Adtalem Education (ATGE) - 2021 Q4 - Annual Report

COVID-19 Impact - Approximately 30% of Chamberlain's students are campus-based pursuing their BSN degree, with no significant revenue losses due to COVID-19 in fiscal years 2020 and 2021[57] - AUC and RUSM transitioned medical students to online learning at the onset of COVID-19, with no significant revenue losses in fiscal years 2020 and 2021, except for housing operations[58] - Clinical rotations for AUC and RUSM students were temporarily suspended in March 2020, impacting revenue and operating income, but all clinical partners resumed programs by June 2021[61] - RUSVM's basic science veterinary students transitioned to online learning, with no significant revenue losses in fiscal years 2020 and 2021, and all students returned to St. Kitts by May 2021[62] - Adtalem's remote operations have not adversely affected financial reporting systems or internal controls, with no significant home office costs incurred related to COVID-19 in fiscal years 2020 and 2021[67] Financial Performance - Financial Services experienced revenue losses in fiscal years 2020 and 2021 due to the cancellation of live conferences, with expectations of continued negative impacts in fiscal year 2022[63] - Becker, a leader in CPA exam preparation, has seen a decline in first-time CPA exam test takers at a compound annual rate of 1.8% over the last ten years[75] - Adtalem's primary source of liquidity comes from student payments, which include federal financial aid, private loans, and other educational fees[85] - In fiscal year 2020, 59% of Adtalem's revenue was derived from federal assistance (Title IV), while 39% came from student accounts and other sources[86] - Adtalem's institutions have maintained a composite score exceeding the required minimum of 1.5 for financial responsibility, although recent changes may negatively impact future scores[126] Financial Aid and Scholarships - Chamberlain students can receive Federal Pell Grants ranging from $320 to $9,517 for the 2020-2021 school year, depending on financial need[89] - AUC students may be eligible for institutional scholarships ranging from $5,000 to $80,000 to cover tuition and fees[103] - RUSM offers institutional scholarships ranging from $5,000 to $108,000 for housing, tuition, and fees[103] - Employer-provided tuition assistance for Chamberlain students allows for deferred payment plans, with a maximum annual exclusion of $5,250 from taxable income[108] - Adtalem does not maintain a preferred lender list for private loans but provides information on lenders that have previously offered loans to students[101] Regulatory Compliance - The financial aid landscape is influenced by political and governmental budgetary considerations, particularly regarding the reauthorization of the Higher Education Act[87] - Institutions must maintain administrative capability to participate in Title IV programs, with failure to meet criteria potentially leading to additional scrutiny or loss of eligibility[127] - The HEA requires institutions to be authorized to operate in each state where they have a physical presence, and Adtalem's Chamberlain University is authorized in all necessary jurisdictions[129] - Adtalem is currently facing multiple lawsuits related to regulatory scrutiny in the proprietary education sector, which may impact its operations[114] Student Outcomes - The cohort default rates for Adtalem's institutions are significantly lower than the national average, with Chamberlain University at 3.4% and American University of the Caribbean at 1.4% for fiscal year 2017[136] - The latest cohort default rates for Adtalem's institutions indicate strong performance, with Ross University School of Medicine at 1.3% and Ross University School of Veterinary Medicine at 0.9%[136] Interest Rates and Financial Instruments - The interest rate on Adtalem's Term B Loan is 3.10%, with $291.0 million in outstanding borrowings, meaning a 100 basis point increase in short-term interest rates would result in an additional $2.9 million of annual interest expense[467] - As of June 30, 2021, the fair value of the interest rate swap was a loss of $8.9 million, and a 100 basis point increase in short-term interest rates would result in a $10.6 million change in value of the swap[471] Employee Statistics and Engagement - As of June 30, 2021, Adtalem had a total of 4,426 employees, including 2,005 at Chamberlain University and 967 at Medical and Veterinary Schools[146] - Adtalem's employee diversity statistics show that 79% of all levels are female and 36% are people of color, with 48% of executive levels being female[154] - Engagement Survey results indicate that 71% of employees rated their enablement positively, while 75% rated their engagement positively[150] - The company has been recognized for its diversity and inclusion efforts, including being named one of Forbes' Best Employers for Diversity in 2021[155] Financial Responsibility and Surety Bonds - Adtalem has posted approximately $8.9 million of surety bonds with regulatory authorities on behalf of its institutions[143] - Changes to the financial responsibility regulations effective July 1, 2020, have negatively affected Adtalem's composite score, but management does not anticipate falling below the minimum threshold[126] - Adtalem's institutions are subject to heightened cash monitoring if their financial responsibility scores fall below 1.5, which could impact their ability to participate in federal financial assistance programs[126] - Adtalem has successfully demonstrated its financial responsibility where required, ensuring continued operations in various states[143]