Accounts Receivable and Credit Losses

6 Months Ended

Dec. 31, 2022

Receivables [Abstract]

Accounts Receivable and Credit Losses

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, 2022
		Gross		Allowance		Net
Trade receivables, current	$	124,433	$	(27,516)	$	96,917
Financing receivables, current		6,060		(3,435)		2,625
Accounts receivable, current	$	130,493	$	(30,951)	$	99,542
Financing receivables, current	$	6,060	$	(3,435)	$	2,625
Financing receivables, noncurrent		39,043		(12,610)		26,433
Total financing receivables	$	45,103	$	(16,045)	$	29,058

	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

	December 31, 2021
		Gross		Allowance		Net
Trade receivables, current	$	111,538	$	(21,335)	$	90,203
Financing receivables, current		7,252		(4,711)		2,541
Accounts receivable, current	$	118,790	$	(26,046)	$	92,744
Financing receivables, current	$	7,252	$	(4,711)	$	2,541
Financing receivables, noncurrent		39,534		(12,999)		26,535
Total financing receivables	$	46,786	$	(17,710)	$	29,076

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, 2022 was as follows (in thousands):

	Amortized Cost Basis by Origination Year
	Prior		2019		2020		2021		2022		2023		Total
1-30 days past due	$	362	$	264	$	141	$	483	$	1,183	$	1,327	$	3,760
31-60 days past due		78		64		—		385		316		493		1,336
61-90 days past due		144		49		37		25		756		40		1,051
91-120 days past due		58		—		37		448		207		—		750
121-150 days past due		38		122		45		301		80		—		586
Greater than 150 days past due		7,739		961		663		2,430		811		—		12,604
Total past due		8,419		1,460		923		4,072		3,353		1,860		20,087
Current		6,357		1,018		997		6,645		3,549		6,450		25,016
Financing receivables, gross	$	14,776	$	2,478	$	1,920	$	10,717	$	6,902	$	8,310	$	45,103

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 December 31, 2021 was as follows (in thousands):

	Amortized Cost Basis by Origination Year
	Prior		2018		2019		2020		2021		2022		Total
1-30 days past due	$	306	$	118	$	240	$	30	$	1,222	$	370	$	2,286
31-60 days past due		46		219		5		117		434		310		1,131
61-90 days past due		64		290		39		11		560		27		991
91-120 days past due		—		28		18		152		372		—		570
121-150 days past due		587		13		155		—		328		102		1,185
Greater than 150 days past due		8,885		1,755		1,242		879		1,594		—		14,355
Total past due		9,888		2,423		1,699		1,189		4,510		809		20,518
Current		6,053		2,454		1,933		1,384		11,160		3,284		26,268
Financing receivables, gross	$	15,941	$	4,877	$	3,632	$	2,573	$	15,670	$	4,093	$	46,786

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 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

	Three Months Ended December 31, 2021						Six Months Ended December 31, 2021
	Trade		Financing		Total		Trade		Financing		Total
Beginning balance	$	16,497	$	17,064	$	33,561	$	11,559	$	16,832	$	28,391
Write-offs		(2,816)		(209)		(3,025)		(4,548)		(746)		(5,294)
Recoveries		2,104		17		2,121		3,354		17		3,371
Provision for credit losses		5,550		838		6,388		10,970		1,607		12,577
Ending balance	$	21,335	$	17,710	$	39,045	$	21,335	$	17,710	$	39,045

Allowance for bad debts on short-term and long-term receivables as of December 31, 2022, June 30, 2022, and December 31, 2021 was $43.6 million, $45.8 million, and $39.0 million, respectively.

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. The DeVry Note is included on the Consolidated Balance Sheets in prepaid expenses and other current assets as of December 31, 2021.

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 holds a mortgage from DePaul College Prep for $46.8 million. The mortgage is due on July 31, 2024 as a balloon payment and bears interest at a rate of 4% per annum, payable monthly. The carrying value of the DePaul College Prep loan receivable is included in other assets, net on the Consolidated Balance Sheets as of December 31, 2022, June 30, 2022, and December 31, 2021 is $44.6 million, $44.0 million, and $43.3 million, respectively, and is determined by discounting the future cash flows using an average of current rates for similar arrangements, which is estimated at 7% per annum. Management has evaluated the collectability of this note and has determined no reserve is necessary.