Filing summary
Filing identity: The supplied filing is DeVry Education Group Inc.’s Form 10-Q for the quarter ended March 31, 2015 (fiscal third quarter), filed May 8, 2015. This does not match the request metadata identifying Covista Inc. and 2014 Q3.
Business context and reporting period
DeVry provides postsecondary education through three reportable segments: Medical and Healthcare; International and Professional Education; and Business, Technology and Management, which consists of DeVry University. Results below compare the three and nine months ended March 31, 2015, with the corresponding 2014 periods. The filing cautions that interim results are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q3 FY2015 | Q3 FY2014 | Nine months FY2015 | Nine months FY2014 |
|---|---|---|---|---|
| Revenue | $489.8 million | $496.1 million | $1,436.8 million | $1,438.3 million |
| Operating income | $49.5 million | $69.5 million | $123.1 million | $138.4 million |
| Net income attributable to DeVry | $47.1 million | $55.5 million | $110.0 million | $96.5 million |
| Diluted EPS | $0.72 | $0.86 | $1.68 | $1.49 |
| Operating margin | 10.1% | 14.0% | 8.6% | 9.6% |
- Q3 revenue fell 1.3%; nine-month revenue was nearly flat. Tuition revenue declined while other educational revenue increased.
- Q3 continuing-operations income attributable to DeVry was $41.5 million, down from $56.1 million. Nine-month continuing-operations income attributable to DeVry was $104.4 million, down from $113.4 million.
- Reported net income includes discontinued-operations income of $5.6 million in FY2015, including a $5.0 million tax-benefit correction related to AAI. The prior-year nine-month period included a $16.9 million discontinued-operations loss.
- Operating cash flow for the first nine months was $209.4 million, versus $263.2 million; continuing-operations operating cash flow was $209.5 million versus $264.0 million. Investing used $131.5 million, including $73.1 million for business acquisitions and $64.3 million of capital expenditures. Financing used $32.9 million, including $18.7 million for share repurchases and $11.6 million in dividends.
- At March 31, cash and cash equivalents were $402.1 million; restricted cash was $9.7 million. Current assets were $667.9 million and current liabilities $399.6 million. No borrowings were outstanding under the credit facility. A new five-year revolving facility provides $400 million of capacity, potentially expandable to $550 million; letters of credit outstanding were $0.1 million.
- Total liabilities were $574.6 million. Acquisition-related deferred purchase-price obligations remain, but the filing does not provide one consolidated total for them in the supplied text. Cash includes $185.3 million held by international operations, which management intends to reinvest abroad.
Material changes versus the prior comparable period
- DeVry University revenue declined 15.7% in Q3 and 13.5% for the first nine months, reflecting lower enrollment and revenue per student. Its segment reported a $9.2 million operating loss for the nine-month period, compared with $21.4 million of operating income in the prior year.
- Medical and Healthcare revenue rose 10.2% in Q3 and 13.1% year to date. Chamberlain revenue grew more than 25% in Q3, with March enrollment up 27.1% year over year. DeVry Brasil growth and recent acquisitions also lifted International and Professional Education revenue, although Becker revenue declined.
- Cost of Educational Services increased 4.4% in Q3 and 3.2% year to date, raising that cost to 51.7% and 52.2% of revenue, respectively. Student Services and Administrative Expense decreased 2.0% and 4.5%, respectively, reflecting cost reductions.
- Restructuring expense was $7.0 million in Q3 and $30.5 million year to date, versus none in Q3 2014 and $16.3 million year to date. Actions included real-estate consolidations and workforce reductions; the FY2015 actions reduced DeVry University’s workforce by 298 positions.
- DeVry Brasil completed acquisitions of FMF, Faci and Damasio. Damasio’s stated purchase price was approximately $81.4 million, with about $15.4 million payable over five years. Acquisitions and currency movements contributed to higher goodwill and intangible assets.
- The Brazilian real depreciated approximately 31% against the U.S. dollar over the nine months, reducing reported Brazilian revenue and operating income and contributing to a $65.3 million currency-translation loss in accumulated other comprehensive loss.
Outlook, commentary, risks and unusual items
- Management expected Q4 FY2015 revenue to decline 1%–2% year over year, as DeVry University declines offset growth elsewhere. It expected FY2015 capital spending of $95–$100 million.
- Management cited more than $100 million of FY2015 expense reductions from restructuring and other savings initiatives. DeVry University projected operating cost savings of more than $125 million in FY2016 and described more than $300 million of cost-structure reductions over FY2013–FY2015. It also announced further campus changes and a transformation plan aimed at improving enrollment and long-term competitiveness.
- Management expected DeVry Brasil new-student enrollment growth in the high single digits for FY2016, while warning that a weaker Brazilian economy or government austerity could constrain growth. Proposed changes to Brazil’s FIES student-loan program could reduce eligibility and delay government payments; approximately 34% of DeVry Brasil degree-seeking students used FIES.
- Management identified enrollment pressure, competition, financial-aid regulation, student-loan funding and regulatory scrutiny as important risks. The filing describes ongoing Illinois and Massachusetts attorney-general inquiries, an FTC inquiry, a New York attorney-general inquiry, and an Ohio U.S. Attorney inquiry received April 10, 2015. Outcomes and potential financial impacts were not predictable.
- New federal Gainful Employment rules were scheduled to take effect July 1, 2015. Management estimated under 10% of DeVry University and Carrington programs could be at risk of failing the standards and identified other programs potentially at risk of the “Zone.” Possible pricing or scholarship adjustments could cost about $12 million in FY2016, according to management.
- Goodwill and intangible assets totaled approximately $886.4 million, about 41% of total assets. Management’s updated DeVry University valuation still exceeded carrying value by approximately 14%, but it warned that further deterioration could result in an impairment of up to $23.8 million for that reporting unit. The filing also discusses broader potential impairment exposure.
- The company accrued $0.8 million to repay New York Tuition Assistance Program funds pending formal issuance of audit findings and an appeal. Other identified program reviews remained open; no other material findings had been identified in those reviews at the filing date.
Important facts for investors to verify
- Confirm the filing identity and period: this is DeVry Education Group’s March 31, 2015 10-Q, not a Covista Inc. 2014 Q3 filing.
- Track DeVry University enrollment, revenue, operating performance and execution of announced cost savings and campus changes.
- Assess the outcome and potential financial, licensing or Title IV consequences of the government inquiries, audits and proceedings disclosed in the filing.
- Monitor the FIES payment and eligibility changes, Brazilian currency exposure, and whether DeVry Brasil’s growth outlook remains achievable.
- Review the potential effects of Gainful Employment rules and the sensitivity of goodwill and intangible-asset valuations to operating results.
- Reconcile acquisition-related deferred payments, restructuring cash outflows, and the availability of international cash for domestic needs.