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Accounts Receivable and Credit Losses

6 Months Ended

Dec. 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):


	December 31, 2023
		Gross		Allowance		Net
Trade receivables, current	$	166,107	$	(35,020)	$	131,087
Financing receivables, current		4,941		(2,362)		2,579
Accounts receivable, current	$	171,048	$	(37,382)	$	133,666

Financing receivables, current	$	4,941	$	(2,362)	$	2,579
Financing receivables, noncurrent		36,775		(10,964)		25,811
Total financing receivables	$	41,716	$	(13,326)	$	28,390


	June 30, 2023
		Gross		Allowance		Net
Trade receivables, current	$	129,318	$	(29,190)	$	100,128
Financing receivables, current		4,757		(2,136)		2,621
Accounts receivable, current	$	134,075	$	(31,326)	$	102,749

Financing receivables, current	$	4,757	$	(2,136)	$	2,621
Financing receivables, noncurrent		36,368		(9,332)		27,036
Total financing receivables	$	41,125	$	(11,468)	$	29,657

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 December 31, 2023 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2020		2021		2022		2023		2024		Total
1-30 days past due	$	555	$	120	$	539	$	383	$	2,115	$	913	$	4,625
31-60 days past due		112		12		32		97		280		302		835
61-90 days past due		62		—		206		12		804		45		1,129
91-120 days past due		31		—		13		50		364		97		555
121-150 days past due		205		17		188		—		919		321		1,650
Greater than 150 days past due		3,120		573		1,242		2,137		1,047		22		8,141
Total past due		4,085		722		2,220		2,679		5,529		1,700		16,935
Current		6,365		717		5,108		2,321		6,122		4,148		24,781
Financing receivables, gross	$	10,450	$	1,439	$	7,328	$	5,000	$	11,651	$	5,848	$	41,716
Gross write-offs	$	345	$	244	$	213	$	145	$	210	$	—	$	1,157

The credit quality analysis of financing receivables as of June 30, 2023 was as follows (in thousands):


	Amortized Cost Basis by Origination Year
	Prior		2019		2020		2021		2022		2023		Total
1-30 days past due	$	186	$	79	$	115	$	137	$	735	$	1,944	$	3,196
31-60 days past due		61		34		—		359		573		1,103		2,130
61-90 days past due		97		39		110		65		559		368		1,238
91-120 days past due		2		17		2		13		77		200		311
121-150 days past due		62		37		26		45		147		129		446
Greater than 150 days past due		2,641		734		708		2,071		1,457		381		7,992
Total past due		3,049		940		961		2,690		3,548		4,125		15,313
Current		6,199		1,112		820		5,350		2,608		9,723		25,812
Financing receivables, gross	$	9,248	$	2,052	$	1,781	$	8,040	$	6,156	$	13,848	$	41,125

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 roll-forward of the allowance for credit losses (in thousands):


	Three Months Ended December 31, 2023						Six Months Ended December 31, 2023
	Trade		Financing		Total		Trade		Financing		Total
Beginning balance	$	32,361	$	12,186	$	44,547	$	29,190	$	11,468	$	40,658
Write-offs		(11,139)		(421)		(11,560)		(19,551)		(1,157)		(20,708)
Recoveries		2,307		254		2,561		4,928		444		5,372
Provision for credit losses		11,491		1,307		12,798		20,453		2,571		23,024
Ending balance	$	35,020	$	13,326	$	48,346	$	35,020	$	13,326	$	48,346


	Three Months Ended December 31, 2022						Six Months Ended December 31, 2022
	Trade		Financing		Total		Trade		Financing		Total
Beginning balance	$	32,882	$	15,624	$	48,506	$	30,897	$	14,891	$	45,788
Write-offs		(14,712)		(397)		(15,109)		(20,176)		(616)		(20,792)
Recoveries		1,848		32		1,880		4,256		34		4,290
Provision for credit losses		7,498		786		8,284		12,539		1,736		14,275
Ending balance	$	27,516	$	16,045	$	43,561	$	27,516	$	16,045	$	43,561