Perdoceo Education Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 23, 2023. This is an annual report, not a standalone fourth-quarter earnings report. Perdoceo provides predominantly online postsecondary education through Colorado Technical University (CTU) and the American InterContinental University System (AIUS).
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $695.2 million | $693.0 million | +0.3% |
| Operating income | $129.6 million | $149.0 million | -13.0% |
| Operating margin | 18.6% | 21.5% | -2.9 percentage points |
| Net income | $95.9 million | $109.6 million | -12.6% |
| Diluted EPS | $1.39 | $1.55 | Down $0.16 |
| Cash from operations | $148.2 million | $191.1 million | Down $42.9 million |
Adjusted operating income, a non-GAAP measure, was $164.0 million versus $175.5 million; adjusted diluted EPS was $1.63 versus $1.70. Adjustments included acquired-intangible amortization and specified legal fees. These measures supplement, and are not substitutes for, GAAP results.
Revenue was nearly flat overall: CTU revenue rose 2.7% to $419.6 million, while AIUS revenue fell 3.1% to $274.5 million. Year-end enrollment declined 3.0% to approximately 39,200 students: CTU increased 2.0% to 25,200, while AIUS decreased 10.8% to 14,000. Management attributed revenue support to academic-calendar redesign and acquisitions; excluding these effects, revenue declined at both segments.
Liquidity, debt and capital allocation
- Cash, cash equivalents, restricted cash and short-term investments totaled $518.2 million at year-end, including $9.5 million restricted for acquisition-related escrow obligations. Cash and cash equivalents alone were $118.9 million; short-term investments were $399.3 million.
- Current assets were $575.1 million and current liabilities were $163.4 million. Student receivables, net of allowance, were $44.4 million across current and non-current balances.
- No revolving-credit borrowings were outstanding. The company had a $125 million secured revolving facility maturing September 2024 and reported compliance with its credit agreement covenants.
- Operating cash flow was $148.2 million. Investing activities used $326.8 million, including $84.3 million of initial cash payments for the CalSouthern and Coding Dojo acquisitions and net purchases of available-for-sale investments. Financing activities used $27.7 million, including $23.1 million for repurchases of 2.1 million shares.
- Future minimum operating lease payments were $39.1 million, including $8.2 million due in 2023. The company reported no off-balance-sheet financing arrangements.
Material changes and notable items
- Operating income decreased primarily due to higher administrative and academic/student-related costs, increased acquired-intangible amortization, and $3.0 million of asset impairment charges. Administrative expense rose 16.6%, including higher legal fees, one-time payroll items and acquisition costs. Advertising and marketing expense declined 7.6%.
- FY2022 acquisitions added CalSouthern to AIUS (July 1) and Coding Dojo to CTU (December 1). Purchase prices were approximately $40.0 million and $64.9 million, respectively; Coding Dojo consideration included estimated contingent payments of up to $15.0 million.
- Unrealized investment losses reduced other comprehensive income by $5.2 million. The company also recorded a $1.2 million impairment of its equity-method investment, included in a total $1.8 million investment-related loss.
- Title IV funding represented approximately 79% of institutional tuition cash receipts, compared with 81% in 2021. Preliminary 2022 90-10 rates were approximately 82% for CTU and 84% for AIUS; revised 90-10 rules take effect in 2023.
Outlook, risks and contingencies
Management expected 2023 revenue to exceed 2022, citing recent acquisitions, CTU’s academic-calendar redesign, and anticipated organic improvement in student retention and engagement. Management also expected a 2023 effective tax rate of 25.5%–26.5% and capital expenditures of approximately 1.0%–2.0% of revenue. These are expectations, not guarantees.
Key risks include dependence on Title IV and other federal education funding; pending institutional recertification with the Department of Education, with AIUS on provisional certification; the 2023 90-10 rule; changing borrower-defense and loan-discharge rules; and student enrollment, retention and bad-debt trends. The company disclosed ongoing extensive Department information requests and a Department of Justice civil investigative demand concerning CTU credit-hour requirements and its learning-management system, associated with a sealed False Claims Act qui tam complaint naming CTU and AIU. The filing does not provide a clear estimate of potential loss for these matters.
The company also described potential exposure from borrower-defense applications and the Sweet v. Cardona settlement, which covers former students of CTU, AIUS and certain previously closed institutions; the specific covered claims and any recoupment liability were unclear. State attorney general and FTC compliance agreements remain relevant. Management stated it was cooperating with the DOJ and believed other disclosed claims would not materially affect results, while cautioning that outcomes are uncertain. The auditor issued unqualified opinions on the financial statements and internal control; the audit identified the allowance for credit losses as a critical audit matter.
Important facts for investors to verify
- Whether enrollment and retention improve, particularly at AIUS, and whether management’s 2023 revenue outlook is achieved.
- How revised 90-10 calculations affect each institution, given federal military and veteran education assistance is included under the new rule.
- Progress and outcomes of Department of Education recertification, information requests, borrower-defense matters and potential loan-discharge recoupments.
- Developments in the DOJ inquiry and qui tam complaint regarding course credit hours and the learning-management system, including any material financial exposure.
- Cash generation and investment portfolio values, including the impact of investment-market movements and acquisition-related contingent consideration.
- Whether reported adjusted results reconcile to GAAP results and how much of future performance depends on acquisitions and calendar-related benefits.