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Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2023

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

Our significant accounting policies is described in Note 2 “Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (“2023 Form 10-K”). We have prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (which are normal and recurring in nature) considered necessary for a fair presentation have been included. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. We use the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Consolidated Financial Statements refer to our continuing operations. These consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto included in our fiscal year 2023 Form 10-K.

Business integration expense was $6.9 million and $12.2 million in the three and six months ended December 31, 2023, respectively, and $14.8 million and $24.4 million in the three and six months ended December 31, 2022, respectively. These are costs associated with integrating Walden into Adtalem. In addition, during the first quarter of fiscal year 2023, we initiated transformation initiatives to accelerate growth and organizational agility. Certain costs relating to this transformation are included in business integration expense in the Consolidated Statements of Income.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Standards

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02: “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The guidance was issued as improvements to Accounting Standards Codification (“ASC”) 326. The vintage disclosure changes are relevant to Adtalem and require an entity to disclose current-period gross write-offs by year of origination for financing receivables. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The amendments should be applied prospectively. We adopted this guidance on July 1, 2023. The amendments impacted our disclosures and did not otherwise impact Adtalem’s Consolidated Financial Statements.

In November 2023, the FASB issued ASU No. 2023-07: “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The guidance was issued to improve disclosures about reportable segments and addresses requests from investors for additional, more detailed information about a reportable segment’s expenses by requiring entities to provide disclosures of significant segment expenses and other segment items. The guidance is effective for financial

statements issued for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively. Early adoption of the amendments is permitted, including adoption in an interim period. The amendments will impact our segment disclosures but will not otherwise impact Adtalem’s Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09: “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The guidance was issued to enhance the transparency and decision usefulness of income tax disclosures by requiring entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2024. The amendments should be applied prospectively and retrospective application is permitted. Early adoption of the amendments is permitted. The amendments will impact our income tax disclosures but will not otherwise impact Adtalem’s Consolidated Financial Statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our Consolidated Financial Statements.

Revision to Previously Issued Financial Statements

During the third quarter of fiscal year 2023, Adtalem identified an error in its revenue recognition related to certain scholarship programs within its Medical and Veterinary segment. Certain scholarships and discounts offered within that segment provide students a discount on future tuition that constitute a material right under ASC 606 “Revenue from Contracts with Customers” that should be accounted for as a separate performance obligation within a contract. Adtalem assessed the materiality of this error individually and in the aggregate with other previously identified errors to prior periods’ Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99 “Materiality” and SAB 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” codified in ASC 250 “Accounting Changes and Error Corrections.” Adtalem concluded that the errors were not material to prior periods and therefore, amendments of previously filed reports were not required. However, Adtalem determined it was appropriate to revise its previously issued financial statements. Treating the discount on future tuition as a material right results in the deferral of revenue for a portion of tuition to future periods. In accordance with ASC 250, Adtalem corrected the prior periods presented herein by revising the financial statement line item amounts previously disclosed in SEC filings in order to achieve comparability in the Consolidated Financial Statements. The impact of this revision of Adtalem’s previously reported Consolidated Financial Statements are detailed below. In connection with this revision, Adtalem also corrected other immaterial errors in the prior periods, including certain errors that had previously been adjusted for as out of period corrections in the period identified.

The following table summarizes the effect of the revisions on the affected line items within the Consolidated Statements of Income (in thousands, except per share data):


	Three Months Ended December 31, 2022						Six Months Ended December 31, 2022
	As reported		Adjustment		As revised		As reported		Adjustment		As revised
Revenue	$	363,302	$	(468)	$	362,834	$	717,861	$	(758)	$	717,103
Operating cost and expense:
Student services and administrative expense		140,668		1,134		141,802		289,009		(822)		288,187
Business integration expense		15,941		(1,125)		14,816		24,356		—		24,356
Total operating cost and expense		317,275		9		317,284		648,741		(822)		647,919
Operating income		46,027		(477)		45,550		69,120		64		69,184
Other expense, net		(2,574)		1,134		(1,440)		(1,007)		328		(679)
Income from continuing operations before income taxes		27,864		657		28,521		34,764		392		35,156
Provision for income taxes		(4,247)		(148)		(4,395)		(5,301)		(216)		(5,517)
Income from continuing operations		23,617		509		24,126		29,463		176		29,639
Discontinued operations:
Income (loss) from discontinued operations before income taxes		524		—		524		(2,914)		173		(2,741)
(Provision for) benefit from income taxes		(182)		—		(182)		2,961		(1,440)		1,521
Income (loss) from discontinued operations		527		—		527		(3,127)		(1,267)		(4,394)
Net income		24,144		509		24,653		26,336		(1,091)		25,245

Earnings (loss) per share:
Basic:
Continuing operations	$	0.52	$	0.01	$	0.53	$	0.65	$	0.00	$	0.65
Discontinued operations	$	0.01	$	0.00	$	0.01	$	(0.07)	$	(0.03)	$	(0.10)
Total basic earnings per share	$	0.53	$	0.01	$	0.54	$	0.58	$	(0.02)	$	0.56
Diluted:
Continuing operations	$	0.51	$	0.01	$	0.52	$	0.64	$	0.00	$	0.64
Discontinued operations	$	0.01	$	0.00	$	0.01	$	(0.07)	$	(0.03)	$	(0.10)
Total diluted earnings per share	$	0.52	$	0.01	$	0.53	$	0.57	$	(0.02)	$	0.55

The following table summarizes the effect of the revisions on the affected line items within the previously reported Consolidated Statements of Comprehensive Income (in thousands):


	Three Months Ended December 31, 2022						Six Months Ended December 31, 2022
	As reported		Adjustment		As revised		As reported		Adjustment		As revised
Net income	$	24,144	$	509	$	24,653	$	26,336	$	(1,091)	$	25,245
Other comprehensive income (loss), net of tax:
Loss on foreign currency translation adjustments		—		—		—		(1,267)		1,267		—
Comprehensive income before reclassification		24,144		509		24,653		25,069		176		25,245
Comprehensive income		24,144		509		24,653		25,069		176		25,245

The following table summarizes the effect of the revisions on the affected line items within the Consolidated Statements of Cash Flows (in thousands):


	Six Months Ended December 31, 2022
	As reported		Adjustment		As revised
Operating activities:
Net income	$	26,336	$	(1,091)	$	25,245
Loss from discontinued operations		3,127		1,267		4,394
Income from continuing operations		29,463		176		29,639
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on investments		5,000		(50)		4,950
Changes in assets and liabilities:
Prepaid expenses and other current assets		227		267		494
Accrued payroll and benefits		(24,145)		(1,150)		(25,295)
Deferred revenue		(29,182)		758		(28,424)
Net cash provided by operating activities-continuing operations		42,276		1		42,277
Net cash provided by operating activities		41,414		1		41,415
Investing activities:
Proceeds from sales of marketable securities		—		1,256		1,256
Purchases of marketable securities		—		(1,257)		(1,257)
Net cash used in investing activities-continuing operations		(9,747)		(1)		(9,748)
Net cash used in investing activities		(12,921)		(1)		(12,922)

The following table summarizes the effect of the revisions on the affected line items within the Consolidated Statements of Shareholders’ Equity (in thousands):


	As reported		Adjustment		As revised
June 30, 2022
Retained earnings		2,322,810		(12,414)		2,310,396
Accumulated other comprehensive loss		(960)		(1,267)		(2,227)
Total shareholders' equity		1,505,067		(13,681)		1,491,386
September 30, 2022
Retained earnings		2,325,002		(14,014)		2,310,988
Total shareholders' equity		1,510,039		(14,014)		1,496,025
December 31, 2022
Retained earnings		2,349,146		(13,505)		2,335,641
Total shareholders' equity		1,522,722		(13,505)		1,509,217
Three Months Ended December 31, 2022
Net income		24,144		509		24,653
Six Months Ended December 31, 2022
Net income		26,336		(1,091)		25,245
Other comprehensive loss, net of tax		(1,267)		1,267		—