Business Context and Reporting Period
Company: DeVry Inc. (Note: Input metadata listed "Covista Inc.", but the filing text identifies the registrant as DeVry Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended December 31, 2005 (Fiscal Year 2006).
Business Overview: DeVry Inc. provides post-secondary education through three reportable segments: DeVry University (undergraduate/graduate), Professional and Training (Becker Professional Review), and Medical & Healthcare (Ross University and Deaconess College of Nursing).
Key Financial Metrics
| Metric (in thousands) | Q2 2005 | Q2 2004 (Restated) | 6 Months 2005 | 6 Months 2004 (Restated) |
|---|---|---|---|---|
| Total Revenues | $209,869 | $194,522 | $406,649 | $382,918 |
| Net Income | $10,828 | $4,662 | $15,560 | $6,802 |
| Earnings Per Share (Diluted) | $0.15 | $0.07 | $0.22 | $0.10 |
| Operating Cash Flow (6 Mo) | $57,216 (vs. $67,785 prior year) | |||
| Total Assets | $956,454 (Dec 31, 2005) | |||
| Total Debt Outstanding | $160,000 ($35M Revolver + $125M Senior Notes) | |||
| Cash & Equivalents | $143,765 (Dec 31, 2005) |
Margins (6 Months 2005): Net Income margin was 3.8% compared to 1.8% in the prior year. Cost of Educational Services was 54.8% of revenue.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 7.9% in Q2 and 6.2% for the six months ended Dec 31, 2005. Growth was driven by tuition increases (approx. 5% at DeVry and Ross) and higher enrollments in graduate programs and Ross University, partially offset by declines in DeVry undergraduate enrollments.
- Profitability: Net income more than doubled in Q2 ($10.8M vs $4.7M) and the six-month period ($15.6M vs $6.8M) due to revenue growth, wage savings from prior workforce reductions, and lower amortization expenses.
- Segment Performance:
- DeVry University: Turned an operating loss of $1.4M in the prior six months into an operating income of $6.7M.
- Medical & Healthcare: Operating income increased 32.1% year-over-year, driven by Ross University tuition hikes.
- Professional & Training: Operating income remained flat in Q2 but grew for the six-month period due to strong Q1 performance in CPA review courses.
- Accounting Changes: Financial statements for prior periods were restated to reflect the adoption of SFAS 123(R) regarding stock-based compensation using the modified retrospective method.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects capital spending to remain below historical levels. The company intends to continue reducing debt using operating cash flows. No specific numerical guidance for the full fiscal year was provided in this text.
- Acquisitions: Completed acquisition of Gearty CPE ($2.0M) and Deaconess College of Nursing ($5.4M). Deaconess contributed $1.7M in revenue in Q2.
- Asset Sales: Sold a Denver facility for $1.8M (gain of $0.45M). Announced plans to sell the West Hills, California campus.
- Workforce Reductions: Completed workforce reductions in fiscal 2005 resulting in $8.4M in charges. Remaining payments for these reductions were approx. $1.3M as of Dec 31, 2005.
- Risks:
- Financial Aid Dependency: Over 60% of DeVry undergraduate revenue and 70% of Ross University revenue rely on government financial aid. Legislative changes could impact eligibility.
- Regulatory/Legal: Pending class-action lawsuits regarding program advertising and graduate skills. A dispute with the Missouri State Board of Nursing regarding Deaconess' online ASN program is under appeal.
- Interest Rates: Debt is floating-rate (LIBOR based). A 1% increase in rates would add $1.6M to annual interest expense. Interest rate caps expired in Q1 2006.
Investor Verification Checklist
- Enrollment Trends: Verify the sustainability of graduate enrollment growth and the stabilization of undergraduate enrollment declines.
- Financial Aid Exposure: Monitor legislative developments regarding federal student aid eligibility, particularly for Ross University's offshore operations.
- Legal Contingencies: Track the status of the DeVry class-action lawsuits and the Missouri State Board of Nursing appeal regarding Deaconess College.
- Debt Servicing: Confirm the company's ability to service $160M in debt as interest rates fluctuate, given the expiration of interest rate caps.
- Asset Realization: Verify the timeline and proceeds for the planned sale of the West Hills, California campus.