Perdoceo Education Corporation (Nasdaq: PRDO) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request references 2021 Q4, this annual filing does not provide a clear standalone fourth-quarter income statement or cash flow summary; figures below are for the full year unless stated otherwise.
Business context
Perdoceo operates Colorado Technical University (CTU) and the American InterContinental University System (AIUS), offering primarily online postsecondary degrees and professional development programs. About 96% of degree-program students were enrolled fully online. The company acquired DigitalCrafts in August and Hippo Education in September 2021, expanding non-degree training and continuing-education offerings.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $693.0 million | $687.3 million |
| Operating income | $149.0 million | $142.9 million |
| Operating margin | 21.5% | 20.8% |
| Net income | $109.6 million | $124.3 million |
| Diluted EPS | $1.55 | $1.74 |
| Operating cash flow | $191.1 million | $180.0 million |
| Capital expenditures | $10.5 million | $9.8 million |
Revenue grew 0.8%. Operating income increased 4.3%, with lower marketing, admissions, bad-debt and occupancy costs more than offsetting higher administrative expense. Adjusted operating income, a non-GAAP measure, was $175.5 million versus $159.0 million; adjusted diluted EPS was $1.70 versus $1.56. Net income and GAAP EPS fell, primarily reflecting a higher tax provision: the 2020 effective tax rate benefited from a $16.0 million valuation-allowance release. The 2021 effective tax rate was 26.4%, versus 15.3% in 2020.
Cash, restricted cash and short-term investments totaled $499.4 million at year-end, including $5.2 million of restricted cash. The company had no borrowings under its $125 million revolving credit facility; $918,000 of letters of credit were outstanding. Stockholders’ equity was $650.1 million. Operating lease liabilities totaled $44.9 million, with $52.8 million of undiscounted minimum lease payments.
Operating cash flow rose to $191.1 million. Investing activities provided $54.3 million, including net cash inflows from available-for-sale investment transactions, while the company paid $57.1 million for the 2021 acquisitions. Financing activities used $29.9 million, including $25.3 million for share repurchases. The company repurchased 2.3 million shares at an average $10.94 per share.
Material changes versus FY2020
- Year-end student enrollment declined 5.4% to approximately 40,400. CTU enrollment increased 0.4% to 24,700; AIUS enrollment decreased 13.3% to 15,700.
- Segment revenue rose modestly: CTU increased 0.8% to $408.5 million and AIUS increased 0.7% to $283.4 million. Acquisitions and the inclusion of a full year of Trident results contributed to revenue.
- Operating income improved, but net income declined because the prior-year tax benefit did not recur; the 2021 tax provision was $39.4 million versus $22.5 million.
- Cash and short-term investments increased from $410.4 million to $499.4 million. Goodwill increased to $162.6 million, mainly from the DigitalCrafts and Hippo acquisitions.
Outlook, commentary and risks
- Management expected student enrollment pressure to continue in 2022, citing pandemic-related student engagement and decision delays and changes to marketing and recruitment. It expected 2022 revenue and operating income to be lower than 2021, excluding positive acquisition or academic-calendar effects; expense adjustments were not expected to fully offset the anticipated revenue decline.
- Management expected a 2022 effective tax rate of 25.5%–26.5% and capital expenditures of approximately 2.0% of revenue. It anticipated another acquisition by year-end 2022.
- Title IV funding is a central exposure: approximately 78% of students in a program during 2021 participated in Title IV, generating about $550 million in cash receipts. Title IV funding represented approximately 81% of tuition cash receipts. The company’s preliminary 2021 90-10 rates were approximately 84% for CTU and 86% for AIUS; changes to the rule were under consideration.
- AIUS remained on provisional Department of Education certification following its 2019 renewal; both institutions submitted recertification applications in December 2020 and awaited review. The company also received an extensive Department information request in December 2021.
- In May 2021, the Department notified the company of several thousand borrower-defense applications involving its institutions. The outcomes and any repayment liability are uncertain. The filing also describes ongoing regulatory scrutiny and compliance commitments stemming from agreements with multiple state attorneys general and the FTC.
- The company reported a $1.1 million accrual for estimated legal fees and settlements. It noted other claims and investigations, including student, consumer-protection and employment matters, for which outcomes may be uncertain; the filing does not provide a clear aggregate estimate of potential losses.
- COVID-19, competition in online education, regulatory changes, cybersecurity and student-data protection, and dependence on enrollment and federal aid are material business risks. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether enrollment trends, particularly the decline at AIUS, stabilized or worsened after year-end, and how the academic-calendar changes affect comparisons.
- Actual 2022 performance against management’s expectation for lower revenue and operating income, and the extent to which acquisitions contributed.
- Department of Education recertification and information-request outcomes, revised 90-10 requirements, and any effect on Title IV eligibility or funding.
- Disposition and potential financial exposure from borrower-defense and closed-school discharge claims, including any letters of credit or repayment demands.
- Whether acquisition results, contingent consideration and integration costs align with expectations; the filing cites up to $6.5 million of aggregate contingent payments for DigitalCrafts and Hippo, subject to financial targets.
- Tax comparability: FY2020 net income included a $16.0 million valuation-allowance release, while management’s stated 2022 effective-tax-rate outlook was 25.5%–26.5%.
- Use of capital under the new $50 million share repurchase authorization beginning March 1, 2022, alongside liquidity needs, acquisitions and technology investment.