Filing summary
Registrant and period: The request metadata names Covista Inc., but the supplied filing is DeVry Inc.’s unaudited Form 10-Q for the quarter and six months ended December 31, 2010 (fiscal 2011 Q2). The filing reports results in U.S. dollars; financial statement amounts below are in millions unless noted.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2010 | Prior-year quarter | Six months ended Dec. 31, 2010 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $551.5 | $473.0 | $1,072.9 | $904.1 |
| Operating income | $135.6 | $108.9 | $247.4 | $188.3 |
| Net income attributable to DeVry | $88.7 | $72.5 | $162.3 | $127.2 |
| Diluted EPS | $1.25 | $1.00 | $2.28 | $1.76 |
| Operating margin | 24.6% | 23.0% | 23.1% | 20.8% |
| Net income margin | 16.1% | 15.3% | 15.1% | 14.1% |
- Quarterly revenue rose 16.6% and net income attributable to DeVry rose 22.4%; six-month revenue increased 18.7% and attributable net income increased 27.6%.
- Six-month operating cash flow was $273.9, versus $267.3 in the prior-year period. Capital expenditures were $53.7, compared with $61.6.
- At December 31, cash and cash equivalents were $459.3; cash plus marketable securities was $461.7. Total current assets were $675.8 and current liabilities $456.8. DeVry had no outstanding borrowings; its revolving credit facility was $175, with $4.6 of letters of credit outstanding. It reported compliance with debt covenants.
- Total assets were $1,834.6 and total liabilities $559.0. Net accounts receivable was $152.8, up from $135.2 a year earlier. Institutional student loans were $43.7 gross, with a $19.7 allowance and $24.1 net, compared with $26.5 gross and $15.8 net a year earlier.
- The Board increased the dividend from $0.10 to $0.12 per share. DeVry repurchased $75.7 of stock in the first six months; the new $50 share-repurchase authorization had $48.9 remaining at December 31.
Business trends and changes versus prior year
- Growth reflected higher total enrollment, improved retention and tuition increases across the business. Business, Technology and Management revenue grew 18.4% for the quarter; Medical and Healthcare grew 13.0%; Professional Education grew 26.3%; and Other Educational Services grew 0.9%.
- DeVry University undergraduate total enrollment increased 14.9% for fall 2010, but new undergraduate enrollment declined 4.7%. Chamberlain’s fall total enrollment rose 57.8%, while Ross University’s total enrollment decreased 0.7% and Carrington’s decreased 6.4%.
- Operating costs rose in dollars but declined as a share of revenue: educational-services costs were 41.7% of revenue versus 42.3%, and student-services and administrative expense was 33.7% versus 34.7%. Management attributed improved leverage to revenue growth and use of existing facilities and staff, alongside continuing investment in education and student support.
- Medical and Healthcare quarterly operating income declined 0.6%, partly due to lower new enrollments at Ross and Carrington and capacity investments. Other Educational Services reported a six-month operating loss of $7.4, compared with a $5.8 loss, reflecting Advanced Academics revenue weakness and investment in growth.
Outlook, risks and unusual items
- Outlook: Management expected fiscal 2011 capital spending of about $150, possibly more, with spending expected to increase in the second half. It expected Ross new enrollment to decline slightly in January 2011, Carrington enrollment to continue declining in spring 2011, and Becker revenue growth to moderate in the second half. These are management expectations, not formal earnings guidance.
- Regulatory and funding exposure: DeVry depends substantially on Title IV student aid; it reported that 71% of fiscal 2010 revenue came from federal assistance programs. Final Department of Education gainful-employment rules were still pending, and the filing warned that resulting requirements could materially affect eligibility, enrollment, results and cash flows. Questions from the Department of Education also concerned Title IV eligibility for new students at Ross’s Freeport location.
- Legal proceedings: A securities class action and two related shareholder derivative actions alleged undisclosed abusive recruiting and student-lending practices. DeVry disputed the allegations and intended to defend itself; it did not expect the matters to materially affect its financial position, results or cash flows, while noting outcomes are uncertain.
- Credit and asset risks: Nonperforming institutional student loans were $12.2, up from $7.9 a year earlier; the allowance for credit losses increased to $19.7 from $10.7. A $6.2 prepaid clinical-rotation balance was subject to a $1.6 reserve amid a contract dispute with a hospital group. Advanced Academics had lower revenue and operating profit; management said goodwill impairment could arise if improvement does not occur, although no interim impairment review was considered necessary.
- Other items: Higher U.S. income contribution raised the effective tax rate to 34.5% from 33.6% for the quarter. Approximately $214.5 of cash was held in international operations and management intended to reinvest it abroad, limiting its availability for domestic general purposes. The filing states that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for DeVry Inc., not Covista Inc.
- Track enrollment and retention—especially new enrollment at Ross and Carrington, and whether Chamberlain’s rapid growth continues.
- Monitor Title IV, gainful-employment and Freeport eligibility developments, given the company’s dependence on federal student aid.
- Review student-loan delinquency, reserve adequacy and collections, alongside the growth in receivables.
- Assess whether planned capital spending, growth investments and share repurchases remain supportable by operating cash generation and domestically available liquidity.
- Follow the shareholder litigation, the clinical-rotation dispute and Advanced Academics’ performance for potential financial or impairment consequences.