Filing summary
Entity discrepancy: The request identifies Covista Inc., but the supplied Form 10-Q is for DeVry Inc. This summary reflects DeVry’s filing, not Covista’s.
Business context and reporting period
Unaudited results cover the fiscal third quarter and nine months ended March 31, 2013; the comparable periods ended March 31, 2012. DeVry operates education businesses across three segments: Business, Technology and Management; Medical and Healthcare; and International, K-12 and Professional Education. The company cautions that interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Quarter ended March 31, 2013 | Nine months ended March 31, 2013 |
|---|---|---|
| Revenue | $508.8 million | $1,496.7 million |
| Operating income | $73.6 million; 14.5% margin | $185.3 million; 12.4% margin |
| Net income attributable to DeVry | $56.8 million | $139.1 million |
| Diluted EPS | $0.88 | $2.15 |
| Operating cash flow | Not separately provided | $282.4 million |
At March 31, 2013, cash and cash equivalents were $278.0 million; cash plus marketable securities was $280.9 million. Current assets were $548.0 million and current liabilities $409.5 million. DeVry had no revolver borrowings and had $14.7 million of letters of credit outstanding under its $400 million revolving facility, expandable to $550 million. It reported compliance with debt covenants. Total liabilities were $559.8 million.
Nine-month investing cash outflow was $111.0 million, including $79.3 million of capital expenditures and $31.4 million for the FAVIP acquisition. Financing cash outflow was $66.3 million, including $48.4 million of stock repurchases and $20.7 million of dividends. Cash increased $103.9 million over the period.
Material changes versus comparable periods
- Quarterly revenue fell 5.9%, operating income 22.9%, net income attributable to DeVry 15.4%, and diluted EPS from $1.00 to $0.88. Operating margin declined from 17.7% to 14.5%.
- Nine-month revenue declined 5.5% and operating income declined 2.0% as reported; the prior-year period included a $75.0 million impairment charge. Excluding that prior-year charge, DeVry said nine-month operating income declined 29.8%. Attributable net income rose from $133.5 million to $139.1 million, while diluted EPS increased from $1.96 to $2.15; the company’s non-GAAP EPS excluding specified unusual items was $2.26 versus $2.74.
- Business, Technology and Management revenue declined 16.3% for the quarter and 15.3% for nine months; its operating income fell 46.8% and 46.2%, respectively. DeVry University enrollment declines and higher scholarships were key factors.
- Medical and Healthcare revenue increased 9.1% for the quarter and 8.6% for nine months. International, K-12 and Professional Education revenue rose 23.3% and 23.0%, respectively, helped by Brazil acquisitions and growth elsewhere.
- Nine-month operating cash flow declined from $355.1 million to $282.4 million. DeVry attributed the movement partly to student billing and academic-calendar timing, working-capital changes, and the prior-year impairment’s noncash impact.
Outlook, management commentary, risks and unusual items
- Management expected fiscal 2013 revenue to be below fiscal 2012, primarily because of continuing enrollment declines at DeVry University. It expected at least $100 million of fiscal 2013 cost and expense savings and projected capital spending of $125 million to $135 million.
- Management cited progress in cost realignment and growth initiatives. Carrington new-student enrollment increased 17.5% in the March 2013 term, its third consecutive quarter of growth; Chamberlain total enrollment increased 16.9% for the March session. DeVry University undergraduate and graduate enrollment remained substantially lower year over year. Management announced a tuition freeze at DeVry University for the school year beginning July 2013.
- Fiscal 2013 included $11.5 million of restructuring charges through nine months, including a $7.9 million write-down and expected loss on the Wood Dale facility held for sale. The quarter included $2.0 million of restructuring expense. FAVIP acquisition accounting included $16.1 million of goodwill and a contingent payment of up to approximately $3.9 million if it receives university-center status; $2.9 million was accrued at quarter-end.
- Goodwill of $566.5 million and intangible assets of $292.1 million represented about 43% of total assets. Management identified Carrington as particularly sensitive to future results: its prior-year impairment review showed fair value less than 5% above carrying value. DeVry University revenue fell about 15% for nine months, and management warned that further weak performance could result in impairment at DeVry University or Carrington.
- In April 2013, Illinois and Massachusetts authorities issued investigative requests concerning, respectively, admissions-compensation practices and claims relating to student aid. Timing, outcome and potential impact were not predictable. A shareholder securities case was dismissed with prejudice in March 2013, but sanctions remained under consideration and plaintiffs could appeal. DeVry said it did not expect pending litigation to materially affect its financial position, results or cash flows.
- About $129 million of cash was held by international operations and management intended to reinvest international earnings and cash there. Federal Title IV funding was 69% of tuition-related receipts in fiscal 2012; the filing emphasizes regulatory, financial-aid and enrollment risks. The reported funding-source percentages are for fiscal 2012, not the current nine-month period.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is DeVry Inc., despite the request naming Covista Inc.
- Track DeVry University enrollment, revenue trends, scholarship levels and progress against the cost-savings and growth plans.
- Monitor Carrington’s turnaround, operating results and goodwill/intangible-asset impairment risk.
- Follow the Illinois and Massachusetts investigations, and any appeal or sanctions developments in the dismissed shareholder case.
- Assess cash availability in light of international cash reinvestment, student-aid dependence, the revolver’s covenants and planned capital spending and repurchases.