PERDOCEO EDUCATION Corp annual report, FY2023

Business context and reporting period

Perdoceo Education Corporation’s Form 10-K covers the fiscal year ended December 31, 2023—not a standalone fourth quarter. The company operates Colorado Technical University (CTU) and the American InterContinental University System (AIUS), offering primarily online postsecondary and professional-development programs.

Year-end degree-seeking enrollment was approximately 34,500, down 12.0% from 39,200 a year earlier; about 97% of students were enrolled in fully online programs. CTU enrollment rose 3.2% to 26,000, while AIUS enrollment fell 39.3% to 8,500.

Financial and operating highlights

• Revenue increased 2.1%. CTU revenue grew 11.8% to $468.9 million; AIUS revenue declined 12.5% to $240.3 million.
• Operating income improved 16.1%, helped by higher revenue and lower marketing, admissions and bad-debt expense. Bad-debt expense fell 20.1% to $33.2 million.
• Net income also reflected substantially higher interest income ($20.0 million versus $6.9 million), a $22.1 million noncash gain from exchanging Le Cordon Bleu North American brand rights for Perdoceo shares, and a lower effective tax rate (23.1% versus 28.6%). The company reported adjusted diluted EPS of $2.10, excluding specified items.
• Operating cash flow decreased $36.2 million, primarily due to working-capital timing. Capital expenditures were $6.4 million, versus $12.6 million in 2022.
• No borrowings were outstanding under the $125 million revolving credit facility at year-end. The facility was amended in January 2024, extending maturity to January 31, 2027. Operating lease liabilities totaled $27.0 million; future minimum lease payments were $30.7 million.
• The company initiated quarterly dividends in 2023 and paid $14.4 million in cash dividends. It repurchased $8.3 million of shares for cash and received 1.8 million treasury shares in the Le Cordon Bleu transaction.

Material changes versus the prior year

• CTU’s revenue growth was supported by enrollment growth, the academic-calendar redesign and a fuller contribution from the 2022 acquisition. The redesign affects comparability of revenue-earning days across periods.
• AIUS reduced prospective-student enrollment, marketing and outreach during 2023 in response to the revised federal 90-10 Rule. Management said operations had mostly returned to normal by the fourth quarter.
• Asset impairment charges increased to $14.3 million from $3.0 million, including impairments of CTU intangible assets and other assets.
• Cash and short-term investments increased, while student receivables and deferred revenue declined. The company reported no goodwill impairment.

Outlook, risks and unusual items

• For 2024, management expects AIUS year-end enrollment to grow by double digits from its December 2023 level. It expects full-year revenue to decline, primarily because of fewer CTU revenue-earning days under the redesigned academic calendar and the lagged effect of lower AIUS beginning enrollment. Management expects expense optimization to mostly offset the revenue decline.
• Management expects 2024 capital expenditures of approximately 1.0%–2.0% of revenue and an effective tax rate of 25.5%–26.5%. No specific full-year revenue or earnings guidance amount is provided.
• Regulatory exposure is a central risk: both institutions await Department of Education recertification decisions; AIUS remains on provisional certification. The company reported approximately $484 million of Title IV cash receipts in 2023. Preliminary calculations indicate compliance with the revised 90-10 Rule for 2023, but the company was still reviewing and auditing its calculations.
• New gainful-employment, financial-responsibility, administrative-capability and certification rules are scheduled to take effect in 2024. Program eligibility, required student warnings, enrollment limits or required letters of credit could affect operations; the company says the effects are not yet clear.
• The Department’s review of borrower-defense claims and the Sweet settlement create uncertain potential exposure. The filing says the company cannot estimate a possible loss for a pending False Claims Act qui tam case; the Department declined to intervene, and a motion to re-plead against the company remained pending. The company recorded $2.4 million of accrued legal fees and settlements, but that is not a stated estimate of total exposure.
• The company identifies student recruitment and retention, competition, cybersecurity and data privacy, and dependence on federal and military education funding as important risks. Management reported no cybersecurity incident in the prior three fiscal years that materially affected or was reasonably likely to materially affect the company.

Important facts for investors to verify

• Confirm final 2023 90-10 Rule calculations and subsequent compliance developments, including any enrollment or marketing constraints.
• Track CTU and AIUS recertification status, AIUS provisional conditions, and implementation or legal challenges to new Department of Education rules.
• Assess whether AIUS enrollment recovers as projected and whether CTU’s calendar changes continue to affect revenue comparability.
• Separate recurring operating performance from interest income, the Le Cordon Bleu gain, impairments and tax benefits; review the reconciliation of GAAP and adjusted earnings.
• Monitor cash generation, investment liquidity, covenant requirements, dividends, repurchases and any regulatory demand for letters of credit.
• Follow the pending False Claims Act matter, borrower-defense claims and other regulatory or litigation developments; the filing does not provide a clear estimate of potential loss for the qui tam case.