Adtalem Education (US:ATGE)2023-10-25 16:00Financial Performance - Adtalem's revenue increased by $14.6 million, or 4.1%, in Q1 fiscal year 2024 compared to the prior year, driven by growth in Chamberlain and Walden segments [175]. - Net income for Q1 fiscal year 2024 was $10.6 million, or $0.25 diluted earnings per share, an increase from $0.24 diluted earnings per share in the same period last year [175]. - Adjusted earnings per share increased by $0.03, or 3.3%, to $0.93 in Q1 fiscal year 2024 compared to the year-ago period [175]. - Consolidated operating income increased by 19.3%, or $4.6 million, to $28.2 million in Q1 FY2024 compared to the same period last year [201]. - Adjusted operating income decreased by 5.2%, or $3.5 million, to $63.3 million in Q1 FY2024 compared to the year-ago period [202]. - Adtalem's net income for the three months ended September 30, 2023, was $10.6 million, compared to $0.6 million for the same period in 2022 [258]. - Adjusted net income for the three months ended September 30, 2023, was $39.4 million, slightly down from $41.6 million in the prior year [258]. - Adjusted earnings per share (EPS) for the three months ended September 30, 2023, was $0.93, compared to $0.90 for the same period in 2022 [259]. - Adtalem's net income surged to $10,646, a significant increase of 1,698.3% from $592, driven by improved operating income [260]. Enrollment Trends - Total student enrollment at Chamberlain increased by 2.6% and 5.2% for the July and September 2023 sessions, respectively, compared to the same sessions last year [179]. - Walden's total student enrollment increased by 0.5% as of September 30, 2023, compared to September 30, 2022 [175]. - Total student enrollment for Walden increased by 0.5% to 40,975 in fiscal year 2024 compared to 40,772 in fiscal year 2023 [181]. - Enrollment at the medical and veterinary schools decreased by 7.5% for the September 2023 semester compared to the same semester last year [175]. Revenue by Segment - Chamberlain's revenue rose by 5.3%, or $7.2 million, to $142.6 million in Q1 fiscal year 2024, attributed to increased enrollment and higher tuition rates [179]. - Walden's revenue rose by 8.2%, or $10.7 million, to $141.6 million in the first quarter of fiscal year 2024, driven by increased enrollment and higher tuition rates [181]. - Medical and Veterinary revenue decreased by 3.8%, or $3.3 million, to $84.6 million in the first quarter of fiscal year 2024 due to decreased enrollment [184]. Operating Costs and Expenses - Total operating costs and expenses decreased to 92.4% of revenue in Q1 fiscal year 2024 from 93.3% in the prior year [176]. - Cost of educational services increased by 5.6%, or $9.0 million, to $168.6 million in the first quarter of fiscal year 2024, primarily due to increased provision for bad debts and labor costs [190]. - Student services and administrative expense rose by 13.5%, or $19.7 million, to $166.1 million in the first quarter of fiscal year 2024, driven by increased incentive compensation and investments in growth initiatives [193]. - The percentage of revenue attributed to cost of educational services was 45.7% in the first quarter of fiscal year 2024, up from 45.1% in the prior year [191]. Share Repurchase and Capital Management - Adtalem repurchased 2,158,398 shares of common stock at an average cost of $42.57 per share during the first quarter of 2024 [175]. - Adtalem repurchased $150.0 million of common stock under an ASR agreement, receiving 4,709,576 shares initially, with a final settlement of $13.2 million in cash [242]. - Capital expenditures for the first three months of fiscal year 2024 were $15.0 million, with expectations of total capital spending between $50 million and $60 million for the full fiscal year [235]. Debt and Liquidity - As of September 30, 2023, Adtalem's consolidated cash and cash equivalents were $262.4 million, a decrease from $273.7 million as of June 30, 2023 [230]. - Adtalem's principal balances included $405.0 million of Senior Secured Notes and $303.3 million of Term Loan B, with no required quarterly principal payments on Term Loan B due to a prepayment of $396.7 million [243][245]. - The company maintains a $400.0 million revolving credit facility, with $323.8 million available as of September 30, 2023, which will reduce to $165.9 million in November 2023 [244]. - Adtalem's liquidity is primarily sourced from student tuition and financial aid, with seasonal cash collection patterns peaking at the start of each term [229]. Regulatory and Compliance Issues - Walden University was issued a Temporary Provisional Program Participation Agreement (TPPPA) due to prior financial responsibility issues under its former parent company [221]. - Adtalem is subject to heightened cash monitoring and additional reporting requirements due to the provisional status of its institutions [223]. - The Gainful Employment rules effective July 1, 2024, will require programs to meet specific debt-to-earnings metrics to maintain Title IV eligibility [224]. - A letter of credit of $157.9 million, representing 10% of the consolidated Title IV funds received during fiscal year 2022, must be delivered to the U.S. Department of Education by November 9, 2023 [223]. Other Financial Metrics - Interest expense decreased to $15.7 million in Q1 FY2024 from $17.8 million in Q1 FY2023, primarily due to prior period charges related to debt write-off [206]. - Other income, net increased to $2.2 million in Q1 FY2024 from $0.8 million in Q1 FY2023, driven by higher interest income [207]. - Effective income tax rate increased to 18.9% in Q1 FY2024 from 16.9% in Q1 FY2023, due to a decrease in earnings from foreign operations [208]. - Net loss from discontinued operations was $1.3 million in Q1 FY2024, compared to a loss of $4.9 million in Q1 FY2023 [212][213]. Adjusted EBITDA and Operating Income - Chamberlain's adjusted EBITDA decreased by $2,210, or 6.5%, to $31,547, with an adjusted EBITDA margin of 22.1% compared to 24.9% in the previous year [260]. - Walden's adjusted EBITDA increased by $6,100, or 21.0%, to $35,141, with an adjusted EBITDA margin of 24.8%, up from 22.2% [260]. - Medical and Veterinary segment reported an operating income of $14,363, a 40.3% increase from $10,238, despite a decrease in adjusted EBITDA by $2,583, or 11.9% [260]. - Home Office and Other segment showed an operating loss improvement of $3,290, or 20.9%, from $(15,721) to $(12,431) [260]. - Adjusted EBITDA for Adtalem decreased by $3,175, or 3.8%, to $80,542, with a notable restructuring expense of $676 [260]. Legal and Compliance Matters - Litigation reserve increased by $18,500, indicating potential legal liabilities [260]. - Disclosure controls were deemed effective as of September 30, 2023, following an evaluation by management [262]. - No changes in internal control over financial reporting were noted that could materially affect the reporting [263].