Perdoceo Education Corporation — Q1 2022 Form 10-Q
Business and period: The filing reports the three months ended March 31, 2022, compared with the same period in 2021. Perdoceo provides primarily online postsecondary education through Colorado Technical University (CTU) and the American InterContinental University System (AIUS), with campus and blended programs as well.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $183.0 million | $183.6 million |
| Operating income / margin | $43.7 million / 23.9% | $40.6 million / 22.1% |
| Net income | $32.1 million | $30.8 million |
| Diluted EPS | $0.46 | $0.43 |
| Operating cash flow | $22.2 million | $44.7 million |
- Revenue was down 0.4%. CTU revenue rose 6.9% to $113.1 million, helped by academic-calendar timing and the Hippo acquisition; AIUS revenue fell 10.3% to $69.5 million.
- Operating income increased 7.6%, mainly as lower advertising, marketing, and admissions costs more than offset higher administrative expense and slightly lower revenue. Adjusted operating income, a non-GAAP measure, was $50.9 million versus $44.9 million; adjusted diluted EPS was $0.50 versus $0.44.
- Net income rose 4.3%. The effective tax rate was 26.8%, compared with 25.0%.
- Cash and cash equivalents, restricted cash, and short-term investments totaled $499.3 million at quarter-end. Operating cash flow declined year over year, which management attributed primarily to the timing of Title IV cash receipts. Investing cash outflow was $146.9 million, including net purchases of investments and a $7.0 million advance for a potential acquisition.
- No borrowings were outstanding under the $125 million revolving credit facility, which matures in September 2024. The company reported operating lease liabilities of $42.1 million in total; the filing does not identify other funded debt outstanding.
Material changes and financial position
- Total student enrollment was 37,600, down 14.7% year over year: CTU fell 13.9% and AIUS fell 16.1%. Management cited pandemic-related pauses and delayed starts, revised marketing and recruitment processes, and academic-calendar timing.
- CTU’s reported revenue growth was partly supported by the calendar redesign and Hippo acquisition; management said CTU revenue excluding those effects would have declined. AIUS revenue and operating income declined.
- Cash, cash equivalents, restricted cash, and investments remained approximately $499 million, broadly unchanged from year-end, while their composition shifted toward short-term investments. Student receivables, net, declined to $34.1 million from $43.0 million; deferred revenue declined to $39.1 million from $70.6 million, mainly due to academic-term timing.
- The company repurchased approximately 0.4 million shares for $3.8 million during the quarter. A new $50 million repurchase authorization began March 1, 2022; approximately $46.2 million remained available at quarter-end.
Outlook, risks, and unusual items
- Management expected full-year 2022 enrollment to decline versus 2021, with the rate of decline expected to improve gradually later in the year. It expected 2022 revenue and operating income to be lower than 2021, excluding positive effects from acquisitions or the CTU calendar redesign; planned expense adjustments were not expected to fully offset the revenue decline.
- Management projected 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, with a purchase price relatively similar to the company’s 2021 acquisitions; this was not a completed transaction.
- On April 8, 2022, after quarter-end, the company received a Department of Justice Civil Investigative Demand concerning CTU’s compliance with federal financial-aid credit-hour requirements for five entry-level courses and its learning management system. The inquiry covers January 2017 to the present; the company said it was cooperating. The filing does not quantify any potential loss from this inquiry.
- Perdoceo faces regulatory uncertainty, including pending borrower-defense applications and proposed changes to Title IV eligibility rules, including the 90-10 rule. About 77% of institutional tuition cash receipts in Q1 came from Title IV funding, making changes to eligibility, funding, or payment timing a significant exposure.
- The company had a $1.8 million accrual for estimated legal fees and settlements. It also recorded $3.2 million of fair value for contingent consideration related to the DigitalCrafts and Hippo acquisitions, potentially payable in early 2024, up to an aggregate maximum of $6.5 million.
- Liquidity outlook: management expected operating cash generation and existing cash balances to cover working capital, capital expenditures, leases, and acquisitions for at least the next 12 months. The credit facility includes financial and restricted-payment covenants and is secured by substantially all company and guarantor assets.
Key investor verification points
- Track enrollment, retention, and new-student starts by CTU and AIUS, and assess whether the expected improvement in enrollment trends materializes.
- Separate underlying segment performance from academic-calendar effects and acquired-business contributions; monitor whether expense reductions can offset revenue pressure.
- Follow the DOJ inquiry, borrower-defense matters, and final Title IV rulemaking for potential financial, operational, or eligibility consequences.
- Monitor Title IV cash-receipt timing, student receivable collections and bad-debt trends, and the composition and market value of short-term investments.
- Verify whether the potential acquisition closes, its final price and funding, and the pace of share repurchases relative to liquidity and credit-agreement restrictions.