Filing identity and reporting period
The supplied filing text is for DeVry Education Group Inc., not Covista Inc. It is a Form 10-Q for the quarter ended March 31, 2014 (fiscal 2014 third quarter), with nine-month comparisons to March 31, 2013. The metadata’s “Covista Inc.” and “2013 Q3” do not match the filing.
Financial performance
Amounts below are in millions of dollars except per-share data. Comparisons are with the year-ago periods.
| Metric | Three months ended March 31, 2014 | Nine months ended March 31, 2014 |
|---|---|---|
| Revenue | $496.1; down 1.5% | $1,438.3; down 3.1% |
| Operating income | $69.5; down 8.1%; 14.0% margin vs. 15.0% | $138.4; down 28.0%; 9.6% margin vs. 13.0% |
| Income from continuing operations | $56.2 vs. $58.7 | $113.6 vs. $144.8 |
| Net income attributable to DeVry Group | $55.5 vs. $56.8; diluted EPS $0.86 vs. $0.88 | $96.5 vs. $139.1; diluted EPS $1.49 vs. $2.15 |
| Operating cash flow | Not reported separately for the quarter | $263.2 vs. $282.4, including discontinued operations |
| Cash and cash equivalents | $396.8 at March 31, 2014 | Up from $278.0 at March 31, 2013 |
| Debt and liquidity | No credit-facility borrowings; $7.8 of letters of credit outstanding | $400 revolving facility, expandable to $550; covenants met |
At March 31, total assets were $2,048.9 million and current liabilities were $405.7 million. Current assets were $638.5 million. The company reported no outstanding borrowings under its revolving facility. Cash included approximately $195.7 million held by international operations and intended for reinvestment abroad.
Material changes and business trends
- DeVry University’s revenue fell 14.7% in the quarter and 15.8% for nine months, amid lower enrollments and increased scholarships. March undergraduate total enrollment was down 10.4% year over year; graduate coursetakers were down 15.1%.
- Medical and Healthcare revenue grew 16.8% for the quarter and 13.9% for nine months. Chamberlain’s March enrollment reached 18,185, up 37.4% year over year. Carrington continued its turnaround, but enrollment remained pressured.
- International and Professional Education revenue grew 9.7% for the quarter and 14.7% for nine months, supported by DeVry Brasil growth and acquisitions. Nine-month DeVry Brasil revenue grew more than 25% year over year, while operating earnings reflected expansion investment.
- For nine months, cost of educational services rose 1.5% while revenue declined, reducing operating leverage. Student services and administrative expense declined 1.1%, reflecting cost controls partly offset by growth investments.
- Cash generated by continuing operations was $264.0 million for nine months, versus $289.4 million a year earlier. Capital expenditures were $47.6 million versus $78.0 million.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2014 revenue to decline year over year, principally due to DeVry University enrollment weakness. It targeted $100 million of total expense savings in fiscal 2014 at DeVry University and Carrington. Full-year capital spending was projected at $70–$80 million.
- Management cited progress in DeVry University’s turnaround and sequential improvement in enrollment declines, while acknowledging continued pressure from student demand, concerns about degree value and debt, and competition. Plans included cost reductions, campus consolidations, marketing changes and tuition initiatives.
- Restructuring charges were $16.3 million for the first nine months, including workforce and real-estate actions; $13.3 million remained accrued and was expected to be paid within 12 months. A $1.9 million pretax gain arose from selling a former campus.
- Advanced Academics Inc. (AAI) was sold in December 2013 for $2.0 million after a $13.5 million impairment charge. Nine-month discontinued-operations loss was $16.9 million after tax.
- Goodwill and intangible assets totaled approximately $811.6 million, about 40% of total assets. Management identified potential future impairment risk, particularly at Carrington and DeVry University, if operating performance does not improve.
- Regulatory and legal exposures include proposed federal gainful-employment rules that could affect Title IV aid eligibility, state attorney-general investigations concerning compensation and student aid, and an FTC information demand concerning education marketing. Outcomes and financial impacts were not predictable. A shareholder case had been dismissed with prejudice but an appeal remained stayed; a separate qui tam case was dismissed without prejudice.
- Federal Title IV funding represented 66% of tuition and related fee receipts in fiscal 2013. Management noted that changes to aid programs or loss of institutional eligibility could materially harm revenue and cash flow.
Important facts for investors to verify
- Confirm the correct issuer and reporting period: the supplied text identifies DeVry Education Group and fiscal Q3 2014, not Covista Inc. or 2013 Q3.
- Track DeVry University enrollment, revenue and operating results, and whether management’s expense-savings target and turnaround plans are achieved.
- Assess the impact of gainful-employment rulemaking and the state and FTC investigations on Title IV eligibility, operating practices and potential costs.
- Monitor Carrington and DeVry University performance and the risk of additional impairment against the substantial goodwill and intangible-asset balances.
- Distinguish reported earnings from adjusted figures: nine-month results included restructuring costs, an asset-sale gain and the AAI discontinued-operations loss.
- Consider cash availability: a substantial portion of cash was held internationally for intended reinvestment, while the company also had institutional student loans and acquisition-related deferred payments.