DeVry Education Group Inc. — Form 10-Q Summary
Entity note: The supplied filing is for DeVry Education Group Inc., not Covista Inc. It covers the quarter and six months ended December 31, 2014 (the second quarter of DeVry’s fiscal 2015). Unless stated otherwise, amounts below are in millions of dollars.
Business context and reporting period
DeVry provides postsecondary education through Medical and Healthcare, International and Professional Education, and Business, Technology and Management (DeVry University). Results are unaudited; management cautions that interim results are not necessarily indicative of the full fiscal year.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2014 | Prior-year quarter | Six months ended Dec. 31, 2014 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $484.9 | $491.3 | $946.9 | $942.2 |
| Operating income | $49.0 | $58.6 | $73.6 | $68.8 |
| Operating margin | 10.1% | 11.9% | 7.8% | 7.3% |
| Net income attributable to DeVry | $42.4 | $48.2 | $62.9 | $41.0 |
| Diluted EPS attributable to DeVry | $0.65 | $0.74 | $0.96 | $0.63 |
| Operating cash flow | Not separately provided | Not separately provided | $92.3 | $113.1 |
- Second-quarter revenue fell 1.3%; six-month revenue rose 0.5%. Second-quarter operating income declined 16.4%, while six-month operating income increased 6.9%.
- At December 31, cash and cash equivalents were $380.0; current assets were $572.8 and current liabilities $265.0. Total assets were $1,967.9 and total liabilities $403.9. The company reported no credit-facility borrowings. It also had $7.8 of letters of credit outstanding and deferred purchase-price obligations related to acquisitions.
- Six-month investing cash outflow was $46.8, including $43.1 of capital expenditures; financing cash outflow was $21.2, including $11.5 of share repurchases and $11.6 of dividends. Cash increased $21.8 from fiscal year-end.
- Cash generation was lower year over year despite higher continuing-operations income, principally reflecting larger working-capital outflows, including lower deferred tuition and accrued liabilities. The company reported $275.2 of cash held internationally, which it intends to reinvest abroad and does not consider available for general U.S. purposes.
Material changes and operating trends
- DeVry University: Revenue declined 12.3% in both the quarter and six-month period amid falling undergraduate enrollment and graduate coursetakers. Management attributed weaker demand to competition, lower-cost alternatives, concerns about degree value, and reluctance to incur student debt. For the quarter, reported segment operating income was $2.2; excluding restructuring charges, it was $11.1, up 11.9% year over year.
- Medical and Healthcare: Revenue increased 12.4% for the quarter and 14.7% for six months, supported by Chamberlain enrollment growth, tuition increases at certain medical schools, and more clinical rotations. Chamberlain’s November enrollment rose 32.3% year over year; DMI total enrollment fell 7.9% in the January 2015 term.
- International and Professional Education: Quarterly revenue was nearly flat, while six-month revenue increased 8.8%. DeVry Brasil revenue grew, including contribution from the October acquisition of Faculdade Martha Falcao (FMF). Becker revenue was affected by a course-material delivery change that shifted approximately $4.5 of revenue from the second quarter into the first quarter, as well as fewer CPA exam candidates.
- Cost of educational services rose 3.2% in the quarter and increased to 51.7% of revenue from 49.5%. Student services and administrative expense fell 5.5% and declined to 36.1% of revenue from 37.7%, reflecting cost reductions partly offset by growth investments and legal costs.
- Currency translation losses were $28.6 for the six months, principally associated with the Brazilian real; the filing reports a roughly 17% decline in the real against the U.S. dollar over that period.
Outlook, management commentary, and notable items
- Management expected third-quarter fiscal 2015 revenue to be flat year over year: growth in Medical and Healthcare and International and Professional Education was expected to be offset by continued DeVry University declines. Management expected third-quarter operating costs to increase, partly due to acquisitions and new Chamberlain campuses.
- Management expected at least $90 of fiscal 2015 expense reductions from restructuring and other savings, primarily at DeVry University, and full-year capital spending of $95–$100. It anticipated further DeVry University campus closures and space reductions. These are management expectations, not guarantees.
- Fiscal 2015 restructuring charges were $23.5 for six months, including $12.2 of severance related to 114 DeVry University positions and real-estate consolidation costs. The restructuring liability was $28.9 at December 31; most was expected to be paid within 12 months, although some rent costs may extend up to nine years.
- DeVry Brasil completed the FMF acquisition for approximately $11.4. It subsequently completed the Faci acquisition on January 2, 2015, and the approximately $92 Damásio acquisition on February 2, 2015. These post-quarter acquisitions expand the Brazilian footprint and require verification of funding, integration, and returns.
- The company identified goodwill of $519.7 and intangible assets of $289.2, together about 41% of total assets. Management reported no impairment-triggering event in the first half, but warned that deteriorating results could lead to impairment; it cited potential DeVry University goodwill and intangible write-offs of up to $23.8.
- Material uncertainties include federal and state inquiries involving incentive compensation, student aid, and advertising/marketing (including FTC, Illinois, Massachusetts, and New York matters). Outcomes and potential financial impacts were not predictable. The filing also describes ongoing Department of Education reviews, proposed Brazilian FIES funding changes, and new gainful-employment rules effective July 2015; management could not yet reliably predict the rules’ effects and said some programs may be at risk.
- Other risks include reliance on government student aid, enrollment declines, competition, foreign-exchange movements, and potential impairment. DeVry was in compliance with credit-facility covenants. Management stated that disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: this filing names DeVry Education Group Inc., despite the request metadata identifying Covista Inc.
- Track DeVry University enrollment, revenue, student persistence, and whether cost reductions stabilize performance without harming student outcomes.
- Monitor Medical and Healthcare and Brazilian enrollment growth, acquisition integration, acquisition-related obligations, and the impact of Brazilian currency and FIES policy changes.
- Follow the FTC and state investigations, Department of Education reviews, gainful-employment program outcomes, and any effect on Title IV eligibility or cash receipts.
- Assess operating cash flow, capital spending, the availability of international cash for domestic needs, and the company’s capacity to fund dividends, repurchases, and expansion.
- Revisit goodwill and intangible-asset impairment sensitivity, particularly for DeVry University and Carrington, and compare actual results with management’s outlook and savings targets.