Business context and reporting period
The supplied filing is DeVry Education Group Inc.’s Form 10-K for the fiscal year ended June 30, 2015—not a Covista Inc. filing or a 2014 Q4 report as indicated in the request metadata. DeVry operated Medical and Healthcare, International and Professional Education, and Business, Technology and Management segments.
Financial results
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $1,909.9 million | $1,923.4 million |
| Operating income | $156.9 million | $181.3 million |
| Operating margin | 8.2% | 9.4% |
| Income from continuing operations | $135.1 million | $151.7 million |
| Net income attributable to DeVry | $139.9 million | $134.0 million |
| Diluted EPS | $2.14 | $2.07 |
| Cash from operating activities | $203.1 million | $265.6 million |
| Capital expenditures | $88.7 million | $79.4 million |
At June 30, 2015, cash and cash equivalents were $353.0 million, current assets were $601.1 million, current liabilities were $321.9 million, and total liabilities were $479.8 million. The company had no borrowings under its $400 million revolving credit facility, which matures in March 2020; it reported compliance with debt covenants. About $220 million of cash was held internationally and intended for reinvestment there. The annual dividend declared was $0.36 per share.
Segment revenue and operating income were: Medical and Healthcare, $859.5 million and $146.5 million; International and Professional Education, $258.8 million and $36.8 million; Business, Technology and Management, $794.2 million and an operating loss of $17.7 million. Figures are in U.S. dollars.
Material changes versus the prior comparable period
- Revenue declined 0.7%; operating income fell 13.4%. Continuing-operations income declined, while reported net income rose modestly in part because FY2015 included a $5.6 million discontinued-operations gain versus a $17.0 million loss in FY2014.
- DeVry University revenue fell 14.6%, reflecting lower enrollment and revenue per student. Undergraduate and graduate enrollment continued to decline.
- Medical and Healthcare revenue increased 11.7%, principally due to Chamberlain growth. International and Professional Education revenue increased 13.5%, with Brazil growth and acquisitions partly offset by currency translation and weaker Becker demand.
- Brazilian real depreciation reduced reported revenue by about $34 million and operating income by $7.3 million. Currency translation losses were $61.7 million in other comprehensive income.
- Restructuring charges increased to $42.9 million from $32.7 million. Cost of educational services rose to 52.4% of revenue from 51.1%; student services and administrative expense declined to 37.1% from 37.8%.
Outlook, commentary, risks and unusual items
- Management expected FY2016 revenue to decline about 5%, with earnings before special items flat to slightly higher than FY2015. It forecast a roughly 5% revenue decline in FY2016 Q1 and a 2%–3% reduction in total operating costs for that quarter.
- DeVry University’s turnaround plan includes shifting additional locations to online-only operations, reducing costs, refocusing marketing, improving affordability and revising programs and student services. Management projected more than $125 million of DeVry University operating cost savings in FY2016; further restructuring charges of $30–$45 million were anticipated.
- Brazil’s FIES student-loan program became more restrictive and government disbursements slower. About 40% of DeVry Brasil degree-seeking students used FIES, and roughly one-third of its revenue was associated with the program. FIES receivables rose to about $30 million at June 30, 2015.
- New federal gainful-employment rules could threaten Title IV eligibility for programs. Management estimated less than 10% of DeVry University and Carrington programs might be at risk of failing and identified other programs potentially at risk of the “Zone”; possible FY2016 mitigation costs were estimated at about $5 million.
- Pending regulatory inquiries and litigation include FTC and state investigations concerning marketing, advertising, incentive compensation and student-aid practices, and a False Claims Act complaint. The U.S. government declined to intervene in the complaint; DeVry said it would defend itself. Outcomes and potential financial effects were not clear.
- A New York audit finding required repayment of $0.8 million of state grant funds; DeVry accrued the amount pending appeal. A Becker Europe intangible-asset impairment resulted in a $1.8 million after-tax charge. The filing also reported a $5.0 million tax-benefit adjustment related to discontinued operations.
- Goodwill and intangible assets totaled $876.0 million, about 42% of total assets. The annual impairment review found no impairment of goodwill or indefinite-lived intangibles, but management cautioned that weaker operating results could lead to future charges.
Important facts for investors to verify
- Confirm the filing identity and reporting period: this source is DeVry Education Group’s FY2015 10-K, not Covista Inc.’s 2014 Q4 filing.
- Track DeVry University enrollment, revenue, cost savings, campus closures and whether management’s FY2016 outlook was achieved.
- Monitor FIES eligibility, payment timing, receivables and the effect of Brazilian real exchange rates.
- Review developments in gainful-employment assessments, Title IV eligibility, regulatory inquiries and the False Claims Act matter.
- Assess restructuring cash payments, future charges, cash availability, lease commitments and the sensitivity of goodwill and intangible-asset valuations.
- Note that the independent auditor reported fair presentation under U.S. GAAP and effective internal control over financial reporting; the supplied filing’s FY2015 financial statements were audited.