Perdoceo Education Corporation (Nasdaq: PRDO) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; quarterly figures below are included where disclosed. Amounts are in U.S. dollars.
Business context
Perdoceo operates Colorado Technical University (CTU) and the American InterContinental University System (AIU), providing primarily online postsecondary programs to adult and other non-traditional students. On March 2, 2020, it acquired substantially all assets of Trident University International, which now operates within AIU under the Trident name. Perdoceo changed its name from Career Education Corporation effective January 1, 2020.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $687.3 million | $627.7 million |
| Operating income / margin | $142.9 million / 20.8% | $86.5 million / 13.8% |
| Net income | $124.3 million | $70.0 million |
| Diluted EPS | $1.74 | $0.97 |
| Cash provided by operating activities | $180.0 million | $73.1 million |
- Revenue increased 9.5%; tuition and fees were $684.6 million. Management attributed growth to enrollment increases and the Trident acquisition.
- Operating income increased 65.3%. The comparison benefited from $37.1 million of significant legal-settlement expense in 2019 versus none in 2020, alongside revenue growth and pandemic-related cost savings. Adjusted operating income, a non-GAAP measure, was $159.0 million versus $134.3 million.
- FY2020 net income included a $16.0 million tax benefit from releasing part of a valuation allowance; the reported effective tax rate was 15.3%, versus 24.1% in 2019.
- At December 31, cash, cash equivalents, restricted cash and short-term investments totaled $410.4 million, including $4.0 million of restricted escrow cash. Student receivables, net, were $44.7 million; total assets were $721.5 million and stockholders’ equity was $555.9 million.
- No revolving-credit borrowings were outstanding. The company had a $50 million facility, with $48.6 million remaining availability, maturing January 20, 2022. Operating lease liabilities totaled $53.2 million; net future operating lease commitments were $60.6 million.
- Q4 2020 revenue was $171.2 million, operating income $36.2 million, net income $27.1 million and diluted EPS $0.38.
Material changes and drivers
- Total student enrollment at year-end rose 16.7% to approximately 42,700; new enrollments for the year increased 20.2%. CTU total enrollment rose 4.2%; AIU rose 39.2%, reflecting both Trident and organic growth.
- AIU revenue increased 19.5% to $281.4 million, including Trident; CTU revenue increased 3.4% to $405.5 million. Segment operating income was $30.8 million at AIU and $138.5 million at CTU.
- Bad-debt expense increased 9.4% to $47.6 million. The allowance for credit losses was $42.1 million at year-end, compared with $32.0 million a year earlier.
- Operating cash flow included a favorable timing effect of approximately $39.3 million in Title IV funds received in January 2020 rather than late 2019. Investing cash flow was a $165.9 million use, including net purchases of investments and the Trident acquisition.
- Trident’s final purchase price was $43.8 million, funded from cash. The acquisition added $31.0 million of goodwill and included a $1.9 million reserve for potential loan discharges.
Outlook, risks and unusual items
- Management expected to fund working capital, capital expenditures and lease commitments for at least the next 12 months from operating cash flow and existing cash balances. It forecast 2021 capital expenditures of 1.5%–2.0% of revenue and a 2021 effective tax rate of 25.5%–26.5%; no revenue or earnings guidance was provided in the filing text.
- Management reported no material COVID-19 operating disruption to date after moving campus-based students online and shifting most employees to remote work. It continued to monitor possible economic and operational effects and was evaluating facility consolidation.
- The business depends substantially on federal Title IV student aid: 80% of tuition cash receipts came from Title IV sources in 2020. Preliminary 90-10 rates were 82% for CTU and 86% for AIU. Loss, restriction or delayed receipt of aid could materially affect enrollment, revenue and liquidity.
- CTU and AIU submitted Title IV recertification applications on December 21, 2020. AIU remained on provisional certification because of open regulatory reviews; the institutions’ program participation agreements were renewed through March 31, 2021. Verify subsequent approval status.
- Other material risks include extensive and changing regulation, borrower-defense and closed-school loan discharges, accreditation and state authorization, student retention and credit losses, competition in online education, and cybersecurity/privacy risks. The company disclosed ongoing state attorney general and FTC compliance obligations under prior settlements. Legal accruals were $1.0 million at year-end; management cautioned that legal outcomes remain uncertain.
- The company repurchased 1.3 million shares for $17.9 million in 2020; $28.2 million remained under the repurchase authorization, which expired December 31, 2021. It reported no off-balance-sheet financing arrangements.
Important facts for investors to verify
- Current status and conditions of CTU and AIU Title IV recertification, including AIU’s provisional status and any subsequent regulatory action.
- Whether enrollment growth and retention persist, separating organic AIU growth from the Trident acquisition and considering academic-calendar changes.
- Whether operating cash flow remains strong after accounting for the $39.3 million Title IV receipt timing benefit and other working-capital movements.
- Collection experience, allowance adequacy and bad-debt trends, including potential COVID-era effects and Trident-related loan-discharge exposure.
- How the $16.0 million valuation-allowance release affected comparability of FY2020 earnings, and whether the stated 2021 tax-rate outlook is realized.