Perdoceo Education Corporation — Q1 2024 Form 10-Q
Reporting period: Quarter ended March 31, 2024. Perdoceo operates Colorado Technical University (CTU) and the American InterContinental University System (AIUS), primarily offering online postsecondary education.
Financial performance
Amounts in millions, except per-share data. Comparisons are with Q1 2023.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $168.3 | $195.6 | -14.0% |
| Operating income | $46.3 | $43.3 | +6.8% |
| Operating margin | 27.5% | 22.2% | +5.3 percentage points |
| Net income | $39.4 | $34.5 | +14.4% |
| Diluted EPS | $0.59 | $0.50 | +18.0% |
| Operating cash flow | $54.5 | $4.6 | Increased |
Net margin was 23.4%, compared with 17.6%. The effective tax rate was 25.4%, down from 26.7%. Interest income was $6.8 million, up from $3.8 million, contributing to higher pretax income. Adjusted operating income, a company-defined non-GAAP measure, was $49.5 million versus $53.1 million; adjusted diluted EPS was $0.60 versus $0.58.
Revenue, segments and material changes
- CTU revenue declined 8.8% to $113.6 million, primarily because the academic calendar produced fewer revenue-earning days. CTU operating income was $42.2 million, down 3.5%.
- AIUS revenue declined 23.1% to $54.5 million, reflecting the lagged effect of reduced prospective-student enrollment, marketing and outreach activity in 2023 in response to regulatory changes. AIUS operating income fell 22.6% to $9.3 million.
- Quarter-end enrollment was 41,300, up 9.0% year over year: CTU enrollment rose 28.5% to 30,200, while AIUS enrollment fell 22.9% to 11,100. Management attributed part of CTU’s increase to academic-calendar timing.
- Operating expenses fell 19.9% overall. General and administrative expense declined 22.4%, including lower marketing, admissions, administrative and bad-debt costs. Asset impairment expense increased to $1.6 million from $0.6 million; management cited decisions to exit portions of leased facilities.
Liquidity, debt and capital allocation
At March 31, 2024, cash, cash equivalents, restricted cash and short-term investments totaled $642.4 million, versus $604.2 million at year-end 2023. Cash and restricted cash alone were $126.8 million. The company reported no borrowings under its $125 million senior secured revolving credit facility, extended to January 31, 2027; it may request up to $50 million in additional commitments subject to conditions. The facility is secured by substantially all company and subsidiary-guarantor assets and includes financial and restricted-payment covenants.
Operating cash flow was $54.5 million. Investing activities used $30.8 million, including net purchases of available-for-sale investments; capital expenditures were $1.2 million. Financing activities used $15.9 million, including $6.8 million for share repurchases, $7.2 million for dividends and $3.4 million for employee taxes on stock compensation. Net cash and restricted cash increased $7.8 million.
Current assets were $706.0 million and current liabilities were $142.5 million. Net student receivables increased to $41.9 million from $29.4 million at year-end; the allowance for credit losses was $38.6 million across current and non-current receivables. Deferred revenue, net of contract assets, rose to $61.5 million from $37.2 million.
A new share repurchase authorization permits up to $50 million of purchases through September 30, 2025. At quarter-end, approximately $47.1 million remained available under the new program. The company paid a $0.11-per-share dividend during the quarter.
Outlook, risks and contingencies
- Management expects full-year 2024 revenue to be lower, mainly due to CTU’s academic-calendar redesign and the lagged revenue effect of lower AIUS beginning enrollment. It expects operating-expense optimization to mostly offset the revenue decline.
- Management expects strong retention and engagement to continue through 2024 and expects AIUS enrollment to grow by double digits during 2024 compared with December 31, 2023. Full-year capital expenditures are expected to be 1%–2% of revenue; the expected effective tax rate is 25.5%–26.5%.
- The company identifies dependence on Title IV funding, enrollment trends, regulatory and accreditation requirements, borrower-defense and closed-school-discharge rules, government inquiries, competition and student outcomes as significant risks. It reported an ongoing Department of Education inquiry into representations concerning mobile-app technology and student technology and internet requirements.
- In a False Claims Act case concerning federal financial-aid credit-hour requirements, the court dismissed Perdoceo and AIU, Inc. without prejudice in January 2024. The relator’s request to refile against Perdoceo remained pending. The company said it could not reasonably estimate a possible loss and recorded no liability for this action. It accrued $2.5 million for estimated legal fees across matters.
- On April 4, 2024, after quarter-end, the Fifth Circuit reinstated a nationwide injunction preventing the Department’s latest borrower-defense and closed-school-discharge rules from taking effect pending further proceedings. The ultimate effect of the litigation and potential Department recoupment remains uncertain.
Most important facts for investors to verify
- Whether revenue and enrollment trends develop as projected, particularly AIUS’s expected recovery and the effect of CTU’s academic-calendar changes.
- Whether lower operating expenses and improved margins are sustainable despite declining revenue and the expected full-year revenue headwind.
- Developments in Title IV compliance, the Department’s information requests, borrower-defense rule litigation and the False Claims Act matter, including any financial or operating consequences.
- Student receivable collections, bad-debt trends and deferred-revenue movements, which can be affected by academic-term timing and student funding.
- Use of cash for investment, dividends and repurchases, and ongoing compliance with credit-facility covenants and liquidity requirements.