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: March 31, 2001 (Third Quarter of Fiscal Year 2001)
Business Overview: DeVry Inc. provides post-secondary education through undergraduate operations (DeVry Institutes) and graduate/professional examination review operations (Keller Graduate School of Management and Becker/Conviser Professional Review). The company operates primarily in the United States with international presence in Canada, Europe, the Middle East, and the Pacific Rim.
Key Financial Metrics
| Metric (in thousands) | Q3 2001 | Q3 2000 | 9 Months 2001 | 9 Months 2000 |
|---|---|---|---|---|
| Total Revenues | $149,209 | $130,132 | $434,993 | $381,662 |
| Tuition Revenues | $137,836 | $117,496 | $400,189 | $343,332 |
| Net Income | $16,037 | $13,297 | $43,925 | $35,995 |
| Diluted EPS | $0.23 | $0.19 | $0.62 | $0.51 |
| Operating Cash Flow (9 Mo) | $60,629 (2001) vs $57,609 (2000) | |||
| Cash & Equivalents (End Period) | $26,868 | |||
| Restricted Cash (End Period) | $58,345 | |||
| Total Debt | $0 (Revolving loan fully repaid) |
Margins (Q3 2001):
- Net Income Margin: 10.7% ($16.0M / $149.2M)
- Operating Income Margin (Undergraduate): ~18.9% ($24.7M / $130.6M)
- Operating Income Margin (Graduate/Professional): ~16.0% ($3.1M / $19.0M)
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14.7% ($19.1M) for the quarter and 14.0% ($53.3M) for the nine months compared to the prior year. Tuition revenue drove this growth, up 17.3% for the quarter.
- Profitability: Net income increased 20.6% for the quarter and 22.0% for the nine months. This was driven by revenue growth outpacing cost increases.
- Segment Performance:
- Undergraduate: Revenues up 14.3% (Q3) due to 9.3% fall enrollment growth, 10.5% spring enrollment growth, new campuses (Tinley Park, Orlando), and ~6% tuition rate increases.
- Graduate & Professional: Revenues up 18.0% (Q3). Growth in Keller Graduate School (16.4% enrollment increase) and the acquisition of Stalla Seminars offset declines in Becker/Conviser CPA review due to the "150-hour rule" in various states.
- Acquisition: Acquired Stalla Seminars (CFA exam prep) on Jan 5, 2001, for approximately $8.6 million in cash.
- Capital Expenditures: Record capital spending of $52.8 million for the nine months (up $22.0M YoY) due to new campus construction (Seattle), renovations (Columbus), and equipment for new locations.
- Debt Position: The company utilized its revolving credit facility for cyclical needs and the Stalla acquisition but fully repaid all borrowings by the end of the quarter, resulting in zero debt on the balance sheet.
Guidance, Outlook, Risks, and Unusual Items
- Accounting Changes (SAB 101): The company will adopt SEC Staff Accounting Bulletin 101 in the fourth quarter of fiscal 2001. This will require deferring enrollment fee income over the expected period of student attendance. Management expects this to reduce reported revenue by 3-4% but will not significantly affect net income or cash flows.
- Outlook: Management expects capital spending to remain at historically high levels depending on new campus openings. The company believes current cash balances and operating cash flow are sufficient to fund operations.
- Risks & Contingencies:
- Litigation: A class-action lawsuit filed in November 2000 by Chicago graduates alleging lack of employability skills. Management considers it frivolous; no provision has been made for costs.
- Regulatory: Dependence on student financial aid programs and state/provincial licensing. The "150-hour rule" for CPA candidates continues to impact Becker/Conviser enrollments.
- Currency: Incurred approximately $1.6 million in currency conversion losses in Q3 due to the decline of the Canadian dollar.
- Unusual Items: Significant increase in restricted cash ($58.3M) due to government student aid funds held in separate accounts pending disbursement to students.
Investor Verification Checklist
- Enrollment Trends: Verify the sustainability of the 9-10% enrollment growth rates in the Undergraduate segment.
- SAB 101 Impact: Monitor the Q4 2001 financials for the specific revenue reduction impact of the new enrollment fee deferral policy.
- Capital Expenditure ROI: Assess the timeline for new campuses (Seattle, Orlando, Tinley Park) to reach full revenue capacity to justify the record $52.8M capex.
- Debt Covenants: Confirm the terms of the renegotiated revolving loan agreement (extended to Feb 2003) and ensure compliance with financial covenants.
- Refund Provisions: Review the adequacy of the $17.0M reserve for refunds and uncollectible accounts given the high volume of government-funded student aid.