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Accounts Receivable and Credit Losses

9 Months Ended

Mar. 31, 2023

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):


	March 31, 2023
		Gross		Allowance		Net
Trade receivables, current	$	138,392	$	(27,766)	$	110,626
Financing receivables, current		6,178		(3,520)		2,658
Accounts receivable, current	$	144,570	$	(31,286)	$	113,284

Financing receivables, current	$	6,178	$	(3,520)	$	2,658
Financing receivables, noncurrent		39,947		(13,670)		26,277
Total financing receivables	$	46,125	$	(17,190)	$	28,935


	June 30, 2022
		Gross		Allowance		Net
Trade receivables, current	$	109,882	$	(30,897)	$	78,985
Financing receivables, current		6,116		(3,466)		2,650
Accounts receivable, current	$	115,998	$	(34,363)	$	81,635

Financing receivables, current	$	6,116	$	(3,466)	$	2,650
Financing receivables, noncurrent		36,265		(11,425)		24,840
Total financing receivables	$	42,381	$	(14,891)	$	27,490


	March 31, 2022
		Gross		Allowance		Net
Trade receivables, current	$	120,428	$	(26,696)	$	93,732
Financing receivables, current		6,996		(4,664)		2,332
Accounts receivable, current	$	127,424	$	(31,360)	$	96,064

Financing receivables, current	$	6,996	$	(4,664)	$	2,332
Financing receivables, noncurrent		40,170		(13,410)		26,760
Total financing receivables	$	47,166	$	(18,074)	$	29,092

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, fees, and books, 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 write-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 March 31, 2023 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2019		2020		2021		2022		2023		Total
1-30 days past due	$	290	$	199	$	2	$	930	$	612	$	959	$	2,992
31-60 days past due		158		67		189		242		569		240		1,465
61-90 days past due		34		22		160		140		404		384		1,144
91-120 days past due		43		51		—		21		78		423		616
121-150 days past due		67		21		38		138		48		23		335
Greater than 150 days past due		7,945		1,058		718		2,966		1,261		19		13,967
Total past due		8,537		1,418		1,107		4,437		2,972		2,048		20,519
Current		6,173		1,034		811		5,648		3,591		8,349		25,606
Financing receivables, gross	$	14,710	$	2,452	$	1,918	$	10,085	$	6,563	$	10,397	$	46,125

The credit quality analysis of financing receivables as of June 30, 2022 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2018		2019		2020		2021		2022		Total
1-30 days past due	$	104	$	140	$	114	$	191	$	699	$	782	$	2,030
31-60 days past due		278		38		214		145		691		332		1,698
61-90 days past due		58		29		217		8		668		273		1,253
91-120 days past due		97		139		113		45		670		14		1,078
121-150 days past due		17		30		20		41		206		81		395
Greater than 150 days past due		6,978		876		1,077		683		1,596		377		11,587
Total past due		7,532		1,252		1,755		1,113		4,530		1,859		18,041
Current		4,687		2,229		1,483		1,167		8,910		5,864		24,340
Financing receivables, gross	$	12,219	$	3,481	$	3,238	$	2,280	$	13,440	$	7,723	$	42,381

The credit quality analysis of financing receivables as of March 31, 2022 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2018		2019		2020		2021		2022		Total
1-30 days past due	$	93	$	98	$	90	$	179	$	473	$	342	$	1,275
31-60 days past due		344		137		318		218		297		128		1,442
61-90 days past due		113		228		30		131		575		273		1,350
91-120 days past due		39		239		44		93		249		155		819
121-150 days past due		259		4		—		15		81		102		461
Greater than 150 days past due		8,239		1,751		1,412		946		2,241		129		14,718
Total past due		9,087		2,457		1,894		1,582		3,916		1,129		20,065
Current		6,198		2,343		1,664		987		10,950		4,959		27,101
Financing receivables, gross	$	15,285	$	4,800	$	3,558	$	2,569	$	14,866	$	6,088	$	47,166

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 March 31, 2023						Nine Months Ended March 31, 2023
	Trade		Financing		Total		Trade		Financing		Total
Beginning balance	$	27,516	$	16,045	$	43,561	$	30,897	$	14,891	$	45,788
Write-offs		(11,575)		(161)		(11,736)		(31,751)		(777)		(32,528)
Recoveries		3,613		402		4,015		7,869		436		8,305
Provision for credit losses		8,212		904		9,116		20,751		2,640		23,391
Ending balance	$	27,766	$	17,190	$	44,956	$	27,766	$	17,190	$	44,956


	Three Months Ended March 31, 2022						Nine Months Ended March 31, 2022
	Trade		Financing		Total		Trade		Financing		Total
Beginning balance	$	21,335	$	17,710	$	39,045	$	11,559	$	16,832	$	28,391
Write-offs		(3,915)		(16)		(3,931)		(8,463)		(762)		(9,225)
Recoveries		2,670		11		2,681		6,024		28		6,052
Provision for credit losses		6,606		369		6,975		17,576		1,976		19,552
Ending balance	$	26,696	$	18,074	$	44,770	$	26,696	$	18,074	$	44,770

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 bore interest at a rate of 4% per annum, payable annually in arrears, and had a maturity date of January 1, 2022. We received the loan payment of $10.0 million during the third quarter of fiscal year 2022.

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 held a mortgage from DePaul College Prep for $46.8 million. The mortgage was due on July 31, 2024 as a balloon payment and bore interest at a rate of 4% per annum, payable monthly. The carrying value of the DePaul College Prep loan receivable was included in other assets, net on the Consolidated Balance Sheets as of June 30, 2022 and March 31, 2022 in the amount of $44.0 million and $43.6 million, respectively, and was determined by discounting the future cash flows using an average of current rates for similar arrangements, which was estimated at 7% per annum. On February 23, 2023, DePaul College Prep paid the mortgage in full, which resulted in derecognition of the note receivable from the Consolidated Balance Sheets.