Filing scope and business context
The supplied filing identifies the registrant as DeVry Education Group Inc., not Covista Inc. It is a Form 10-Q for the quarter ended December 31, 2015—DeVry’s second quarter of fiscal 2016—and reports both the three- and six-month periods ended that date. This differs from the request metadata’s “2015 Q2.”
DeVry provides postsecondary education through Medical and Healthcare, International and Professional Education, and Business, Technology and Management (DeVry University) segments. Figures below are in U.S. dollars; financial statement amounts are unaudited.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2015 | Prior-year quarter | Six months ended Dec. 31, 2015 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $456.2 million | $484.9 million | $897.6 million | $946.9 million |
| Operating income (loss) | ($56.4 million) | $49.0 million | ($48.1 million) | $73.6 million |
| Net income (loss) attributable to DeVry | ($50.6 million) | $42.4 million | ($45.1 million) | $62.9 million |
| Diluted EPS | ($0.79) | $0.65 | ($0.70) | $0.96 |
| Operating margin | (12.4%) | 10.1% | (5.4%) | 7.8% |
- Quarterly revenue fell 5.9%; tuition revenue declined while other educational revenue increased. For the six months, revenue fell 5.2%.
- Six-month operating cash flow was $76.5 million, versus $92.3 million a year earlier. Capital expenditures were $41.0 million.
- Cash and cash equivalents were $178.2 million at December 31, down from $353.0 million at June 30, 2015. Current assets were $400.3 million and current liabilities $291.8 million. Restricted cash was $14.0 million.
- There were no borrowings under the $400 million revolving credit facility; DeVry reported covenant compliance. Seller-financed acquisition obligations remained, and interest expense rose due to higher deferred purchase-price balances.
- Total liabilities were $439.3 million. Shareholders’ equity was $1.467 billion. The quarterly dividend was $0.18 per share.
Material changes and unusual items
- DeVry recorded a non-cash $99.5 million pre-tax impairment charge in the quarter: $93.0 million against Carrington goodwill and $6.5 million against its accreditation and Title IV eligibility intangible asset. The after-tax charge was $86.0 million. Management said further impairment of up to $66.5 million could occur if Carrington performs materially below revised expectations.
- Restructuring expense was $12.9 million for the quarter and $37.0 million for the six months, mainly for real-estate consolidations and workforce reductions. The six-month restructuring liability was $32.7 million; most remaining costs were expected to be paid within 12 months, while certain rent costs could extend up to nine years.
- DeVry Brasil completed its acquisition of Grupo Ibmec for approximately $190.8 million, including approximately $180.5 million paid in the quarter and about $10.3 million payable over six years. The acquisition added $104.6 million of goodwill.
- Currency translation losses were $56.0 million for the six months, principally reflecting Brazilian real depreciation. Accumulated other comprehensive loss reached $133.2 million at December 31.
- DeVry University revenue declined 23.8% in the quarter, with continued enrollment declines. Medical and Healthcare revenue grew 9.5%, led by Chamberlain; International and Professional Education revenue grew 1.9% in the quarter. Carrington’s revenue was 12% below plan in the quarter.
Outlook, commentary, and risks
- Management expected revenue to decline approximately 4%–5% for both the third quarter and full fiscal 2016 versus comparable prior-year periods. It expected full-year fiscal 2016 earnings before special items to decline approximately 5%–6% versus fiscal 2015.
- Management expected third-quarter operating costs to decline approximately 3%–4% year over year and said restructuring and other cost-saving initiatives were expected to produce more than $150 million of fiscal 2016 expense reductions, primarily at DeVry University. Additional restructuring charges were possible.
- Management cited heightened competition, lower DeVry University enrollments, greater scholarship and discount use, Carrington enrollment weakness, Brazilian economic conditions, and changes to Brazil’s FIES student-loan program as pressures on results. FIES funding represented about 33% of DeVry Brasil revenue; delayed government payments increased FIES receivables to approximately $32.5 million.
- On January 27, 2016, the Department of Education issued a Notice of Intent to Limit DeVry University’s Title IV participation concerning employment-outcome representations. If effective, proposed measures included a letter of credit of at least $75 million and cash-monitoring or reimbursement procedures that could delay Title IV funds. DeVry intended to request a hearing.
- The FTC filed a lawsuit on January 27, 2016 over DeVry University employment and earnings advertising claims; a putative class action followed on January 29. The filing also describes ongoing state inquiries and federal program reviews. Outcomes and potential financial effects were not predictable.
- Management stated liquidity was sufficient for operations and planned investments. However, approximately $53.3 million of cash was held internationally and intended for reinvestment abroad, and the potential $75 million letter of credit could reduce available cash or credit.
Most important facts for investors to verify
- Confirm the issuer and period: the supplied filing is DeVry Education Group’s fiscal Q2 2016 10-Q, not a filing identified as Covista Inc. or a calendar 2015 Q2 report.
- Track DeVry University enrollment, revenue, cost reductions, and whether management’s revenue and earnings outlook was achieved.
- Monitor Carrington’s revised performance and the risk of additional impairment of up to $66.5 million.
- Check the resolution and consequences of the Department of Education Notice, FTC litigation, class action, and other regulatory matters, including any letter-of-credit or funding restrictions.
- Assess collection timing for FIES receivables, Brazilian currency exposure, and the effect of acquisition-related payments on cash and liquidity.