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Accounts Receivable and Credit Losses

6 Months Ended

Dec. 31, 2021

9. Accounts Receivable and Credit Losses

We categorize our accounts receivable balances as trade receivables or financing receivables. Our trade receivables relate to student balances occurring in the normal course of business. Trade receivables have a term of less than one year and are included in accounts receivable, 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 receivable, net and other assets, net on our Consolidated Balance Sheets.

The classification of our accounts receivable balances was as follows (in thousands):


	December 31, 2021
		Gross		Allowance		Net
Trade receivables, current	$	111,538	$	(21,335)	$	90,203
Financing receivables, current		7,252		(4,711)		2,541
Accounts receivable, current	$	118,790	$	(26,046)	$	92,744

Financing receivables, current	$	7,252	$	(4,711)	$	2,541
Financing receivables, noncurrent		39,534		(12,999)		26,535
Total financing receivables	$	46,786	$	(17,710)	$	29,076


	June 30, 2021
		Gross		Allowance		Net
Trade receivables, current	$	52,512	$	(11,559)	$	40,953
Financing receivables, current		6,348		(4,260)		2,088
Accounts receivable, current	$	58,860	$	(15,819)	$	43,041

Financing receivables, current	$	6,348	$	(4,260)	$	2,088
Financing receivables, noncurrent		39,665		(12,572)		27,093
Total financing receivables	$	46,013	$	(16,832)	$	29,181


	December 31, 2020
		Gross		Allowance		Net
Trade receivables, current	$	78,917	$	(9,845)	$	69,072
Financing receivables, current		6,227		(3,685)		2,542
Accounts receivable, current	$	85,144	$	(13,530)	$	71,614

Financing receivables, current	$	6,227	$	(3,685)	$	2,542
Financing receivables, noncurrent		41,165		(13,063)		28,102
Total financing receivables	$	47,392	$	(16,748)	$	30,644

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, books, and fees, 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 charge-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.

The credit quality analysis of financing receivables as of December 31, 2021 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2018		2019		2020		2021		2022		Total
1-30 days past due	$	306	$	118	$	240	$	30	$	1,222	$	370	$	2,286
31-60 days past due		46		219		5		117		434		310		1,131
61-90 days past due		64		290		39		11		560		27		991
91-120 days past due		—		28		18		152		372		—		570
121-150 days past due		587		13		155		—		328		102		1,185
Greater than 150 days past due		8,885		1,755		1,242		879		1,594		—		14,355
Total past due		9,888		2,423		1,699		1,189		4,510		809		20,518
Current		6,053		2,454		1,933		1,384		11,160		3,284		26,268
Financing receivables, gross	$	15,941	$	4,877	$	3,632	$	2,573	$	15,670	$	4,093	$	46,786

The credit quality analysis of financing receivables as of June 30, 2021 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2017		2018		2019		2020		2021		Total
1-30 days past due	$	297	$	7	$	320	$	559	$	135	$	1,616	$	2,934
31-60 days past due		145		2		165		49		61		660		1,082
61-90 days past due		24		310		92		102		69		95		692
91-120 days past due		287		—		131		16		47		13		494
121-150 days past due		43		31		133		42		256		108		613
Greater than 150 days past due		7,468		2,973		1,919		1,431		475		872		15,138
Total past due		8,264		3,323		2,760		2,199		1,043		3,364		20,953
Current		4,565		1,955		2,601		1,586		1,548		12,805		25,060
Financing receivables, gross	$	12,829	$	5,278	$	5,361	$	3,785	$	2,591	$	16,169	$	46,013

The credit quality analysis of financing receivables as of December 31, 2020 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2017		2018		2019		2020		2021		Total
1-30 days past due	$	767	$	444	$	589	$	909	$	335	$	23	$	3,067
31-60 days past due		631		500		97		123		181		29		1,561
61-90 days past due		261		417		69		195		240		—		1,182
91-120 days past due		364		23		197		11		156		—		751
121-150 days past due		431		637		570		83		—		—		1,721
Greater than 150 days past due		6,840		1,707		1,204		638		297		—		10,686
Total past due		9,294		3,728		2,726		1,959		1,209		52		18,968
Current		11,824		5,389		3,891		4,205		2,259		856		28,424
Financing receivables, gross	$	21,118	$	9,117	$	6,617	$	6,164	$	3,468	$	908	$	47,392

Allowance for Credit Losses

The allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in our accounts receivable balances as of each balance sheet date. In evaluating the collectability of all our accounts receivable balances, we utilize historical events, current conditions, and reasonable and supportable forecasts about the future.

For our trade 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 trade 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.

The following tables provide a rollforward of the allowance for credit losses (in thousands):


	Three Months Ended December 31, 2021						Six Months Ended December 31, 2021
	Trade		Financing		Total		Trade		Financing		Total
Beginning balance	$	16,497	$	17,064	$	33,561	$	11,559	$	16,832	$	28,391
Write-offs		(2,816)		(209)		(3,025)		(4,548)		(746)		(5,294)
Recoveries		2,104		17		2,121		3,354		17		3,371
Provision for credit losses		5,550		838		6,388		10,970		1,607		12,577
Ending balance	$	21,335	$	17,710	$	39,045	$	21,335	$	17,710	$	39,045


	Three Months Ended December 31, 2020						Six Months Ended December 31, 2020
	Trade		Financing		Total		Trade		Financing		Total
Beginning balance	$	9,111	$	16,251	$	25,362	$	9,367	$	15,063	$	24,430
Write-offs		(989)		(1,554)		(2,543)		(1,672)		(1,748)		(3,420)
Recoveries		200		—		200		386		40		426
Provision for credit losses		1,523		2,051		3,574		1,764		3,393		5,157
Ending balance	$	9,845	$	16,748	$	26,593	$	9,845	$	16,748	$	26,593

Allowance for bad debts on short-term and long-term receivables as of December 31, 2021, June 30, 2021, and December 31, 2020 was $39.0 million, $28.4 million, and $26.6 million, respectively. The increase in the reserve from the year-ago period and the beginning of fiscal year 2022 is driven by the provision for credit losses at Walden.

Other Financing Receivables

In connection with the sale of DeVry University, Adtalem loaned $10.0 million to DeVry University under the terms of the DeVry Note. The DeVry Note bears interest at a rate of 4% per annum, payable annually in arrears, and had a maturity date of January 1, 2022. The DeVry University loan receivable is included on the Consolidated Balance Sheet in prepaid expenses and other current assets as of each of December 31, 2021 and June 30, 2021, and other assets, net as of December 31, 2020, and is estimated by discounting the future cash flows using an average of current rates for similar arrangements, which is estimated at 4% per annum. Management has evaluated the collectability of this note and has determined no reserve is necessary.

On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (“DePaul College Prep”). In connection with the sale, Adtalem holds a mortgage from DePaul College Prep for $46.8 million. The mortgage is due on July 31, 2024 as a balloon payment and bears interest at a rate of 4% per annum, payable monthly. The carrying value of the DePaul College Prep loan receivable is included in other assets, net on the Consolidated Balance Sheet as of December 31, 2021, June 30, 2021, and December 31, 2020 is $43.3 million, $42.7 million, and $42.0 million, respectively, and was originally determined by discounting the future cash flows using an average of current rates for similar arrangements, which is estimated at 7% per annum. Management has evaluated the collectability of this note and has determined no reserve is necessary.