Business Context and Reporting Period
This summary covers the Form 10-Q filed by DeVry Inc. (Note: The input metadata incorrectly lists "Covista Inc."; the filing text identifies the registrant as DeVry Inc.) for the quarterly period ended March 31, 2009. DeVry is a provider of post-secondary education operating through three reportable segments: DeVry University, Medical and Healthcare (including Ross University, Chamberlain College of Nursing, and U.S. Education), and Professional and Training (Becker Professional Review).
Key Financial Metrics
| Metric | Q3 2009 (3 Months) | Q3 2008 (3 Months) | YTD 2009 (9 Months) | YTD 2008 (9 Months) |
|---|---|---|---|---|
| Total Revenues | $391.9 million | $291.0 million | $1,065.2 million | $815.0 million |
| Operating Income | $71.8 million | $50.6 million | $181.1 million | $131.4 million |
| Net Income | $50.9 million | $38.3 million | $128.6 million | $101.0 million |
| Diluted EPS | $0.70 | $0.53 | $1.77 | $1.40 |
| Operating Cash Flow (YTD) | $287.9 million (vs. $205.3 million YTD 2008) | |||
| Cash & Equivalents | $295.0 million (as of March 31, 2009) | |||
| Total Debt | $135.1 million (as of March 31, 2009) |
Margins: Operating margin for the quarter was 18.3% (up from 17.4% in Q3 2008). Net income margin was 13.0% (down slightly from 13.2% in Q3 2008).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 34.7% year-over-year for the quarter, driven by the acquisition of U.S. Education (Apollo College and Western Career College) and strong enrollment growth at DeVry University and Ross University.
- Segment Performance:
- DeVry University: Revenues up 18.7%; Operating income up 44.3%.
- Medical and Healthcare: Revenues up 128.9% (significant contribution from U.S. Education); Operating income up 80.6%.
- Professional and Training: Revenues flat (up 0.3%); Operating income declined 12.9% due to the economic downturn affecting financial firms served by Becker CPA Review.
- Real Estate Charges: The company recorded a pre-tax charge of approximately $4.0 million ($2.5 million after-tax) related to the buyout of a lease at its Long Island City campus. Excluding this charge, net income would have increased 39.4%.
- Debt Position: The company had no outstanding debt at March 31, 2008. As of March 31, 2009, total debt was $135.1 million, consisting of $90 million under a revolving credit facility and $45.1 million under a collateralized line of credit secured by auction-rate securities.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects capital expenditures for the full fiscal year 2009 to be in the $70 million range. They anticipate softness in the Professional and Training segment to persist through calendar 2009 due to the economic environment.
- Auction-Rate Securities (ARS): DeVry holds approximately $59.5 million in ARS which have been illiquid since February 2008. The company has secured "Put Rights" from its broker (UBS) to sell these securities at par value between June 2010 and July 2012. While management believes current liquidity is sufficient, future impairment charges could occur if UBS cannot meet its obligations or if auctions fail to resume.
- Legal Proceedings:
- Ross University Clinical Rotations: A hospital group contracted to provide clinical rotations closed two hospitals. DeVry has reserved $1.5 million against $9.0 million in prepaid fees and filed a lawsuit for specific performance.
- Recruiter Compensation: A qui tam action regarding recruiter compensation was dismissed with prejudice by the District Court in March 2009, though the plaintiff has appealed.
- Subsequent Event: On April 1, 2009, DeVry acquired an 82.3% stake in Fanor, a Brazilian education provider, for $40.4 million.
- Tax Risk: Proposed changes to U.S. tax laws regarding foreign earnings could adversely affect DeVry's effective tax rate, as Ross University's international operations are currently tax-exempt.
Investor Verification Checklist
- Enrollment Trends: Verify the sustainability of the 18.8% enrollment growth at DeVry University and the 104.5% growth at Chamberlain College of Nursing.
- Auction-Rate Securities Liquidity: Monitor the status of the UBS Put Rights agreement and the broader ARS market to assess potential future impairment risks.
- U.S. Education Integration: Assess the ongoing integration of U.S. Education and its impact on future operating margins and cash flows.
- Regulatory Compliance: Review the status of the Department of Education "90/10 Rule" compliance for all Title IV eligible institutions, particularly given the high reliance on federal aid (71% of total revenue).
- Real Estate Optimization: Track the execution of the real estate strategy, including the impact of lease buyouts and facility expansions on future operating costs.