Adtalem Education (ATGE) - 2025 Q4 - Annual Report

PART I Item 1. Business Adtalem is a leading U.S. healthcare educator with three segments, serving over 90,000 students and subject to extensive federal financial aid and accreditation regulations Overview Adtalem is a leading U.S. healthcare educator with five institutions, serving over 90,000 students and focusing on expanding access through technology - Adtalem is the leading U.S. healthcare educator, comprising five institutions including Chamberlain and Walden[12][13] - The company serves over 90,000 students across campuses and online, with 350,000 alumni[13] - Adtalem's strategy emphasizes expanding student access via innovative learning technologies and its "Growth with Purpose" operating model[15] Segments Overview Adtalem operates through three reportable segments: Chamberlain, Walden, and Medical and Veterinary schools - Adtalem operates through three reportable segments[17] - Chamberlain offers degree and certificate programs in nursing and health professions[17] - Walden provides degree and certificate programs in nursing, education, business, and psychology[18] - Medical and Veterinary includes AUC, RUSM, and RUSVM, offering medical and veterinary degrees[19] Market Trends and Competition Adtalem's segments compete in diverse education markets, with strong positions in nursing, online higher education, and medical/veterinary fields - Chamberlain competes in a market with over 2,000 nursing programs and held the largest pre-licensure BSN, MSN, FNP, and DNP programs by enrollment in Fall 2024[55][56][58] - Walden competes in the growing online higher education market and is a leading conferrer of doctoral and master's degrees in fields like nursing and education[59][61][62] - Medical and Veterinary schools (AUC, RUSM, RUSVM) compete with U.S. and international institutions, with demand driven by the supply/demand imbalance for healthcare professionals[63][64] Accreditation and Regulatory Approvals Adtalem's institutions and programs hold essential institutional and programmatic accreditations, crucial for Title IV eligibility and student progression - Both Chamberlain and Walden are institutionally accredited by the Higher Learning Commission (HLC), with many programs holding specific programmatic accreditations[66][67] - AUC is accredited by ACCM and RUSM by CAAM-HP, with their standards affirmed comparable to U.S. LCME, enabling U.S. residency eligibility[69][70] - RUSVM's Doctor of Veterinary Medicine degree is accredited by the American Veterinary Medical Association Council on Education (AVMA COE)[71] Legislative and Regulatory Requirements Adtalem's institutions are highly dependent on federal financial aid programs (Title IV) and are subject to extensive regulatory oversight, including financial responsibility and the 90/10 rule - Adtalem's institutions heavily rely on U.S. federal financial aid (Title IV programs), regulated extensively by the Department of Education (ED) under the Higher Education Act (HEA)[72][74] - Adtalem's FY2022 financial responsibility composite score declined to 0.2 due to the Walden acquisition, leading to provisional certifications and $179.0 million in required letters of credit[80] 90/10 Rule Rates | Institution | FY 2024 (New Rule) | FY 2023 (Old Rule) | | :--- | :--- | :--- | | Chamberlain University | 68% | 65% | | Walden University | 82% | 78% | | American University of the Caribbean | 87% | 81% | | Ross University School of Medicine | 87% | 87% | | Ross University School of Veterinary Medicine | 78% | 79% | | Consolidated | 77% | 75% | Cohort Default Rates (CDR) | Institution | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Chamberlain University | 0.0% | 0.0% | 0.5% | | Walden University | 0.0% | 0.0% | 1.1% | | AUC | 0.0% | 0.0% | 0.2% | | RUSM | 0.0% | 0.0% | 0.2% | | RUSVM | 0.0% | 0.0% | 0.2% | Note: Default rates for 2020 and 2021 were 0.0% due to COVID-19 relief measures - New Gainful Employment (GE) and Financial Value Transparency (FVT) rules, effective July 1, 2024, require programs to meet specific debt-to-earnings and earnings premium tests for Title IV eligibility, with a reporting deadline of September 30, 2025[89][90] Human Capital Adtalem's human capital strategy focuses on talent development, leadership pipeline, and fostering a performance-driven culture, reflected in improved organizational health Employee Count as of June 30, 2025 | Category | Full-Time Staff | Part-Time Staff | Temporary Staff | Visiting Professors | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Chamberlain | 1,393 | 16 | 182 | 2,861 | 4,452 | | Walden | 1,298 | 12 | 2 | 2,412 | 3,724 | | Medical and Veterinary | 765 | 14 | 51 | 102 | 932 | | Home Office | 1,247 | 5 | 11 | — | 1,263 | | Total | 4,703 | 47 | 246 | 5,375 | 10,371 | - The company's talent strategy prioritizes building a leadership pipeline, upskilling, and fostering a performance-driven culture[116] - A January 2024 Organizational Health Index (OHI) survey indicated a 4-point increase in overall score, moving Adtalem up a full quartile against the global benchmark, with improvements in customer focus and shared vision[117][121] Item 1A. Risk Factors Adtalem faces significant risks from its highly regulated industry, including Title IV eligibility and accreditation, and business operations, such as competition, cybersecurity, and substantial debt Risks Related to Adtalem's Regulated Industry Risks include potential loss of Title IV eligibility, adverse regulatory actions, changes in financial aid laws, and failure to maintain accreditation or state authorizations - The company is subject to extensive regulation and audits, where unfavorable outcomes could result in monetary penalties, loss of Title IV eligibility, or operational restrictions[126] - A significant portion of consolidated revenue, 77%, derives from Title IV programs, making the company vulnerable to changes in the HEA or reductions in federal student aid funding[137][140] - Failure to demonstrate financial responsibility or administrative capability could lead to loss of Title IV eligibility or require posting substantial letters of credit[135][148] - Loss of institutional or programmatic accreditation would render an institution ineligible for Title IV programs, materially harming the business[151] - A material change of ownership or control could necessitate recertification by the ED and reevaluation by accreditors and state agencies, potentially disrupting Title IV eligibility[152] Risks Related to Adtalem's Business Business risks include intense competition, dependency on student enrollment, cybersecurity threats, challenges in integrating acquisitions, and risks associated with substantial debt and goodwill - Future revenue and growth depend on successful student recruitment and retention within a highly competitive postsecondary market, including increasing online options[173][176] - Cybersecurity threats pose a significant risk, where a breach of personal information could result in reputational damage, liability, and operational disruptions[179][182][184] - Goodwill and intangible assets, totaling $961.3 million and $765.5 million respectively as of June 30, 2025, represent 63% of total assets, and a decline in performance could lead to significant non-cash impairment charges[194] - The company's ability to service its debt obligations relies on generating sufficient cash flow, subject to various uncontrollable economic, competitive, and regulatory factors[199] Item 1C. Cybersecurity Adtalem's cybersecurity program, managed by a CISO and based on NIST 800-53, includes continuous risk assessments and incident response, with no material threats identified in the past three fiscal years - The Cyber Risk Management Framework is based on the NIST 800-53 Framework, harmonized with standards like ISO 27001 and regulations such as FERPA and GDPR[205] - The Chief Information Security Officer (CISO) manages the program, reporting to the CFO, and provides regular updates to executive management and the Audit and Finance Committee[206] - Governance is provided by the Audit and Finance Committee, overseeing cybersecurity risks and receiving quarterly briefings from the CISO[214] - Adtalem has not identified any cybersecurity threats over the past three fiscal years that have materially impacted its business, operations, or financial condition[210] Item 2. Properties Adtalem owns 775,000 square feet of facilities and leases additional space, with Chamberlain operating 23 campuses, Walden primarily online, and Medical/Veterinary schools having both owned and leased campuses - Adtalem owns 775,000 square feet of facilities worldwide, none subject to a mortgage[215] - Chamberlain operates 23 campuses, with 20 leased and 3 owned by Adtalem[216] - The AUC campus in St. Maarten and RUSVM campus in St. Kitts are owned, while the RUSM campus in Barbados consists of leased facilities[218][219][220] Information About Our Executive Officers This section outlines the business experience, age, and current positions of Adtalem's executive officers, including the Chairman and CEO, CFO, and segment presidents Key Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Stephen W. Beard | 54 | Chairman and Chief Executive Officer | | Robert J. Phelan | 60 | Senior Vice President, Chief Financial Officer | | Douglas G. Beck | 58 | Senior Vice President, General Counsel, Corporate Secretary and Institutional Support Services | | Dr. Karen Cox | 65 | President, Chamberlain University | | Michael Betz | 52 | Chief Digital Officer and President, Walden University | | Scott Liles | 59 | President, Medical and Veterinary | PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Adtalem's common stock trades on NYSE under "ATGE", with no dividends paid in FY2023-2025, and $62.4 million in share repurchases during Q4 FY2025 - Adtalem's common stock is listed on the New York Stock Exchange and NYSE Texas under the symbol "ATGE"[228] - The company did not pay dividends in fiscal years 2023, 2024, or 2025 and does not anticipate paying cash dividends in the foreseeable future[230] Share Repurchases (Q4 FY2025) | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (Approx.) | | :--- | :--- | :--- | :--- | | April 2025 | 521,165 | $103.29 | $53.8M | | May 2025 | 71,962 | $118.87 | $8.6M | | June 2025 | — | — | $0 | | Total | 593,127 | $105.18 | $62.4M | - As of June 30, 2025, $150.0 million remained available for repurchase under the company's fifteenth share repurchase program, authorized through May 6, 2028[195][251] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In FY2025, Adtalem's revenue grew 12.9% to $1.79 billion, with net income up 73.3% to $237.1 million, driven by enrollment growth and tuition increases, while cash flow from operations reached $333.7 million Fiscal Year 2025 Highlights FY2025 highlights include significant revenue and net income growth, increased student enrollment across segments, and substantial share repurchases FY2025 Financial Highlights vs. Prior Year | Metric | FY 2025 | Change vs. FY 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,788.3 M | +$203.6 M | +12.9% | | Net Income | $237.1 M | +$100.3 M | +73.3% | | Diluted EPS | $6.18 | +$2.79 | +82.3% | | Adjusted Net Income | $255.6 M | +$53.8 M | +26.7% | | Diluted Adjusted EPS | $6.67 | +$1.66 | +33.1% | - Average total student enrollment for FY2025 increased by 9.3% at Chamberlain, 13.5% at Walden, and 0.5% at the medical and veterinary schools year-over-year[251] - The company repurchased 2.3 million shares for $211.4 million in FY2025 and authorized a new $150.0 million repurchase program[251] Results of Operations Consolidated operating income increased significantly due to revenue growth, lower business integration expenses, and reduced amortization and litigation reserves Revenue by Segment (FY2025 vs. FY2024) | Segment | FY2025 Revenue | FY2024 Revenue | % Change | | :--- | :--- | :--- | :--- | | Chamberlain | $725.8 M | $633.5 M | +14.6% | | Walden | $693.4 M | $595.3 M | +16.5% | | Medical and Veterinary | $369.1 M | $355.8 M | +3.7% | | Total | $1,788.3 M | $1,584.7 M | +12.9% | - Consolidated operating income increased 57.4% to $341.5 million, driven by revenue growth and decreases in business integration expense, amortization, and litigation reserves[273] - Adjusted operating income increased 19.9% to $370.2 million, primarily due to higher revenue, partially offset by increased costs for enrollment support and marketing[273][275] - Interest expense decreased to $52.3 million from $63.7 million year-over-year, primarily due to lower Term Loan B borrowings[279] Liquidity and Capital Resources Adtalem's liquidity is supported by $199.6 million in cash, $400.0 million revolving credit facility, and $333.7 million in net cash from operations, despite substantial debt obligations Cash Flow Summary (in millions) | Activity | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net Cash from Operations | $333.7 | $288.4 | | Net Cash used in Investing | ($41.9) | ($47.9) | | Net Cash used in Financing | ($316.0) | ($301.8) | - Cash and cash equivalents were $199.6 million as of June 30, 2025, a decrease from $219.3 million a year prior[287] - As of June 30, 2025, outstanding principal debt included $405.0 million in Senior Secured Notes and $153.3 million under its Term Loan B[293] - The company maintained a $400.0 million revolving credit facility, fully available as of June 30, 2025, and subsequently increased to $500.0 million in August 2025[296] Critical Accounting Estimates Critical accounting estimates involve significant judgment in areas such as allowance for credit losses, impairment of long-lived assets, goodwill, income taxes, and legal contingencies - Key estimates requiring significant judgment include allowance for credit losses, impairment of long-lived assets, goodwill and intangibles, income taxes, and legal contingencies[299][300][301][302][311][313] - The annual goodwill impairment test as of May 31, 2025, for the RUSM reporting unit, showed its fair value exceeded carrying value by approximately 165%, resulting in no impairment[306][308] Item 8. Financial Statements and Supplementary Data This section presents Adtalem's consolidated financial statements for FY2025, with an unqualified audit opinion from PricewaterhouseCoopers LLP, highlighting the goodwill impairment assessment for RUSM as a critical audit matter - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of June 30, 2025[336] - A Critical Audit Matter was identified regarding the Goodwill Impairment Assessment for the Ross University School of Medicine (RUSM) reporting unit, due to significant management judgment in fair value estimation[343][344] Consolidated Balance Sheet Highlights (as of June 30, 2025) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $2,752,352 | | Goodwill | $961,262 | | Intangible assets, net | $765,474 | | Total Liabilities | $1,318,727 | | Long-term debt | $552,669 | | Total Shareholders' Equity | $1,433,625 | Consolidated Statement of Income Highlights (for year ended June 30, 2025) | Account | Amount (in thousands) | | :--- | :--- | | Revenue | $1,788,290 | | Operating Income | $341,542 | | Net Income | $237,065 | | Diluted EPS | $6.18 | Item 9A. Controls and Procedures Adtalem's CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with no material changes in Q4 FY2025 - Management, including the CEO and CFO, concluded that Adtalem's disclosure controls and procedures were effective as of June 30, 2025[520] - Management's assessment concluded that the company's internal control over financial reporting was effective as of June 30, 2025, based on the COSO 2013 framework[522] - No material changes in internal control over financial reporting occurred during the fourth quarter of fiscal year 2025[524] Item 9B. Other Information In June 2025, two executive officers established Rule 10b5-1 trading plans for the sale of Adtalem common stock, totaling 108,000 and 15,384 shares, respectively, with sales starting no earlier than September 12, 2025 - On June 10, 2025, Chairman and CEO Stephen W. Beard entered a 10b5-1 plan to sell 108,000 shares of common stock, with sales estimated to begin after September 12, 2025[525] - On June 13, 2025, SVP and General Counsel Douglas Beck entered a 10b5-1 plan to sell 15,384 shares of common stock, with sales also beginning no earlier than September 12, 2025[526] PART III Items 10-14 Information for Items 10-14, covering directors, executive compensation, security ownership, related transactions, and accountant fees, is incorporated by reference from Adtalem's 2025 proxy statement - Information regarding Directors, Executive Officers, and Corporate Governance (Item 10) is incorporated by reference from the Proxy Statement[528] - Details on Executive Compensation (Item 11) are incorporated by reference from the Proxy Statement[529] - Information on Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) is incorporated by reference from the Proxy Statement[530][531][532] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements filed under Item 8 and all exhibits included with the Form 10-K, with financial statement schedules omitted as not applicable - This item lists the financial statements filed under Item 8 and all exhibits filed with the Form 10-K[533] - All financial statement schedules have been omitted as they are not applicable or the required information is included in the consolidated financial statements[533]