Business context and reporting period
The supplied filing is DeVry Inc.’s unaudited Form 10-Q for the quarter and six months ended December 31, 2012 (fiscal 2013 Q2), not a filing identified as Covista Inc. The company operates higher-education businesses across business and technology, medical and healthcare, and international/professional education. The filing cautions that interim results are not necessarily indicative of full-year results.
Financial performance
Amounts below are in millions of U.S. dollars except per-share data. Quarter and six-month comparisons are with the periods ended December 31, 2011.
| Metric | Quarter | Six months |
|---|---|---|
| Revenue | $505.2, down 3.6% | $988.0, down 5.3% |
| Operating income | $65.9, versus $13.8 | $111.7, versus $93.6 |
| Net income attributable to DeVry | $50.3, versus $8.9 | $82.3, versus $66.3 |
| Diluted EPS | $0.78, versus $0.13 | $1.27, versus $0.97 |
| Operating margin | 13.0%, versus 2.6% | 11.3%, versus 9.0% |
Prior-year comparisons include a $75.0 million impairment charge; excluding that charge, operating income declined 25.8% for the quarter and 33.8% for the six months. The company’s non-GAAP adjusted diluted EPS was $0.87 for the quarter versus $0.92, and $1.36 for six months versus $1.74.
For six months, operating cash flow was $180.2, versus $219.3; capital expenditures were $48.2, versus $63.0. Cash and cash equivalents were $216.3 at December 31, 2012. Current assets were $450.8 and current liabilities $337.5. There were no revolver borrowings; $2.4 of letters of credit was outstanding under the $400 million facility, expandable to $550 million. The company reported compliance with debt covenants.
Material changes versus the prior comparable period
- Business, Technology and Management (DeVry University) revenue fell 13.9% for the quarter and 14.8% for six months; segment operating income declined 32.8% and 46.0%, respectively. Enrollment weakness and increased scholarships/discounting were cited.
- Medical and Healthcare revenue rose 9.3% for the quarter and 8.3% for six months. International, K-12 and Professional Education revenue rose 27.4% and 22.9%, respectively, with acquisitions and enrollment growth contributing.
- Domestic revenue declined while international revenue increased. DeVry acquired Brazilian institution FAVIP in September 2012 for approximately $32.2 million, with up to approximately $3.9 million additional consideration contingent on university-center status.
- Cash increased from $174.1 at June 30, 2012, to $216.3 at December 31, 2012. Total assets were $1,914.1 and total liabilities $508.8 at period end.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2013 revenue to decline year over year, principally due to enrollment declines at DeVry University and Carrington, partly offset by growth elsewhere. It expected at least $80 million in fiscal 2013 cost savings and value-creation opportunities.
- Management projected fiscal 2013 capital spending of $130–$140 million and estimated approximately $3 million in annual savings from facility consolidations.
- Fiscal Q2 included $9.5 million of pre-tax restructuring charges: $7.9 million for the Wood Dale facility write-down/expected sale loss and $1.6 million for facility consolidations. The filing also describes earlier workforce-reduction charges.
- Management expected a 23%–25% effective tax rate for fiscal Q3 following the retroactive extension of a controlled-foreign-corporation tax rule.
- Key risks include dependence on federal financial aid and regulatory compliance, competition and enrollment trends, and possible impairment of goodwill and intangible assets. These assets totaled about $860.4 million, or approximately 45% of total assets. Carrington had less than 5% fair-value cushion over carrying value in the last impairment review; DeVry University revenue had declined about 15% year over year for the first six months.
- Pending shareholder and derivative litigation concerns alleged admissions-advisor compensation and related disclosures. The company said it believed the claims were without merit and did not expect a material financial effect, while noting outcomes are difficult to predict.
Most important facts for investors to verify
- Confirm issuer identity: the supplied metadata says Covista Inc., but the filing identifies DeVry Inc.
- Track DeVry University and Carrington enrollment, revenue, and margin trends against management’s recovery plans and full-year revenue outlook.
- Assess whether reported cost savings are achieved and whether they offset weaker revenue without impairing educational operations.
- Monitor impairment indicators and valuation assumptions, especially at Carrington and DeVry University.
- Review cash availability, given that $167.3 million of period-end cash was attributed to international operations and intended for indefinite reinvestment.
- Follow FAVIP’s contingent payment, the DeVry Brasil minority-interest call/put option, financial-aid compliance and litigation developments.