Filing identity and period
Important metadata discrepancy: The supplied filing is for DeVry Inc., not Covista Inc. It is a Form 10-Q for the quarter ended March 31, 2011—DeVry’s fiscal 2011 third quarter—not 2010 Q3. Figures below are DeVry’s; amounts are in millions of dollars unless otherwise stated.
Business context and financial results
DeVry provides secondary and post-secondary education through four segments: Business, Technology and Management; Medical and Healthcare; Professional Education; and Other Educational Services. Comparisons are with the corresponding 2010 periods.
| Metric | Quarter ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $562.7; +11.6% | $1,635.6; +16.1% |
| Operating income | $137.2; +12.5% | $384.6; +23.9% |
| Net income attributable to DeVry | $92.9; +14.5% | $255.2; +22.5% |
| Diluted EPS | $1.32 vs. $1.12 | $3.60 vs. $2.88 |
| Operating margin | 24.4% vs. 24.2% | 23.5% vs. 22.0% |
| Net margin attributable to DeVry | 16.5% vs. 16.1% | 15.6% vs. 14.8% |
Revenue increased in all four segments. Quarterly segment revenue: Business, Technology and Management $378.7 million (+13.2%); Medical and Healthcare $142.5 million (+7.5%); Professional Education $24.5 million (+7.5%); and Other Educational Services $17.0 million (+18.5%).
Cash flow, liquidity and capital
- Nine-month operating cash flow was $485.2 million, versus $481.3 million; capital expenditures were $91.3 million, versus $101.6 million.
- Cash and cash equivalents were $596.5 million at March 31, 2011; marketable securities were $2.6 million and restricted cash was $7.4 million. Cash plus marketable securities totaled $599.1 million, as reported by management.
- No debt was outstanding. The revolving credit facility provided $175 million of capacity, with an option to increase it to $275 million; $3.0 million of letters of credit were outstanding. DeVry reported compliance with covenants.
- Current assets were $887.7 million and current liabilities $599.4 million. Deferred tuition revenue was $398.5 million, compared with $86.6 million at June 30, 2010; the filing notes seasonal enrollment and cash-flow patterns.
- DeVry repurchased approximately 2.25 million shares for $104.7 million during the nine months and paid $15.5 million in dividends. The fifth repurchase authorization had $19.9 million remaining at March 31.
Changes, outlook and notable items
- Management attributed growth to enrollment gains, improved retention and tuition increases. Cost of educational services declined as a share of revenue, while quarterly student services and administrative expense rose to 34.2% of revenue from 33.3%, reflecting higher advertising, recruiting and student-service spending.
- Enrollment trends were mixed: Chamberlain enrollment grew strongly, while new undergraduate enrollment at DeVry University declined 15.4% year over year in spring 2011; new enrollment also weakened at Ross and Carrington. Ross’s Freeport site faced unresolved Department of Education questions that could affect financial-aid eligibility.
- Management expected fiscal 2011 capital spending of about $150 million and a higher spending rate in the fourth quarter. It said existing cash, operating cash generation and credit capacity should fund operations and planned growth; no specific earnings or revenue guidance was provided.
- Approximately $245.9 million of cash was attributable to international operations and intended to be reinvested abroad, limiting its availability for domestic general purposes. Management said this would not impair overall liquidity.
- Federal student-aid dependence is material: Title IV funding represented 71% of DeVry’s total revenue in fiscal 2010. A 10.2% undergraduate cohort default rate triggered delayed federal cash disbursements in March; the filing said the funds were expected in fiscal Q4. The rate remained below the 25% eligibility threshold.
- Risks include forthcoming federal gainful-employment rules, financial-aid program changes, enrollment and lead-flow weakness, student-loan collectability, and possible impairment if performance at Advanced Academics or Carrington fails to improve. Management reported no interim goodwill impairment indicators; those businesses had revenue declines.
- DeVry disclosed shareholder and derivative litigation alleging improper recruiting and lending practices. It considered the claims without merit and did not expect a material financial effect, while noting outcomes are difficult to predict. A $6.2 million prepaid clinical-rotation balance was subject to a $1.6 million reserve amid a dispute with a hospital group.
- After quarter-end, on April 30, 2011, Becker completed the acquisition of ATC International, funded from operating cash. The filing also reported a $9.1 million gross unrecognized tax-benefit balance.
Important facts for investors to verify
- Confirm the intended issuer and period: the provided source is DeVry Inc.’s March 31, 2011 10-Q, not a Covista Inc. 2010 Q3 filing.
- Track new-student enrollment and lead quality at DeVry University, Ross and Carrington, alongside Chamberlain’s growth and the economics of expansion.
- Monitor federal student-aid rulemaking, Ross Freeport eligibility questions, and delayed aid receipts; assess the implications of Title IV concentration and default-rate thresholds.
- Review receivables and loan credit quality: net accounts receivable rose to $224.0 million from $155.9 million a year earlier; institutional student loans were $48.0 million gross with a $20.8 million allowance.
- Assess planned capital spending, share repurchases and international cash restrictions against operating cash generation, and follow the litigation and clinical-rotation dispute.