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DV > SEC Filings for DV > Form 10-Q on 5-May-2014All Recent SEC Filings

Show all filings for DEVRY EDUCATION GROUP INC.

Form 10-Q for DEVRY EDUCATION GROUP INC.


5-May-2014

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Through its website, DeVry Group offers its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed with the United States Securities and Exchange Commission. DeVry Group's Web site is http://www.devryeducationgroup.com.

The following discussion of DeVry Group's results of operations and financial condition should be read in conjunction with DeVry Group's Consolidated Financial Statements and the related Notes thereto in Item 1, "FINANCIAL STATEMENTS" in this Quarterly Report on Form 10-Q and DeVry Group's Consolidated Financial Statements and related Notes thereto in Item 8 "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" in DeVry Group's Annual Report on Form 10-K for the fiscal year ended June 30, 2013. DeVry Group's Annual Report on Form 10-K includes a description of critical accounting policies and estimates and assumptions used in the preparation of DeVry Group's financial statements. These include, but are not limited to, the use of estimates and assumptions that affect the reported amounts of assets and liabilities; revenue and expense recognition; allowance for uncollectible accounts; internally developed software; land, building and equipment; stock-based compensation; impairment of goodwill and other intangible assets; valuation of long-lived assets; and income taxes.

The seasonal pattern of DeVry Group's enrollments and its educational program starting dates affect the results of operations and the timing of cash flows. Therefore, management believes that comparisons of its results of operations should primarily be made to the corresponding period in the preceding year. Comparisons of financial position should be made to both the end of the previous fiscal year and to the end of the corresponding quarterly period in the preceding year.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q, including those that affect DeVry Group's expectations or plans, may constitute "forward-looking statements" subject to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as DeVry Group or its management "anticipates," "believes," "estimates," "expects," "forecasts," "foresees," "intends," "plans" or other words or phrases of similar import. Such statements are inherently uncertain and may involve risks and uncertainties that could cause future results to differ materially from those projected or implied by these forward-looking statements. Potential risks and uncertainties that could affect DeVry Group's results are described throughout this report, including those in Note 12 to the Consolidated Financial Statements, in Part II, Item 1, "Legal Proceedings", in Part II, Item 1A. "Risk Factors", and in DeVry Group's Annual Report on Form 10-K for the fiscal year ended June 30, 2013 and filed with the Securities and Exchange Commission on August 29, 2013, including, without limitation, in Item 1A, "Risk Factors" and in the subsections of "Item 1 - Business" entitled "Competition," "Student Admissions," "Accreditation," "Approval and Licensing," "Tuition and Fees," "Financial Aid and Financing Student Education," "Student Loan Defaults," "Career Services," "Seasonality," and "Employees."

All forward-looking statements included in this report speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the Securities and Exchange Commission, we are not under any obligation to update any forward-looking information - whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward-looking statements.

OVERVIEW

DeVry Group's financial results for the third quarter of fiscal year 2014 reflect continued revenue decline within DeVry University, which resulted in decreased earnings as compared to the prior year. This decline was partially offset by continued growth from DeVry Group's healthcare, international and professional education program offerings. Management believes that it is making progress on DeVry University's turnaround plan, including further improving academic quality and realigning its cost structure with student enrollment levels. Operational and financial highlights for the third quarter of fiscal year 2014 include:

DeVry Group made progress in aligning its cost structure with its enrollments. Management expects it will achieve $100 million in total expense savings in fiscal year 2014 at the institutions in transition (DeVry University and Carrington) where reduced enrollment levels necessitate such realignment of expense.

The enrollment decline at DeVry University improved sequentially during the March 2014 session.

For the March 2014 session, total student enrollments at Chamberlain College of Nursing ("Chamberlain") increased 37.4% to a record 18,185 students as compared to the same term last year. Chamberlain continues to invest in its programs, student services and campus locations.

During the third quarter of fiscal year 2014, Unifavip, a DeVry Brasil institution, received official notice that Brazil's Ministry of Education (the "Ministry") had granted the institution Centro Universitario status. As a result, the institution's name has been changed from Favip to Unifavip. This new status is a marker of quality and enables DeVry Brasil to meet student demand for career-oriented education. Also during the quarter, DeVry Brasil received approval to offer nine new degree programs from the Ministry across our DeVry Brasil institutions. These programs cover many high demand career fields such as industrial, electrical and environmental engineering as well as building construction and business administration.

The American Institute of Certified Public Accountants released its 2013 Elijah Watt Sells Award winners, honoring the candidates with the highest scores on the CPA exam. More than 90 percent of the recipients prepared for the exam using Becker's industry-leading CPA review materials.

DeVry Group's financial position remained strong, generating $263.2 million of operating cash flow during the first nine months of fiscal year 2014. As of March 31, 2014, cash and cash equivalents totaled $396.8 million and there were no outstanding borrowings.

USE OF NON-GAAP FINANCIAL INFORMATION AND SUPPLEMENTAL RECONCILIATION SCHEDULE

During the first nine months of fiscal year 2014, DeVry Group recorded restructuring expenses related to workforce reductions and real estate consolidations to align its cost structure at DeVry University, Carrington Colleges and the DeVry Group home office with enrollments. DeVry Group also recorded a gain from the sale of a former DeVry University campus in Decatur, Georgia. Additionally, DeVry Group recorded the operating results of its Advanced Academic Inc. reporting unit as discontinued operations. The following table illustrates the effects of the restructuring expense, discontinued operations and gain on the sale of assets on DeVry Group's earnings. Management believes that the non-GAAP disclosure of net income and earnings per share excluding these discrete items and discontinued operations provides investors with useful supplemental information regarding the underlying business trends and performance of DeVry Group's ongoing operations and is useful for period-over-period comparisons of such operations given the discrete nature of the restructuring charges and gain on the sale of assets. DeVry Group uses these supplemental financial measures internally in its management and budgeting process. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, DeVry Group's reported results prepared in accordance with GAAP. The following table reconciles these non-GAAP measures to the most directly comparable GAAP information (in thousands, except per share data):

                                              For the Three Months          For the Nine Months
                                                Ended March 31,               Ended March 31,
                                              2014            2013           2014          2013
Net Income                                 $    55,525      $  56,821     $   96,548     $ 139,096
Earnings per Share (diluted)               $      0.86      $    0.88     $     1.49     $    2.15
Discontinued Operations (net of tax)       $       607      $   1,532     $   16,855     $   4,544
Earnings per Share (diluted)               $      0.01      $    0.03     $     0.26     $    0.07
Restructuring Charges (net of tax)         $         -      $   1,271     $   10,057     $   7,211
Effect on Earnings per Share (diluted)     $         -      $    0.02     $     0.16     $    0.11
Gain on Sale of Assets (net of tax)        $         -      $       -     $   (1,167 )   $       -
Effect on Earnings per Share (diluted)     $         -      $       -     $    (0.02 )   $       -
Net Income from Continuing Operations
Excluding the Restructuring
Expenses and Gain on Sale of Assets (net
of tax)                                    $    56,132      $  59,624     $  122,293     $ 150,851
Earnings per Share from Continuing
Operations Excluding the Restructuring
Expenses and Gain on Sale of Assets (net
of tax)                                    $      0.87      $    0.93     $     1.89     $    2.33

RESULTS OF OPERATIONS

The following table presents information with respect to the relative size to revenue of each item in the Consolidated Statements of Income for the third quarter and first nine months of both the current and prior fiscal year. Percentages may not add because of rounding.

                                                For the Three
                                                 Months Ended               For the Nine Months
                                                   March 31,                  Ended March 31,
                                             2014           2013            2014            2013
Revenues                                       100.0 %        100.0 %         100.0 %         100.0 %
Cost of Educational Services                    48.9 %         47.0 %          50.6 %          48.3 %
Student Services and Administrative
Expense                                         37.1 %         37.6 %          38.8 %          38.0 %
Gain on Sale of Assets                             -              -            (0.1 )%            -
Restructuring Charges                              -            0.4 %           1.1 %           0.8 %
Total Operating Costs and Expense               86.0 %         85.0 %          90.4 %          87.0 %
Operating Income from Continuing
Operations                                      14.0 %         15.0 %           9.6 %          13.0 %
Net Interest (Expense) Income                   (0.1 )%        (0.1 )%         (0.1 )%         (0.1 )%
Income From Continuing Operations Before
Non-controlling
Interest and Income Taxes                       13.9 %         14.9 %           9.5 %          12.8 %
Income Tax Provision                            (2.6 )%        (3.3 )%         (1.6 )%         (3.1 )%
Income From Continuing Operations Before
Non-controlling
Interest                                        11.3 %         11.6 %           7.9 %           9.7 %
Loss on Discontinued Operations, Net of
Tax                                             (0.1 )%        (0.3 )%         (1.2 )%         (0.3 )%
Net Income                                      11.2 %         11.3 %           6.7 %           9.4 %
Net Income Attributable to
Non-controlling Interest                        (0.0 )%        (0.1 )%         (0.0 )%         (0.1 )%
Net Income Attributable to DeVry
Education Group Inc.                            11.2 %         11.3 %           6.7 %           9.4 %

REVENUES

Total consolidated revenues for the third quarter of fiscal year 2014 of $496.1 million decreased $7.7 million, or 1.5%, as compared to the year-ago quarter. For the first nine months of fiscal year 2014, total consolidated revenues decreased $46.1 million or 3.1% to $1,438.3 million. Revenues decreased within the Business, Technology and Management segment as a result of a decline in student enrollments and an increase in scholarships. This decrease was partially offset by revenue increases within the Medical and Healthcare and International and Professional Education segments as a result of growth in total student enrollments and tuition price increases. In addition, the two most recent additions to DeVry Brasil, Unifavip which was acquired on September 3, 2012, and Facid which was acquired on July 1, 2013, along with revenue growth at the existing DeVry Brasil institutions, contributed to offsetting the revenue decline during the first nine months of fiscal year 2014.

Management expects that total revenues will be down for fiscal year 2014 as compared to fiscal year 2013, driven by the impact from declines in new and total student enrollments within DeVry University experienced in fiscal year 2013 and which have continued into fiscal year 2014 and are expected to continue into the remainder of fiscal year 2014. These lower revenues will be partially offset by anticipated revenue growth within DeVry Group's other educational institutions.

Business, Technology and Management

Revenues in DeVry Group's Business, Technology and Management segment, which is composed solely of DeVry University, decreased 14.7% to $241.9 million in the third quarter and declined 15.8% to $714.1 million for the first nine months of fiscal year 2014 as compared to the respective year-ago periods as a result of a decline in student enrollments and increased scholarships. This trend is expected to continue into the remainder of fiscal year 2014 which will result in lower revenues for the fiscal year. Key trends in enrollment and tuition pricing are set forth below.

Undergraduate new student enrollment by term:

Decreased by 24.7% from July 2012 (7,532 students) to July 2013 (5,674 students);

Increased by 0.1% from September 2012 (6,580 students) to September 2013 (6,589 students);

Decreased by 12.0% from November 2012 (5,482 students) to November 2013 (4,824 students);

Decreased by 7.9% from January 2013 (5,330 students) to January 2014 (4,911 students); and

Decreased by 2.5% from March 2013 (5,146 students) to March 2014 (5,018 students).

Undergraduate total student enrollment by term:

Decreased by 16.1% from July 2012 (50,503 students) to July 2013 (42,374 students);

Decreased by 16.3% from September 2012 (56,086 students) to September 2013 (46,966 students);

Decreased by 11.7% from November 2012 (49,515 students) to November 2013 (43,726 students);

Decreased by 15.1% from January 2013 (53,138 students) to January 2014 (45,097 students); and

Decreased by 10.4% from March 2013 (47,537 students) to March 2014 (42,583 students).

Graduate coursetaker enrollment, principally the Keller Graduate School of Management:

The term "coursetaker" refers to the number of courses taken by a student. Thus, one student taking two courses is counted as two coursetakers.

Decreased by 18.0% from the July 2012 session (19,635 coursetakers) to the July 2013 session (16,107 coursetakers);

Decreased by 18.8% from the September 2012 session (22,072 coursetakers) to the September 2013 session (17,925 coursetakers);

Decreased by 14.1% from the November 2012 session (19,540 coursetakers) to the November 2013 session (16,778 coursetakers);

Decreased by 18.0% from the January 2013 session (21,131 coursetakers) to the January 2014 session (17,322 coursetakers); and

Decreased by 15.1% from the March 2013 session (19,075 coursetakers) to the March 2014 session (16,192 coursetakers).

Tuition rates:

Effective July 2013, DeVry University froze both undergraduate and graduate tuition rates for the school year which ends in June 2014. Management believes this will increase interest from potential students and positively impact persistence among its current students.

For fiscal year 2014, DeVry University's U.S. undergraduate tuition is $609 per credit hour for students enrolling in one to six credit hours per session. Tuition is $365 per credit hour for each credit hour in excess of six credit hours. These amounts do not include the cost of books, supplies, transportation and living expenses.

Keller Graduate School of Management program tuition per course is $2,298.

Management believes the decreases in enrollments were due to lower demand from DeVry University's target student segment driven by negative perceptions of the value of a college degree and increased reluctance to take on debt, resulting in a reduction in interest from potential students. In addition, management believes heightened competition from both public-sector and private-sector education providers contributed to the decreases in DeVry University undergraduate and graduate enrollments. To improve performance at DeVry University, management continues to execute a turnaround plan which includes:

Stabilizing enrollments and positioning the university for long-term growth;

Reducing DeVry University's cost structure, while maintaining and enhancing our service to students;

Regaining DeVry University's technology edge; and

Developing and supporting the team to execute the strategy.

The plan to stabilize enrollments and position DeVry University for long-term growth includes communication of DeVry University's value proposition, which is educational quality, career prospects and high levels of student service. Also, management continues to enhance DeVry University's programmatic focus. This means ensuring our programs are designed to best meet the needs of our students and employers and better communicating the programs' value propositions to the market. DeVry Group is also exploring methods to increase the flexibility of its programs to lower the overall cost of education to its students. This programmatic focus is designed to provide students with successful outcomes.

DeVry University is also increasing the emphasis on technology in its programs. This emphasis will enable students to gain an edge that will help them in today's technology-based careers. Also technology will be further embedded in the campuses and operational processes.

Management is implementing a new organization structure to support the programmatic focus and increase decision-making speed. Four program verticals have been created: Engineering & Information Sciences; Undergraduate Business; Keller Graduate School of Management; and Health Sciences, Liberal Arts, and Media Arts. Each vertical will have a team which will have responsibility for enrollment, program quality and successful student outcomes.

DeVry University's enrollment strategy continues with optimizing pricing, with the goals of increasing new students, and encouraging persistence. A September 2013 "call to action event" included the new Career Catalyst Scholarship. Under the Career Catalyst Scholarship, DeVry University committed up to $15 million over the following three-year period to scholarships that will be awarded to qualifying students who enrolled in the September 2013 session. The scholarships are valued at up to a total of $20,000 per student, depending on the degree and credits required to attain that degree. Students qualifying for DeVry University's Career Catalyst Scholarship will be eligible to receive scholarship awards in progressive amounts over a period of three years. For example, students in their first year of a bachelor's degree program can be awarded up to $5,000. During the second year, the available award can increase up to $7,000. For the third year, the award can increase up to $8,000. As a result of positive results from this program in attracting and retaining successful students, DeVry University also offered this Career Catalyst Program to qualifying students who enrolled in the March 2014 session.

Tuition rates for fiscal year 2014 at DeVry University remain unchanged from those of fiscal year 2013. Further, management implemented the DeVry University Fixed Tuition Promise. This is a guarantee to each DeVry University student that his or her tuition rate will not increase as for long as he or she is a student. Also, beginning in July 2014, the number of credit hours a student must take per session to receive the full-time rate is increasing from 7 hours to 8.

Management is also finding ways to be more effective in marketing and recruiting efforts. DeVry University's marketing strategy is shifting toward more digital and social channels and its web site, and away from less effective inquiry vendors. Some positive results of this shift have already been experienced. For the March session, inquiry conversion improved, as DeVry University saw fewer, but better quality, inquiries and improved recruiting efficiency.

In aligning the cost structure, management is focused on increasing efficiencies. Over the past year DeVry Group's institutions in transition (DeVry University and Carrington) have reduced costs through staffing adjustments; managing open positions; optimizing course scheduling to better utilize classrooms; and lowering course materials costs. Management has made the decision to close or consolidate certain DeVry University campuses while balancing the potential impact on enrollment and student satisfaction. Since fiscal 2012, DeVry University has optimized over a dozen locations. Currently there are five additional consolidations underway.

Medical and Healthcare

Medical and Healthcare segment revenues increased 16.8% to $204.6 million in the third quarter and increased 13.9% to $570.9 million for the first nine months of fiscal year 2014 as compared to the respective prior year periods. Higher total student enrollments at several of the institutions that comprise this segment (Chamberlain College of Nursing ("Chamberlain") and DeVry Medical International (which is composed of Ross University Schools of Medicine and Veterinary Medicine and American University of the Caribbean School of Medicine ("AUC")) were the key drivers of the segment revenue growth. Key trends for DeVry Medical International, Chamberlain and Carrington are set forth below. See discussion following the enrollment information for explanation of the trends.

DeVry Medical International new student enrollment by term:

Decreased by 19.4% from May 2012 (643 students) to May 2013 (518 students);

Increased by 5.7% from September 2012 (925 students) to September 2013 (978 students); and

Decreased by 3.5% from January 2013 (603 students) to January 2014 (582 students).

DeVry Medical International total student enrollment by term:

Decreased by 2.4% from May 2012 (5,944 students) to May 2013 (5,800 students);

Increased by 4.0% from September 2012 (6,209 students) to September 2013 (6,458 students); and

Increased by 5.6% from January 2013 (6,318 students) to January 2014 (6,673 students).

Chamberlain College of Nursing new student enrollment by term:

Decreased by 34.9% from July 2012 (1,974 students) to July 2013 (1,285 students);

Increased by 108.0% from September 2012 (1,625 students) to September 2013 (3,380 students);

Decreased by 8.0% from November 2012 (2,121 students) to November 2013 (1,952 students);

Increased by 65.1% from January 2013 (2,120 students) to January 2014 (3,501 students); and

Increased by 55.0% from March 2013 (1,350 students) to March 2014 (2,092 students)

Chamberlain College of Nursing total student enrollment by term:

Increased by 16.5% from July 2012 (10,852 students) to July 2013 (12,648 students);

Increased by 30.2% from September 2012 (12,050 students) to September 2013 (15,690 students);

Increased by 28.5% from November 2012 (12,247 students) to November 2013 (15,732 students);

Increased by 32.2% from January 2013 (13,714 students) to January 2014 (18,136 students); and

Increased by 37.4% from March 2013 (13,235 students) to March 2014 (18,185 students).

Carrington new student enrollment by term:

Decreased by 1.5% from June 2012 (1,632 students) to June 2013 (1,607 students);

Decreased by 19.5% from September 2012 (3,396 students) to September 2013 (2,733 students);

Decreased by 3.2% from December 2012 (1,763 students) to December 2013 (1,706 students); and

Decreased by 6.0% from March 2013 (2,391 students) to March 2014 (2,247 students).

Carrington total student enrollment by term:

Increased by 9.6% from June 2012 (6,486 students) to June 2013 (7,111 students);

Increased by 1.0% from September 2012 (7,628 students) to September 2013 (7,706 students);

Decreased by 0.6% from December 2012 (7,405 students) to December 2013 (7,358 students); and

Decreased by 2.4% from March 2013 (7,951 students) to March 2014 (7,758 students).

Tuition rates:

Effective September 2013, tuition and fees for the basic sciences and clinical rotation portions of AUC's medical program are $18,975 and $21,250, respectively, per semester. These tuition rates represent an increase from the September 2012 rates of approximately 5.9%.

Effective September 2013, tuition and fees for the basic sciences portion of the programs at the Ross University School of Medicine and Ross University School of Veterinary Medicine are $18,825 and $17,725, respectively, per semester. Tuition and fees for the clinical portion of the programs are $20,775 per semester for the medical school, and $22,250 per semester for the veterinary school. These tuition rates represent an increase from September 2012 rates of 6.5% for the medical school and 5.5% for the veterinary school. These amounts do not include the cost of books, supplies, transportation, and living expenses.

Effective July 2013, tuition is $665 per credit hour for students enrolling one to six credit hours per session in the Chamberlain Bachelor of Science in Nursing ("BSN") (onsite), Associate Degree in Nursing ("ADN") and Licensed Practical Nurse to Registered Nurse ("LPN-to-RN") programs. This rate is unchanged as compared to the prior year. Tuition is $200 per credit hour per session for each credit hour in excess of six credit hours. This excess credit hour rate represents a $100 increase as compared to the prior year. These amounts do not include the cost of books, supplies, transportation and living expenses.

Effective July 2013, tuition is $590 per credit hour for students enrolled in the Chamberlain Registered Nurse to Bachelor of Science in Nursing ("RN-to-BSN") online degree program. This tuition rate is unchanged from the July 2012 tuition rate. Tuition for students enrolled in the online Master of Science in Nursing ("MSN") program is $650 per credit hour, which is unchanged from the prior year.

On a per credit hour basis, tuition for the Carrington College and Carrington College California programs ranges from $254 per credit hour to $1,651 per credit hour, with the wide range due to the nature of the programs. General Education courses are charged at $325 per credit hour at Carrington College, and $364 per credit hour at Carrington College California. Students are charged a non-refundable registration fee of $100, and they are also charged separately for books and special (program specific) supplies and/or testing. A student services fee ranging from $75 to $150 is charged at Carrington College and Carrington College California as well, depending on the program. Total program tuition at each institution ranges from approximately $13,000 to $15,000 for most certificate programs up to approximatley$60,000 for a few advanced programs.

Continued demand for medical doctors and veterinarians positively influenced career decisions of new students towards these respective fields of study. Also, there currently exists a supply and demand imbalance in medical education. Over . . .

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