Broadview Institute (GREY:BVII)

Broadview Institute, Inc. today reported revenues of $4,876,295 for the three months ended September 30, 2010, compared to $4,540,850 reported for the same period last year.  The Company posted a net loss of $(108,813), or $(0.01) per basic and diluted common share for the three months ended September 30, 2010, compared to net income of $287,080, or $0.03 per basic and diluted common share, for the same period last year.

"A few key factors contributed to our unexpected net loss for our second quarter of the current fiscal year," said Terry Myhre, the Company's Chairman.  "Notably, we experienced a greater than expected number of students that elected not to attend classes over the summer months and, as a result, our student population decreased from the previous quarter.  In addition, there has been a decline in the number of inquiries from prospective students in recent months, which we believe is a combination of the negative publicity aimed at career colleges that, for us, has coincided with a transition period while we rebranded our schools to position ourselves for further growth in our online population, as well as expansion of residential campuses into new markets beyond the State of Utah.  Despite the net loss for the quarter, we remain in a strong cash position with no outstanding debt.

"We are disappointed with the number of students that started at our newest location in Salt Lake City, Utah during the academic quarter that commenced in October, and we did not meet our expectations for student population at our existing campuses either, which is expected to have a negative impact on our operating results for the third fiscal quarter," Myhre added.  "We remain on schedule to open an additional residential location in the Boise, Idaho market in January 2011, and while the expense associated with opening new locations in back-to-back quarters may have a negative impact on earnings in the short term, we will be in great position for growth in future quarters as these new locations mature."

Broadview Institute reported strong results for its Fiscal 2010 march year via a 10K filing.

March quarter	4th Quarter 2010	4th Quarter 2009
GAAP Revenue	$5.3 million	$3.6 million
GAAP EPS	$0.07	$0.02
Fully Diluted Shares	8,218,252	8,108,252

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Fiscal Year ending March	Full Year 2010	Full Year 2009
GAAP Revenue	$19.0 million	$13.6 million
GAAP EPS	$0.23	$0.03
Fully Diluted Shares	8,218,252	8,108,252

BVII continues to pique our interest. It has posted three straight quarter of improved EPS growth and company comments point to further gains in the near term:

"Due to the nature of the Company’s principal revenue-generating activities, management does not believe the current downturn in the United States economy presents a significant risk to the Company’s ability to grow revenues. Rather, the post-secondary education industry has historically fared well during times of economic distress. Such scenarios often lead to unemployed or underemployed individuals seeking educational resources such as those offered by Broadview University to improve their job skills and employability. Management expects to have increasing enrollments over the course of the next fiscal year."

Investors need to at least ponder the following thoughts:

• How much will enrollments rise?
  
• The company has two more easy quarterly EPS comparisons before they become more challenging.
  
• Regulatory issues exist:

"USDE(United States Department of Education) is expected to issue its proposed regulations on issues for public comment sometime this spring or summer and final regulations prior to November 1, 2010, in order to be effective July 1, 2011. We cannot predict the form of the rules that ultimately will be proposed by USDE for public comment or any final rules that may be adopted following the comment period. If the rules regarding incentive compensation, gainful employment and clock-to-credit hour conversion ratio are adopted in the form presented by the USDE in the negotiated rulemaking session, they could have a material impact on the manner in which we conduct our business."

• The company will add another campus in October. While a positive for the  long-term, this could result in a drain in net income in the short-term:

"we anticipate that operating costs for any new campus openings will likely exceed new campus revenues for a period of four to six quarters, which is generally the length of time a new campus takes to achieve profitable enrollment figures."

At  $2.52 BVII has a trailing P/E of 10.95 

Industry Background and Outlook

• Post-secondary education is critically important for a strong workforce. President Obama has set a goal for the United States to have the highest proportion of students graduating from college in the world by 2020. His goal will require institutions of higher education to work together to serve their students and communities. Since the 1990’s career-focused post-secondary institutions have seen large increases in students due to their ability to provide flexible schedules, online classes, and career-specific curriculum. Today all post-secondary schools are seeing changes in academic delivery due mainly to the Internet. Not only are more students able to get access to higher education through online classes, but the Internet is providing easy access to media-rich content. Class content is rapidly improving allowing instructors to have more tools to help students learn.
  
• The post-secondary education industry is highly fragmented and competitive. The industry continues to consolidate, but no single institution claims a significant market share. Broadview University competes with traditional public and private two-year and four-year colleges and universities, other proprietary institutions, including those that offer online education programs, and alternatives to post-secondary education, such as immediate employment and military service.
  
• We believe that Broadview University competes with other educational institutions principally based upon the quality of educational programs, reputation in the business community, program costs, and graduates’ ability to find employment. Some public and private institutions are able to charge lower tuition for courses of study similar to courses of study offered by Broadview University due, in part, to government subsidies, government and foundation grants, tax-deductible contributions, and other financial resources not available to proprietary institutions. However, tuition at private, not-for-profit institutions is, on average, higher than the average tuition rates of our school.
  
• Due to the nature of the Company’s principal revenue-generating activities, management does not believe the current downturn in the United States economy presents a significant risk to the Company’s ability to grow revenues. Rather, the post-secondary education industry has historically fared well during times of economic distress. Such scenarios often lead to unemployed or underemployed individuals seeking educational resources such as those offered by Broadview University to improve their job skills and employability. Management expects to have increasing enrollments over the course of the next fiscal year.
  
• We anticipate that operating costs for any new campus openings will likely exceed new campus revenues for a period of four to six quarters, which is generally the length of time a new campus takes to achieve profitable enrollment figures.

Management believes that the Company has sufficient cash reserves to fulfill its obligations and support operations in the normal course of business through the year ended March 31, 2011. Management believes that inflation will not have a significant impact on the Company’s business.

The Company financed its operating activities and capital expenditures during the nine months ended December 31, 2009 primarily through cash provided by operating activities. Cash and cash equivalents were $4,232,444 at December 31, 2009. Most of the Company’s excess cash is held in an interest-bearing bank savings account.
The Company had a $300,000 line of credit with a bank that expired August 31, 2009. The Company had not borrowed under this line of credit during the nine months ended December 31, 2009 or the years ended March 31, 2009 and 2008.
A significant portion of the Company’s revenues are derived from Title IV programs. Federal regulations dictate the timing of disbursements under Title IV programs. Students must apply for new loans and grants each award year, which starts July 1. Loan funds are generally provided by lenders in multiple disbursements for each academic year. The disbursements are usually received beginning in the second week of each academic quarter. These factors, together with the timing of our students beginning their programs, affect our operating cash flow.
A portion of the Company’s revenue is from students who receive financial loans from Myhre Investments, LLC, an entity owned by the Company’s Chairman. As of December 31, 2009, Myhre Investments, LLC had $1,318,388 in loans outstanding to UCC students.
Net cash provided by operating activities from continuing operations totaled $2,254,756 for the nine months ended December 31, 2009 primarily due to net income of $1,315,881, a decrease in deferred income taxes of $664,000, depreciation expense of $236,000 and stock-based compensation of $195,000.
The Company used $336,885 of cash for investing activities, the entire amount for purchases of property and equipment. The Company used $30,000 for financing activities during the nine months ended December 31, 2009 in the payment of preferred dividends in arrears.
The Company’s ability to generate positive cash flow from operations and sustain its profitability is dependent upon several factors, including the stability of student enrollment at its existing campuses and successfully managing the cost of educational services and facilities. Management expects its current cash position and cash generated from anticipated operations will be sufficient to satisfy cash flow needs in the near term. No assurance can be given that the Company will maintain positive cash flow from operations.
Management acknowledges that the current state of the U.S. economy has made credit more difficult to acquire, even for well-qualified borrowers. However, the Company did not borrow any funds against its line of credit during the fiscal periods included in this Report and management determined that the line of credit did not need to be renewed in August 2009. The Company has continued to finance its operating activities and capital expenditures primarily through cash provided by operating activities and management does not believe the current scarcity of available credit presents a material threat to ongoing operations.