CVSA

Business Context and Reporting Period

Company: DeVry Inc. (Note: Metadata listed "Covista Inc." but filing text confirms DeVry Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 1999 (Second Quarter of Fiscal Year 2000)
Business Overview: DeVry Inc. operates educational institutions including DeVry Institutes, Keller Graduate School of Management, and Becker CPA Review. The company focuses on undergraduate and post-graduate degree programs in technology, business, and medical fields, as well as CPA exam preparation.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 23.5% for the quarter and 24.7% for the six months ended December 31, 1999, compared to the prior year. Tuition revenue specifically rose 23.3% for the quarter.
• Enrollment Increases: Undergraduate summer term enrollments rose 15.9% and fall term enrollments rose 13.4%. Keller Graduate School enrollments increased 19.9% (June) and 15.0% (September).
• Acquisitions: The company acquired Denver Technical College (DTC) and Conviser Duffy CPA Review Course in July 1999. These acquisitions contributed significantly to revenue and enrollment growth but also increased costs and depreciation.
• Expense Increases: Cost of Educational Services rose 24.3% for the quarter, driven by instructional costs for new acquisitions and expanded facilities. Student Services and Administrative expenses increased 21.1% due to marketing and administrative costs for new sites.
• Balance Sheet: Total assets grew from $278.4 million (Dec 1998) to $376.2 million (Dec 1999), largely due to acquisitions and capital expenditures. Intangible assets (goodwill) increased significantly to $76.1 million.

Guidance, Outlook, and Risks

• Outlook: Management expects operating margins to continue rising due to operating leverage from enrollment growth and cost controls. Capital spending is expected to slow in the second half of the fiscal year as major construction projects (West Hills, CA; Chicago, IL; Columbus, OH; Tinley Park, IL) near completion.
• Liquidity: The company believes current cash balances, operating cash flow, and its revolving credit facility are sufficient to fund operations and expansion. $20 million of the $40 million borrowed for acquisitions has been repaid.
• Y2K Status: The company reported no measurable adverse effects from the year 2000 transition. Systems tested successfully on January 2, 2000, with only minor software modifications required post-transition.
• Risks: Key risks include dependence on student financial aid, state/provincial licensing requirements, and the ability to maintain enrollment growth. A temporary "Event of Default" regarding subsidiary guarantees on the revolving loan was waived by lenders on December 3, 1999.
• Unusual Items: The company recorded a provision for refunds and uncollectible accounts of $11.9 million for the six months, which remained a constant percentage of revenue compared to the prior year.

Investor Verification Checklist

• Acquisition Integration: Verify the financial performance and integration progress of Denver Technical College and Conviser Duffy CPA Review.
• Enrollment Sustainability: Confirm if the 13-16% enrollment growth rates are sustainable given the competitive landscape and economic conditions.
• Capital Expenditures: Monitor the completion of new campus construction (Orlando, FL; Tinley Park, IL) and associated costs against budget.
• Debt Covenants: Review the amended revolving loan agreement terms and ensure ongoing compliance with financial covenants.
• Financial Aid Dependency: Assess the impact of federal financial aid policies on the $13 million in receivables owed but not yet received.