Report from short seller, Fahmi Quadir,
inexcusably and unacceptably misrepresented Adtalem’s business,
purpose, mission, and vision
Adtalem Global Education, Inc. (NYSE: ATGE) responds to claims
in a report released on January 30 from Safkhet Capital.
“The report contains numerous factual errors, demonstrates a
poor understanding of our industry as well as rudimentary
transaction accounting, and is a reckless attempt to defame the
nation’s largest healthcare educator,” said Adtalem President and
CEO Steve Beard.
Safkhet Capital’s inability to accurately state even the most
basic facts undermines the credibility of the report and its
purported premise. By way of example, the chairperson of Adtalem’s
Board of Directors is Michael Malafronte (2022 – present), not
former Chairperson Lisa Wardell, a fact plainly visible on
Adtalem’s website. Additionally, erroneous figures are referenced
for enrollment and graduation rates when accurate data is freely
available from publicly accessible, U.S. government sources as well
as from Adtalem’s own disclosures.
The Safkhet Capital report also stated, “for-profits produce
disastrously substandard results with most students unable to
graduate, and even those who do face high levels of underemployment
and higher levels of indebtedness.” We do not know where Safkhet
Capital found data to support these assertions and, as it pertains
to Adtalem, these claims are categorically false. Adtalem is proud
to produce more nursing and Doctor of Veterinary Medicine (DVM)
graduates than any institution in the U.S., award more medical and
research doctoral degrees to African Americans than any other U.S.
institution, and to have achieved 98% first-time residency
attainment for graduates of our medical schools last year.
Errors and gross misrepresentations of the nature described
above are too numerous in the Safkhet Capital report to warrant a
complete recounting, but they illustrate the flimsiness of the
research. As for many of the claims made by Safkhet Capital — they
are misleading, incomplete, and factually inaccurate.
Because of Adtalem’s systemically important role in delivering
practice-ready clinicians to the U.S. healthcare system, we feel
compelled to correct some of the more egregious errors in the
report.
1. Safkhet Capital
Assertion: Adtalem should impair its $1.48 billion
acquisition of Walden.
Fact:
Recognizing intangible assets and goodwill in conjunction with an
acquisition is common; goodwill alone represents nearly half of the
aggregate transaction value of U.S. corporate mergers and
acquisitions1. As a 100% online institution with relatively few
physical assets, a significant portion of the Walden acquisition
was recognized as intangible assets and goodwill on our balance
sheet. These assets are tested for impairment annually, and are
audited by our external audit firm. The most recent test was
completed in May 2023 and did not identify any impairment. Walden’s
growth and financial trajectory has improved significantly since
May 2023, further substantiating the value of these assets.
2. Safkhet Capital
Assertion: Enrollment trends show stagnation with
multi-year declines.
Fact: As
publicly reported, Adtalem’s enterprise total enrollment increased
by 6% as of December 31, 2023, the largest increase since acquiring
Walden in August 2021. 2
- Chamberlain — the nation’s largest nursing school — has
grown total enrollment in each of the last four quarters, including
7% growth as of December 31, 2023.
- Walden’s total enrollment grew by 8% as of December 31,
2023, reflecting three straight quarters of double-digit new
enrollment growth amplified by strong persistence rates. Walden’s
persistence rates — which measure students’ progression toward
graduation — have improved under Adtalem ownership. (Safkhet
Capital incorrectly asserts that Walden’s total enrollment is down
35% since the Walden acquisition was announced. The truth is a 14%
decline over that period, which was primarily driven by
pandemic-related headwinds that have since subsided.)
- Medical/Veterinary includes our two medical schools and
our veterinary school, the latter of which continues to operate
near capacity. Although the medical schools have experienced modest
total enrollment declines in recent quarters, we are well underway
in executing a corresponding remediation plan that contemplates a
return to total enrollment growth in fiscal 2025.
3. Safkhet Capital
Assertion: Graduation rates and attrition rates across
all Adtalem schools are trailing far behind national averages.
Fact:
Adtalem provides transparency into graduation rates for our
institutions. We share this data on the websites for our
institutions, and we disclose the data to the Department of
Education. We are proud of our outcomes and graduation rates, which
compare very favorably to benchmarks across non-profit, public,
private, and proprietary institutions alike.
- The graduation rate assertions made by Safkhet Capital make
clear that they do not understand how to interpret or utilize
graduation data.
- Safkhet cites a graduation rate for Chamberlain that applies to
~1% of its entering class: first-time,
full-time students. On the same disclosure form that Safkhet
Capital cites, Chamberlain shows that for all new full-time students its graduate rate is
77%.
- The data cited for Adtalem’s medical schools are in fact not
graduation rates at all – they are a metric of how quickly
graduates completed their degrees. Adtalem’s medical schools have
six-year graduation rates above 70%.
- Chamberlain University’s four-year graduation rate of 71% for
all full-time undergraduate students is substantially higher than
the national average of 49% across all four-year institutions.
4. Safkhet Capital
Assertion: We believe the gainful employment rule will
likely result in the closure of numerous Adtalem degree
programs.
Fact:
This is false. We expect our degree programs to pass the Department
of Education’s gainful employment (GE) rule based on currently
available data. We also expect certain Walden clinical psychology
and clinical counseling programs - that would otherwise be at risk
- will benefit from the extended earnings window in the final GE
rule issued by the Department of Education. The Adtalem program
that falls closest to the GE rule’s threshold is the Ross
University School of Veterinary Medicine DVM program. We are urging
the Department of Education to include DVM programs in the extended
earnings window, as it does for MD programs. If the Department of
Education declines, we can adjust DVM pricing to maintain Title IV
eligibility. In addition, the final GE rule is the subject of
litigation that seeks to block enforcement, as happened with prior,
less onerous versions of the GE rule.
5. Safkhet Capital
Assertion: The 90/10 rule changes along with its
reaccreditation process may pose an existential risk to RUSM and a
nearly 20% hit to Adtalem revenues today.
Fact: All
our institutions fully comply with the 90/10 rule, and we expect
that they will continue to do so. We transparently disclose our
institutions’ 90/10 ratios in our securities filings every quarter.
These ratios are calculated in accordance with the Department of
Education’s regulations and guidance. The recent change in
treatment of Veterans Administration and military tuition
assistance benefits in the 90/10 calculation has had a negligible
effect on RUSM’s 90/10 rate, which remains below the 90% threshold.
RUSM is also fully accredited by CAAM-HP. Lastly, the Med/Vet
segment – which includes RUSM, RUSVM, and AUC – represents ~25% of
Adtalem’s total revenue. RUSM’s portion of total Adtalem revenue is
far less than Safkhet Capital’s 20% assertion.
6. Safkhet Capital
Assertion: Two months ago, ED launched an investigation
into Walden that Adtalem has not yet disclosed.
Fact:
Walden University received a notice of investigation and request
for information from the Department of Education. Walden informed
its accreditor, the Higher Learning Commission, about this request.
The Department of Education has not accused Walden of any
wrongdoing. We are fully cooperating with the request. There has
been no impact on our programs, students, or operations.
7. Safkhet Capital
Assertion: The borrower defense program will likely
exacerbate the financial losses.
Fact:
There is no evidence that the borrower defense program presents any
material risk to Adtalem’s institutions. The Department of
Education has given no indication it intends to seek recoupment of
any forgiven student loans from Adtalem institutions, nor do we
believe there would be any basis for it to. Also incorrect is the
statement that Adtalem estimated $340 million of liability relating
to DeVry. As Adtalem has explained in its securities filings, there
is a $340 million cap on Adtalem’s liability relating to DeVry,
only a portion of which has been incurred.
8. Safkhet Capital
Assertion: Expired program participation agreements
(PPA) create the risk of greater collateral requirements and delays
in the permitted drawdown of federal funds.
Fact: Program
Participation Agreements (PPAs) are agreements between the
Department of Education and an educational institution that allow
the institution’s students to be eligible for Title IV funds. An
expired, temporary or provisional PPA has no bearing on the
institution’s ability to participate in Title IV nor on its
accreditation status. Hundreds of institutions have provisional or
expired PPAs, and they are all fully eligible for Title IV. All our
programs are in good standing with the Department of Education,
fully accredited and fully eligible for Title IV.
9. Safkhet Capital
Assertion: Corinthian Colleges and its 2015 bankruptcy
suggest numerous parallels to Adtalem.
Fact:
There is no basis of comparison between the two companies other
than the fact that Corinthian was also a for-profit post-secondary
education company. Corinthian declared bankruptcy almost 10 years
ago under circumstances and challenges specific to that company,
including allegations that ran afoul of numerous stakeholders
beyond the Department of Education. Adtalem is a fundamentally
different company and enjoys a singular profile among
post-secondary institutions given its access mission, strong
student outcomes, program mix, scale and healthcare focus.
10. Safkhet Capital
Assertion: Adtalem has bought back shares representing
10% of their total federal student loan disbursements since
2017.
Fact: The
assertion that Adtalem has bought back shares representing 10% of
total federal student loan disbursements since 2017 is false. More
generally, Adtalem takes a principled and balanced approach to
capital allocation, including, but by no means limited to,
returning capital to shareholders through share repurchases.
Adtalem also invests significant capital in new and existing
physical campuses, market-leading technology and innovation
including in areas such as AI and adaptive learning, and robust
student support to sustain our strong program persistence and
academic outcomes.
11. Safkhet Capital
Assertion: Adtalem’s updated executive compensation
policy is a risk to long-term shareholder value.
Fact: The
Compensation Committee of Adtalem’s Board of Directors approved a
set of metrics associated with Long Term Incentive (Performance
Share Unit) compensation that clearly link executive compensation
to the multi-year revenue and EBITDA guidance provided by
management at Adtalem’s June 2023 Investor Day. The updated
executive compensation policy provides more transparency into, and
better alignment between, executive compensation and business
performance relative to that multi-year guidance. Adtalem’s Board
of Directors and management believe that revenue growth and EBITDA
margin are closely correlated with shareholder value and as
performance metrics effectively align the incentives of management
with those of Adtalem’s shareholders.
While presenting itself as an advocacy effort in service of
student borrowers and taxpayers, in fact, the Safkhet Capital
report amounts to nothing more than a thinly veiled and deceptively
constructed “short and distort” scheme designed to extract a quick
return at the expense of Adtalem’s students, faculty, employees and
shareholders.
About Adtalem Global Education
Adtalem Global Education (NYSE: ATGE) is a national leader in
post-secondary education and leading provider of professional
talent to the healthcare industry. With a dedicated focus on
driving strong outcomes that increase workforce preparedness,
Adtalem empowers a diverse learner population to achieve their
goals and make inspiring contributions to their communities.
Adtalem is the parent organization of American University of the
Caribbean School of Medicine, Chamberlain University, Ross
University School of Medicine, Ross University School of Veterinary
Medicine and Walden University. Adtalem’s family of institutions
has more than 300,000 alumni and nearly 10,000 employees. Adtalem
was named one of America’s Most Responsible Companies in 2021 and
2023 by Newsweek and Statista, and one of America’s Best Employers
for Diversity in 2021 and 2022 by Forbes and Statista. Visit
Adtalem.com for more information and follow on LinkedIn, Facebook
and Instagram.
Forward-Looking Statements
Certain statements contained in this release are forward-looking
statements as defined in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements provide current
expectations of future events based on certain assumptions and
include any statement that does not directly relate to any
historical or current fact, which includes statements regarding
Adtalem’s future growth. Forward-looking statements can also be
identified by words such as “future,” “believe,” “expect,”
“anticipate,” “estimate,” “plan,” “intend,” “may,” “will,” “would,”
“could,” “can,” “continue,” “preliminary,” “well under way,”
“range,” and similar terms. These forward-looking statements are
subject to risk and uncertainties that could cause actual results
to differ materially from those described in the statements. These
risk and uncertainties include the risk factors described in Item
1A. “Risk Factors” of our most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission (SEC), the Form
8-K filed with the SEC on January 31, 2024 and our other filings
with the SEC. These forward-looking statements are based on
information available to us as of the date any such statements are
made, and Adtalem assumes no obligation to publicly update or
revise its forward-looking statements even if experience or future
changes make it clear that any projected results expressed or
implied therein will not be realized, except as required by
law.
1
https://bfi.uchicago.edu/insight/research-summary/accounting-for-goodwill/
2 All total enrollment growth rates as of December 31, 2023, are
noted on a year-over-year basis.
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version on businesswire.com: https://www.businesswire.com/news/home/20240201096951/en/
Investor Contact Jay Spitzer
Investor.Relations@Adtalem.com +1 312-906-6600 Media Contact
Talisha Holmes AdtalemMedia@Adtalem.com +1 872-270-0331
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