Adtalem Education (ATGE) - 2025 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The financial statements for Q3 FY2025 reflect significant year-over-year growth in revenue and net income, alongside improved cash flow and a strengthened balance sheet Consolidated Statements of Income Highlights (Q3 & Nine Months Ended Mar 31) | Metric | Q3 2025 ($M) | Q3 2024 ($M) | % Change | Nine Months 2025 ($M) | Nine Months 2024 ($M) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $466.1 | $412.7 | 12.9% | $1,331.2 | $1,174.7 | 13.3% | | Operating Income | $90.5 | $61.7 | 46.6% | $264.6 | $148.5 | 78.2% | | Net Income | $60.8 | $36.8 | 65.2% | $182.9 | $87.4 | 109.3% | | Diluted EPS | $1.59 | $0.93 | 71.0% | $4.74 | $2.14 | 121.5% | Consolidated Balance Sheet Highlights | Metric | March 31, 2025 ($M) | June 30, 2024 ($M) | | :--- | :--- | :--- | | Total Assets | $2,789.8 | $2,741.4 | | Long-Term Debt | $552.2 | $648.7 | | Total Liabilities | $1,357.0 | $1,372.3 | | Total Shareholders' Equity | $1,432.7 | $1,369.1 | Consolidated Statements of Cash Flows Highlights (Nine Months Ended Mar 31) | Activity | 2025 ($M) | 2024 ($M) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $278.2 | $235.5 | | Net Cash used in Investing Activities | ($30.3) | ($32.2) | | Net Cash used in Financing Activities | ($248.0) | ($291.1) | Notes to Consolidated Financial Statements The notes detail accounting policies, segment performance, and financial obligations, including strong segment growth, lawsuit settlements, debt reduction, share repurchases, and a $179.0 million regulatory letter of credit - Adtalem is a leading US healthcare educator with schools including Chamberlain University, Walden University, and medical/veterinary schools (AUC, RUSM, RUSVM)[23] - Previously issued financial statements were revised to correct the presentation of capitalized cloud computing implementation costs, moving them from investing to operating activities in the cash flow statement, which was deemed not material to prior periods[33][34] Revenue by Segment (Nine Months Ended Mar 31, 2025) | Segment | Revenue ($M) | % of Total | | :--- | :--- | :--- | | Chamberlain | $541.5 | 40.7% | | Walden | $511.2 | 38.4% | | Medical and Veterinary | $278.4 | 20.9% | | Total | $1,331.2 | 100% | - The company made a $100.0 million prepayment on its Term Loan B debt on January 17, 2025, and a $50.0 million prepayment on January 26, 2024[94] - The company completed its 13th and 14th share repurchase programs and initiated a new 15th program authorizing up to $150.0 million in repurchases through May 6, 2028[105] - A settlement for the Walden DBA student lawsuit was finalized, resulting in a $28.5 million payment in November 2024, with Adtalem receiving a $5.6 million indemnification payment from the previous owner, Laureate[123] - The Department of Education (ED) required Adtalem to post an amended letter of credit for $179.0 million, representing 10% of consolidated Title IV funds received in FY2024, to maintain Title IV eligibility[100][123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 FY2025 performance to broad revenue growth and improved operating income, while navigating significant regulatory requirements and maintaining strong liquidity Third Quarter Highlights In Q3 FY2025, Adtalem reported a 12.9% revenue increase to $466.1 million and a 71.0% rise in diluted EPS to $1.59, driven by strong enrollment growth across its institutions, alongside debt prepayment and share repurchases - Revenue increased 12.9% to $466.1 million, and net income grew 65.2% to $60.8 million compared to the prior year period[142] - Total student enrollment increased across all segments: Chamberlain (+6.8% for March session), Walden (+13.5% as of March 31), and medical/veterinary schools (+1.2% for January semester)[142] - Made a $100.0 million prepayment on Term Loan B debt and repurchased 791,420 shares for approximately $77.6 million[142] Results of Operations Revenue for Q3 FY2025 increased 12.9% year-over-year, led by Chamberlain and Walden due to higher enrollment and tuition, while operating income surged 46.6% benefiting from revenue growth and reduced prior-year business integration costs Q3 FY2025 Revenue Growth by Segment | Segment | Q3 FY25 Revenue ($M) | Growth vs. Q3 FY24 ($M) | % Change | | :--- | :--- | :--- | :--- | | Chamberlain | $192.6 | $22.3 | 13.1% | | Walden | $178.4 | $27.8 | 18.5% | | Medical and Veterinary | $95.0 | $3.3 | 3.6% | | Consolidated | $466.1 | $53.4 | 12.9% | - Cost of educational services increased 14.0% to $199.9 million in Q3, primarily due to higher labor costs to support increased enrollment and a larger provision for bad debts[150] - Adjusted operating income increased 17.4% to $105.4 million in Q3, driven by revenue growth, partially offset by increased investments in marketing, growth initiatives, and higher bad debt provisions[163] - Interest expense decreased to $13.1 million in Q3 from $16.6 million in the prior year, mainly due to lower borrowings and a reduced interest rate on the Term Loan B[167] Legislative and Regulatory Requirements Adtalem operates under significant regulatory scrutiny, including a provisional Program Participation Agreement and a required $179.0 million letter of credit due to a low financial responsibility score, while complying with the "90/10 Rule" - ED notified Adtalem its FY2022 composite score was 0.2 (below the 1.0 threshold), leading to provisional certification for its institutions and a requirement to post a letter of credit[177] - Adtalem delivered an amended letter of credit for $179.0 million to ED, representing 10% of consolidated Title IV funds for FY2024, with an expiration of January 31, 2026[177][184] 90/10 Rule Rates | Institution | FY 2024 Rate | FY 2023 Rate | | :--- | :--- | :--- | | Chamberlain University | 68% | 65% | | Walden University | 82% | 78% | | AUC School of Medicine | 87% | 81% | | RUSM | 87% | 87% | | RUSVM | 78% | 79% | | Consolidated | 77% | 75% | Liquidity and Capital Resources Adtalem's liquidity is primarily sourced from student tuition, with net cash from operations increasing to $273.8 million for the first nine months of FY2025, funding capital expenditures, share repurchases, and debt repayments, while maintaining a $400.0 million revolving credit facility - Net cash provided by operating activities increased by $46.7 million to $273.8 million for the first nine months of FY2025, driven by higher operating income[191] - Net cash used in financing activities was $248.0 million, primarily for share repurchases ($146.4 million) and net long-term debt repayments ($100.0 million)[193] - Anticipated capital spending for the full fiscal year 2025 is projected to be between $40 million and $50 million[192] - As of March 31, 2025, the company had principal debt balances of $405.0 million in Senior Secured Notes and $153.3 million in its Term Loan B[197] Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes in its market risk exposure during the first nine months of fiscal year 2025 compared to the disclosures in its 2024 Form 10-K - There have been no material changes in Adtalem's market risk exposure from those set forth in the 2024 Form 10-K[215] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the third quarter of fiscal year 2025 - The CEO and CFO concluded that Adtalem's disclosure controls and procedures were effective as of March 31, 2025[216] - No changes in internal control over financial reporting occurred during the third quarter of fiscal year 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[217] Part II. Other Information Legal Proceedings Information regarding legal proceedings is detailed in Note 17 of the Consolidated Financial Statements, including the settlement of the Walden DBA lawsuit and ongoing borrower defense to repayment applications - For details on legal proceedings, the report refers to Note 17 "Commitments and Contingencies" in the financial statements[218] Risk Factors There have been no material changes to the company's risk factors from those disclosed in its 2024 Form 10-K - No material changes to Adtalem's risk factors have occurred since the filing of the 2024 Form 10-K[218] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of fiscal year 2025, Adtalem repurchased 791,420 shares of its common stock at an average price of $98.06 per share, with approximately $62.5 million remaining available for future repurchases Issuer Purchases of Equity Securities (Q3 FY2025) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | Jan 2025 | 29,894 | $94.36 | | Feb 2025 | 47,496 | $101.95 | | Mar 2025 | 714,030 | $97.95 | | Total | 791,420 | $98.06 | - As of March 31, 2025, $62.5 million remained available for share repurchases under the company's fourteenth share repurchase program[219] Other Information During the third quarter of fiscal year 2025, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the three months ended March 31, 2025[221] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications (31.1, 31.2), Sarbanes-Oxley certifications (32.1), and Inline XBRL data files (101 series) - The report includes required certifications from the CEO and CFO, as well as Inline XBRL data files as exhibits[222]