Business Context and Reporting Period
This Form 10-Q covers DeVry Inc. (not Covista Inc.) for the quarterly period ended March 31, 1998, and the nine months ended March 31, 1998. The company operates educational institutes (DeVry Institutes, Keller Graduate School, and Becker CPA Review). The filing notes that results are seasonal, with the second and third quarters historically representing the highest revenue and net income periods.
Key Financial Metrics
| Metric | Quarter Ended Mar 31, 1998 | Nine Months Ended Mar 31, 1998 |
|---|---|---|
| Total Revenues | $92.9 million | $263.6 million |
| Net Income | $8.4 million | $23.1 million |
| Earnings Per Share (Diluted) | $0.24 | $0.66 |
| Operating Margin | 15.2% | 14.7% |
| Cash from Operations (9 months) | $51.2 million | |
| Capital Expenditures (9 months) | $17.3 million | |
| Revolving Loan Balance | $6.0 million (down from $41.0 million prior year) | |
| Cash and Cash Equivalents | $45.9 million |
Material Changes vs. Prior Period
- Revenue Growth: Tuition revenue increased 14.2% for the quarter and 13.7% for the nine months, driven by a 9.0% enrollment increase in the fall term and 12.0% in the spring term at DeVry Institutes, and over 19% growth at Keller Graduate School.
- Profitability: Net income increased by more than 25% compared to the same periods last year. Operating margins improved to 15.2% (quarter) and 14.7% (nine months) due to favorable leverage on expanded enrollments and cost controls.
- Expense Trends: Cost of Educational Services rose 9.1% (quarter) due to new facilities and staff. Student Services and Administrative expenses increased approximately 20%, primarily due to marketing for new locations and recruitment.
- Debt Reduction: Total debt was reduced by $35 million compared to March 31, 1997, utilizing proceeds from a 1997 stock offering and strong operating cash flows. Interest expense decreased substantially.
Outlook, Risks, and Management Commentary
- Expansion Plans: The company is nearing completion of a new campus in Fremont, California, and planning openings in New York City (November 1998). Capital spending is expected to remain high.
- Year 2000 (Y2K) Risk: Management highlighted a material risk regarding the dependency on federal and state financial aid disbursement systems. If government or banking systems are not Y2K compliant, interruptions in aid funds could adversely affect financial position.
- Systems Upgrade: The company is implementing new financial systems to enhance controls and address Y2K deficiencies, with costs being expensed as incurred.
- Liquidity: Management believes current cash balances, operating cash flow, and the revolving loan facility are sufficient to fund operations and capital plans.
- Corporate Action: A 2-for-1 stock split was announced on May 6, 1998, effective June 19, 1998.
Investor Verification Checklist
- Verify the sustainability of the 12-19% enrollment growth rates across DeVry and Keller divisions.
- Confirm the status of Y2K compliance for federal student aid disbursement systems and potential contingency plans.
- Monitor the impact of the 20% increase in administrative and marketing expenses on future operating margins.
- Review the timeline and cost overruns for the new Fremont and New York City campus openings.
- Assess the company's ability to maintain high operating cash flows to continue aggressive debt reduction.