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Income Taxes

12 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

Income from continuing operations before income taxes, classified by source of income, was as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended June 30,
​	​	2024		​	2023		​	2022
Domestic	​	$	89,752	​	$	51,422	​	$	(112,151)
Foreign	​		74,185	​		60,613	​		60,657
Total	​	$	163,937	​	$	112,035	​	$	(51,494)

​

The components of the provision for (benefit from) income taxes were as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended June 30,
​		2024		​	2023		​	2022
Current tax provision (benefit):		​	​	​	​	​	​	​	​
U.S. federal	​	$	11,243	​	$	13,761	​	$	(6,767)
State and local	​		3,489	​		824	​		4,154
Foreign	​		419	​		614	​		725
Total current	​		15,151	​		15,199	​		(1,888)
Deferred tax provision (benefit):	​	​	​	​	​	​	​	​	​
U.S. federal	​		4,870	​		(1,099)	​		(6,425)
State and local	​		2,745	​		(4,347)	​		(6,597)
Foreign	​		3,458	​		530	​		(629)
Total deferred	​		11,073	​		(4,916)	​		(13,651)
Provision for (benefit from) income taxes	​	$	26,224	​	$	10,283	​	$	(15,539)

​

The effective tax rate differs from the statutory tax rates as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended June 30,
​	​	2024				​	​	2023				​	​	2022
Income tax at statutory rate	​	$	34,427	​	21.0	%	​	$	23,527	​	21.0	%	​	$	(10,814)	​	21.0	%
Lower rates on foreign operations	​		(11,419)		(7.0)	%	​		(11,668)		(10.4)	%	​		(12,879)		25.0	%
State income taxes	​		4,557		2.8	%	​		2,719		2.4	%	​		(661)		1.3	%
Loss on investment in subsidiary	​		—		—	%	​		—		—	%	​		(1,669)		3.2	%
Deferred tax benefit from acquisitions and divestitures	​		—		—	%	​		—		—	%	​		(1,153)		2.2	%
Research and development tax credits	​	​	(1,589)	​	(1.0)	%	​	​	(1,862)	​	(1.7)	%	​	​	—		—	%
Change in valuation allowance	​	​	(621)	​	(0.4)	%	​	​	(9,769)	​	(8.7)	%	​	​	5,406		(10.5)	%
Reduction in state loss carryforwards	​	​	—	​	—	%	​	​	2,340	​	2.1	%	​	​	(5,882)		11.4	%
Permanent non-deductible items	​		2,293		1.4	%	​		1,630		1.5	%	​		2,788		(5.4)	%
Foreign tax provisions under GILTI	​	​	4,908	​	3.0	%	​		3,569	​	3.2	%	​		8,581	​	(16.7)	%
Change in unrecognized tax benefits	​	​	(6,849)	​	(4.2)	%	​		791	​	0.7	%	​		56	​	(0.1)	%
Other	​		517		0.3	%	​		(994)		(0.9)	%	​		688		(1.3)	%
Provision for (benefit from) income taxes	​	$	26,224		16.0	%	​	$	10,283		9.2	%	​	$	(15,539)		30.2	%

​

Deferred income tax assets and liabilities result primarily from temporary differences in the recognition of various expenses for tax and financial statement purposes, and from the recognition of the tax benefits of net operating loss carryforwards. The components of the deferred income tax assets and liabilities were as follows (in thousands):

​

​	​	​	​	​	​	​
​	​	June 30,
​	​	2024		​	2023
Employee benefits	​	$	15,866	​	$	11,719
Stock-based compensation	​		7,664	​		7,310
Receivable reserve	​		9,028	​		6,246
Capitalized research and experimental costs	​		9,322	​		8,075
Operating lease liabilities	​	​	42,526	​	​	41,235
Other reserves	​		12,439	​		6,246
Loss and credit carryforwards, net	​		15,426	​		19,259
Less: valuation allowance	​		—	​		(621)
Gross deferred tax assets	​		112,271	​		99,469
Depreciation	​		(8,298)	​		(5,643)
Deferred taxes on unremitted foreign earnings	​	​	(210)	​	​	(428)
Amortization of intangible assets	​		(50,035)	​		(31,294)
Operating lease assets	​	​	(34,166)	​	​	(31,478)
Gross deferred tax liability	​		(92,709)	​		(68,843)
Net deferred tax asset	​	$	19,562	​	$	30,626

​

As of June 30, 2024, Adtalem had $164.4 million of gross, post apportioned state net operating loss carryforwards, and $13.0 million of gross foreign net operating loss carryforwards in St. Maarten. As of June 30, 2023, Adtalem had $190.8 million of gross, post apportioned state net operating loss carryforwards, and $17.3 million of foreign net operating loss carryforwards in St. Maarten and other jurisdictions.

Adtalem has the following tax net operating loss (tax effected), interest (tax effected), and credit carryforwards as of June 30, 2024 (in thousands):

​

​	​	​	​	​	​	​	​
​	​	June 30,		​	Years of Expiration
​	​	2024		​	Beginning	​	Ending
U.S. interest expense carryforwards	​	$	506		no expiration
U.S. credit carryforwards	​	​	672	​	2027	​	2030
State net operating loss carryforwards	​		9,053		2025		2043
State interest expense carryforwards	​	​	592	​	no expiration
State credit carryforwards	​	​	130	​	no expiration
Foreign net operating loss carryforwards	​		4,473		2030		2033
Total loss and credit carryforwards, net	​	$	15,426		​	​	​

​

Two of Adtalem’s businesses benefit from local tax incentives: RUSM, which operates in Barbados and RUSVM, which operates in St. Kitts. RUSM and RUSVM each have agreements with their respective domestic governments that exempt them from local income taxation. RUSM has an exemption in Barbados until 2039. RUSVM has an exemption in St. Kitts until 2037.

Adtalem does not assert that the accumulated undistributed earnings of its foreign subsidiaries are indefinitely reinvested in foreign jurisdictions. Adtalem has accrued immaterial applicable state income and foreign withholding taxes on such undistributed earnings.

Adtalem reviews the realizability of its deferred tax assets and related valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. A valuation allowance is established when, based on the weight of available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. Based on our review of all available positive and negative evidence, it is more likely than not that we will recognize all deferred tax assets and, therefore, we do not have a valuation allowance on our deferred tax assets as of June 30, 2024. The valuation allowance on our deferred tax assets was $0.6 million as of June 30, 2023 and mainly related to foreign net operating loss carryforwards. The valuation allowance decreased by $0.6 million in fiscal year 2024 compared to fiscal year 2023 and decreased by $9.8 million in fiscal year 2023 compared to fiscal year 2022. Insufficient projected taxable income in certain jurisdictions may give rise to the need for a valuation allowance. We will continue to evaluate the need for valuation allowances and, as circumstances change, the valuation allowance may change. The changes in our valuation allowances were as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended June 30,
​	​	2024		​	2023		​	2022
Balance at beginning of period	​	$	621	​	$	10,390	​	$	4,985
Charged to costs and expenses	​		—	​		(2,677)	​		5,522
Deductions	​		(621)	​		(7,092)	​		(117)
Balance at end of period	​	$	—	​	$	621	​	$	10,390

​

Our effective tax rates from continuing operations were 16.0%, 9.2%, and 30.2% in fiscal year 2024, 2023, and 2022, respectively. In fiscal year 2024, our effective tax rate increase was primarily due to an increase in the percentage of earnings from operations in higher taxed jurisdictions and a limitation of tax benefits on certain executive compensation. The rate increase was partially offset due to the lapsing of statues of limitations for unrecognized tax benefits in fiscal year 2024. In addition, in fiscal year 2023, we released a valuation allowance on certain deferred tax assets based on our reassessment of the amount of state net operating loss carryforwards that are more likely than not to be realized. The income tax expenses in fiscal years 2024 and 2023 and the income tax benefit in fiscal year 2022 reflect the U.S. federal tax rate of 21% adjusted for taxes related to global intangible low-taxed income (“GILTI”), limitation of tax benefits on certain executive compensation, the rate of tax applied by state and local jurisdictions, the rate of tax applied to earnings outside the U.S., tax incentives, tax credits related to research and development expenditures, changes in valuation allowance, liabilities for uncertain tax positions, and tax benefits on stock-based compensation.

As of June 30, 2024 and 2023, the total amount of gross unrecognized tax benefits for uncertain tax positions was $6.7 million and $13.1 million, respectively, which if recognized, would impact the effective tax rate. We expect that our unrecognized tax benefits will decrease during the next 12 months due to the settlement of various audits and the lapsing of statutes of limitation. We estimate this decrease to be immaterial. Adtalem classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. The total amount of interest and penalties accrued as of June 30, 2024 and 2023 was $1.2 million and $1.6 million, respectively. Interest and penalties expense recognized during the years ended June 30, 2024, 2023, and 2022 were a net decrease of $0.4 million, a net increase of $0.7 million, and a net increase of $0.3 million, respectively. The changes in our unrecognized tax benefits were as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended June 30,
​	​	2024		​	2023		​	2022
Balance at beginning of period	​	$	13,128	​	$	11,645	​	$	9,836
Increases from positions taken during prior periods	​		953	​		1,299	​		1,074
Decreases from positions taken during prior periods	​		(1,248)	​		—	​		(1,737)
Increases from positions taken during the current period	​		554	​		665	​		2,845
Reductions due to lapse of statute	​		(6,664)	​		(481)	​		(373)
Balance at end of period	​	$	6,723	​	$	13,128	​	$	11,645

​

Adtalem files tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions based on existing tax laws and incentives. Adtalem remains generally subject to examination in the U.S. for years beginning on or after July 1, 2020; in various states for years beginning on or after July 1, 2019; and in our significant foreign jurisdictions for years beginning on or after July 1, 2017.

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