Business context and reporting period
The filing is DeVry Education Group Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017, the third quarter of its fiscal year, with nine-month results also reported. The request metadata names Covista Inc.; that does not match the registrant identified in the filing, so the company identity should be verified. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
DeVry Group provides postsecondary education and reports four segments: Medical and Healthcare, Professional Education, Technology and Business, and U.S. Traditional Postsecondary. Comparatives were recast to the new segment presentation.
Financial performance and position
| Metric | Three months ended March 31, 2017 | Year-over-year change | Nine months ended March 31, 2017 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $452.1 million | Down 4.7% | $1,358.3 million | Down 1.0% |
| Operating income | $47.3 million | $60.8 million prior year | $85.2 million | $12.7 million prior year |
| Net income attributable to DeVry Group | $39.9 million; diluted EPS $0.62 | $51.9 million; $0.81 | $79.4 million; diluted EPS $1.24 | $6.8 million; $0.11 |
| Operating margin | 10.5% | 12.8% prior year | 6.3% | 0.9% prior year |
| Operating cash flow | Not separately provided for the quarter | — | $169.5 million | $219.7 million prior year |
Nine-month adjusted net income excluding listed special items was $128.4 million, or diluted EPS of $2.01, versus $114.0 million, or $1.77, a year earlier. These are company-presented non-GAAP measures, not substitutes for GAAP results. The nine-month comparison includes $56.3 million of regulatory settlement expense and a $4.8 million asset-sale write-down in 2017, versus a $99.5 million impairment charge in 2016.
At March 31, 2017, cash and cash equivalents were $209.9 million, current assets $428.6 million, and current liabilities $402.2 million. Total liabilities were $656.9 million and shareholders’ equity $1,654.3 million. Revolver borrowings were $120.0 million at a weighted average rate of 3.45%; the company reported compliance with its debt covenants. Cash flow from operations less capital expenditures was $136.9 million for the nine-month period. About $185.1 million of cash was held internationally and management said it was intended for reinvestment abroad, not general domestic use. Restricted cash was $4.8 million.
Material changes and segment trends
- U.S. Traditional Postsecondary revenue fell 20.8% in the quarter and 21.2% year to date, amid lower enrollment at DeVry University and Carrington. DeVry University revenue declined 23.7% for the quarter. Segment operating results were a $5.7 million loss in the quarter and a $21.4 million loss year to date, including special charges.
- Medical and Healthcare revenue declined 1.0% in the quarter but increased 3.2% year to date. Chamberlain’s March-session enrollment rose 7.3%; medical and veterinary school enrollment declined.
- Professional Education revenue rose 25.9% in the quarter, largely due to the ACAMS acquisition. Excluding ACAMS, Becker revenue declined 3.1% in the quarter as CPA review demand weakened.
- Technology and Business revenue increased 28.6% in the quarter, including acquisition and favorable Brazilian-real effects; constant-currency growth was 5.3%. Brazil’s March-session total enrollment rose 0.4%, while new enrollment fell 9.0%.
- ACAMS was acquired July 1, 2016 for $330.6 million net of cash acquired. The transaction contributed substantially to higher goodwill and intangible assets.
- Cash declined from $308.2 million at June 30, 2016 to $209.9 million, while the company funded acquisitions, settlement payments, repurchases and other uses. Nine-month investing cash outflow was $363.2 million, including $330.6 million for business acquisitions.
Outlook, risks and unusual items
- Management expected fourth-quarter fiscal 2017 revenue to decline 3%–4% year over year and operating costs to decline 4%–5%. It forecast $55 million–$60 million of capital spending for fiscal 2017 and another $10 million–$15 million of restructuring charges for the remainder of the year.
- The board discontinued cash dividends in February 2017 and authorized a new share repurchase program of up to $300 million through December 31, 2020. The filing reports $30.6 million of treasury-stock repurchases in the first nine months.
- FTC and New York settlements generated $56.3 million of nine-month expense. The FTC resolution included a $49.4 million payment, forgiveness of institutional loans and former-student receivables, and new advertising substantiation and compliance obligations. The New York settlement included $2.75 million in payments. The company stated it settled the FTC litigation after denying wrongdoing and resolved the New York inquiry without admitting or denying allegations.
- A Department of Education settlement placed DeVry University under provisional Title IV certification for five years and required a letter of credit of at least $68.4 million. The filing reports $68.5 million of letters of credit outstanding. Provisional status can require ED approval for significant program or location changes.
- Pending litigation and regulatory matters include securities, student class-action and derivative claims, as well as an ongoing Massachusetts inquiry and program reviews. The filing says their timing and outcomes cannot be predicted and that adverse outcomes could materially affect results, cash flows or operations.
- Management identified enrollment declines, competition, discounting, student-aid regulation, Brazil’s economy and FIES funding changes as risks. It also warned of potential impairment: goodwill was $861.0 million and intangible assets were $422.9 million on the balance sheet, together about 55% of total assets. Carrington and DeVry University were highlighted as sensitive to future operating performance and regulatory developments.
- The Pomona, California co-located campus was classified as held for sale at $11.3 million after a $4.8 million write-down. Management said sale was likely within one year.
Important facts for investors to verify
- Confirm the issuer: the supplied metadata says Covista Inc., whereas this filing identifies DeVry Education Group Inc.
- Track enrollment and revenue stabilization at DeVry University and Carrington, and new-student trends at the medical and veterinary schools and in Brazil.
- Review the status and terms of DeVry University’s provisional Title IV certification, required letter of credit, and unresolved regulatory reviews and litigation.
- Assess cash availability: most reported cash was held internationally and intended for reinvestment; also monitor revolver borrowings, letters of credit and covenant headroom.
- Compare GAAP performance with management’s adjusted measures and account for settlement, restructuring and asset-sale charges when evaluating trends.
- Reconcile the filing’s intangible-asset figures: the balance sheet reports $422.9 million, while a risk-factor passage states $442.9 million.