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Leases

6 Months Ended

Dec. 31, 2022

11. Leases

We determine if a contract contains a lease at inception. We have entered into operating leases for academic sites, housing facilities, and office space which expire at various dates through December 2034, most of which include options to terminate for a fee or extend the leases for an additional five-year period. The lease term includes the noncancelable period of the lease, as well as any periods for which we are reasonably certain to exercise extension options. We elected to account for lease and non-lease components (e.g., common-area maintenance costs) as a single lease component for all operating leases. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. We have not entered into any financing leases.

Operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets represent our right to use an underlying asset during the lease term. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. Operating lease assets are adjusted for any prepaid or accrued lease payments, lease incentives, initial direct costs, and impairments. Our incremental borrowing rate is utilized in determining the present value of the lease payments based upon the information available at the commencement date. Our incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease. Operating lease expense is recognized on a straight-line basis over the lease term.

As of December 31, 2022, we entered into two additional operating leases that have not yet commenced. One lease is expected to commence during the third quarter of fiscal year 2023, has a 10-year lease term, and will result in an additional operating lease asset and operating lease liability of approximately $5.3 million. The second lease is expected to commence during the second quarter of fiscal year 2024, has a 12-year lease term, and will result in an additional operating lease asset and operating lease liability of approximately $16.6 million.

The components of lease cost were as follows (in thousands):


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021
Operating lease cost	$	11,595	$	14,362	$	23,970	$	28,587
Sublease income		(3,516)		(3,494)		(7,086)		(6,832)
Total lease cost	$	8,079	$	10,868	$	16,884	$	21,755

Maturities of lease liabilities by fiscal year as of December 31, 2022 were as follows (in thousands):


	Operating
Fiscal Year	Leases
2023 (remaining)	$	30,312
2024		55,548
2025		45,078
2026		32,245
2027		29,769
Thereafter		63,355
Total lease payments		256,307
Less: imputed interest		(41,366)
Present value of lease liabilities	$	214,941

Lease term and discount rate were as follows:


	December 31,
	2022
Weighted-average remaining operating lease term (years)		5.7
Weighted-average operating lease discount rate		5.8%

Supplemental disclosures of cash flow information related to leases were as follows (in thousands):


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021
Cash paid for amounts in the measurement of operating lease liabilities (net of sublease receipts)	$	12,390	$	13,525	$	24,818	$	26,728
Operating lease assets obtained in exchange for operating lease liabilities	$	13,038	$	205	$	13,038	$	6,316

Adtalem maintains agreements to lease either a portion or the full space of two facilities owned by Adtalem to DeVry University with various expiration dates through December 2023. Adtalem maintains agreements to sublease either a portion or the full leased space at 10 of its operating lease locations. Most of these subleases are a result of Adtalem retaining leases associated with restructured lease activities at DeVry University and Carrington College prior to their divestitures during fiscal year 2019. All sublease expirations with DeVry University and Carrington College coincide with Adtalem’s original head lease expiration dates. At that time, Adtalem will be relieved of its obligations. In addition, Adtalem has entered into subleases with non-affiliated entities for vacated or partially vacated space from restructuring activities. Adtalem’s sublease agreements expire at various dates through December 2025. We record sublease income as an offset against our lease expense recorded on the head lease. For leases which Adtalem vacated or partially vacated space, we recorded estimated restructuring charges in prior periods. Actual results may differ from these estimates, which

could result in additional restructuring charges or reversals in future periods. Future minimum lease and sublease rental income under these agreements as of December 31, 2022, were as follows (in thousands):


Fiscal Year	Amount
2023 (remaining)	$	7,920
2024		10,261
2025		5,121
2026		2,038
Total lease and sublease rental income	$	25,340