Business context and reporting period
Perdoceo Education Corporation’s unaudited Form 10-Q covers the quarter ended March 31, 2021. Its Colorado Technical University (CTU) and American InterContinental University System (AIU) primarily offer online postsecondary education. The comparison with Q1 2020 is affected by the Trident acquisition: Q1 2021 includes a full quarter of Trident results, while Q1 2020 includes results only from its March 2, 2020 acquisition date.
Key financial metrics
Amounts below are in millions of dollars except per-share data, percentages, and enrollments.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $183.6 | $171.0 | +7.4% |
| Operating income | $40.6 | $37.3 | +8.9% |
| Operating margin | 22.1% | 21.8% | +0.3 percentage points |
| Net income | $30.8 | $29.1 | +5.7% |
| Net margin | 16.7% | 17.0% | -0.3 percentage points |
| Diluted EPS | $0.43 | $0.41 | +$0.02 |
| Cash provided by operations | $44.7 | $44.8 | Nearly unchanged |
- Revenue growth reflected higher enrollment at both institutions and the additional Trident results. CTU revenue rose 2.2% to $105.8 million; AIU revenue rose 15.0% to $77.5 million.
- Total student enrollment was 44,100, up 9.7% year over year: CTU +12.8% and AIU +5.0%. CTU’s March 30 session start, versus an April start in the prior year, positively affected period-end enrollment comparisons.
- General and administrative expense increased 6.3% to $110.0 million; bad debt expense rose 6.7% to $13.7 million but remained 7.5% of revenue. Depreciation and amortization increased 51.6% to $4.0 million. There was no asset impairment charge, compared with $0.6 million in Q1 2020.
- Adjusted operating income, a non-GAAP measure, was $44.6 million versus $39.9 million. Adjusted diluted EPS was $0.44 versus $0.41. The company adjusts for depreciation and amortization in adjusted operating income and for acquired-intangible amortization in adjusted EPS; these measures should not replace GAAP results.
- At March 31, cash, cash equivalents, restricted cash, and short-term investments totaled $451.0 million, up from $410.4 million at year-end. This included $4.0 million of restricted escrow cash. Cash and restricted cash alone declined to $90.0 million from $109.7 million, while short-term investments rose to $361.0 million.
- Total assets were $750.4 million and current liabilities $103.2 million. No borrowings were outstanding on the $50 million revolving facility; lease liabilities totaled $50.1 million, including current and non-current portions.
Changes, outlook, risks, and unusual items
- Operating income growth reflected increased revenue and operating efficiencies, partly offset by higher spending across G&A categories, including student-serving functions and costs associated with Trident. Segment operating margins were 34.2% for CTU and 14.6% for AIU.
- Management said it expects to generate cash during 2021 and believes operating cash flow and existing balances will fund working capital, capital expenditures, and lease commitments for at least the next 12 months. No full-year revenue or earnings guidance was provided in the supplied filing text.
- Management expects a 2021 effective tax rate of 26%–27% and capital expenditures of approximately 1.5%–2.0% of revenue. The Q1 effective tax rate was 25.0%, benefiting from the release of previously recorded tax reserves.
- The company invested in CTU corporate partnerships and workforce-development courses; it expected to begin offering the shorter-duration courses before the end of Q2 2021. Management reported no material COVID-19 disruption to date but is monitoring economic conditions, student interest, and engagement as restrictions ease.
- Regulation is a significant risk. The March 2021 legislation changes how the 90-10 rule is measured; rule details were still subject to negotiated rulemaking, and the modified rule is to apply for institutional fiscal years beginning on or after January 1, 2023. About 81% of Q1 tuition cash receipts came from Title IV funding, underscoring the company’s exposure to federal student-aid eligibility and funding.
- The company reported ongoing claims, lawsuits, and government information requests, including matters involving students, alleged Telephone Consumer Protection Act violations, and employment issues. It accrued $0.5 million for estimated legal fees and settlements; management cautioned that unfavorable outcomes could materially affect the business, reputation, financial position, or cash flows.
- The $50 million revolving credit facility matures January 20, 2022, requires cash and marketable securities to secure borrowings, and includes covenants and restrictions on certain payments. A separate share-repurchase authorization expires December 31, 2021; approximately $28.2 million remained available, but no program repurchases were reported in Q1. Shares withheld for employee taxes are distinct from open-market repurchases.
Important facts for investors to verify
- How much of reported revenue and enrollment growth reflects organic performance versus Trident and the CTU academic-calendar timing effect.
- Whether student enrollment gains persist and translate into revenue, retention, and academic outcomes after calendar effects normalize.
- Trends in student receivable collectability and bad debt, especially at AIU, and the sensitivity of results to financial-aid completion and student payment sources.
- Final implementation details and the company’s ability to comply with the modified 90-10 rule and other Title IV, accreditation, and state requirements.
- Progress on workforce-development offerings and corporate partnerships, and whether these initiatives generate meaningful enrollment or revenue.
- Developments in legal matters, tax audits and uncertain tax positions, and the 2022 revolving-credit-facility maturity and related restrictions.