set forth in Section 10.16, to the extent such Borrower Materials constitute information subject to the terms thereof), (iii) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (iv) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”
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modification hereof or of any other Loan Document (irrespective of whether any Agent, Arranger or Lender has advised or is currently advising the Borrower or any of its Affiliates on other matters) and none of the Agents, the Arrangers or the Lenders has any obligation to the Borrower or any of its Affiliates with respect to the financing transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents, (iv) the Agents, the Arrangers and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from, and may conflict with, those of the Borrower and its Affiliates, and none of the Agents, the Arrangers or the Lenders has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship and (v) the Agents, the Arrangers and the Lenders have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Loan Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate. Each Loan Party hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Agents, the Arrangers and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty under applicable law relating to agency and fiduciary obligations.
Each of the other Loan Parties hereby appoints the Borrower as its agent for all purposes relevant to this Agreement and the other Loan Documents, including the giving and receipt of notices and the execution and delivery of all documents, instruments and certificates contemplated herein and therein and all modifications hereto and thereto.
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In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding
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under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
As used in this Section 10.25, the following terms have the following meanings:
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CERTIFICATION
I, Stephen W. Beard, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Adtalem Global Education Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: May 2, 2024 | /s/ Stephen W. Beard |
| Stephen W. Beard |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Robert J. Phelan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Adtalem Global Education Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: May 2, 2024 | /s/ Robert J. Phelan |
| Robert J. Phelan |
| Senior Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
EXHIBIT 32
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Adtalem Global Education Inc. (“Adtalem”) for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of Adtalem certifies pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Adtalem for the periods covered by the Report. |
Date: May 2, 2024 | /s/ Stephen W. Beard |
| Stephen W. Beard |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| |
Date: May 2, 2024 | /s/ Robert J. Phelan |
| Robert J. Phelan |
| Senior Vice President and Chief Financial Officer |
| (Principal Financial Officer) |