Business context and reporting period
Perdoceo Education Corporation operates Colorado Technical University (CTU) and the American InterContinental University System (AIUS), primarily providing online postsecondary education. This Form 10-Q covers the quarter and nine months ended September 30, 2023; it was signed November 2, 2023. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $179.9 | $168.4 | $562.1 | $519.1 |
| Operating income | $43.1 | $29.3 | $134.5 | $107.0 |
| Operating margin | 23.9% | 17.4% | 23.9% | 20.6% |
| Net income | $41.3 | $22.1 | $130.5 | $79.9 |
| Diluted EPS | $0.62 | $0.32 | $1.92 | $1.16 |
| Operating cash flow | Not separately provided | Not separately provided | $98.8 | $107.6 |
- Q3 revenue rose 6.8%; operating income rose 46.9%. Net income increased 87.2%, helped in part by a lower effective tax rate (14.1% versus 29.5%). The quarter’s tax rate benefited from a $4.5 million discrete tax adjustment.
- Nine-month revenue increased 8.3%, operating income 25.7%, and net income 63.3%. Results include a $22.1 million gain related to the sale of the Le Cordon Bleu North American brand rights; consideration was 1.8 million shares of Perdoceo stock, which were retired.
- Cash, cash equivalents, restricted cash and short-term investments totaled $603.7 million at September 30, 2023, versus $518.2 million at December 31, 2022. Cash and restricted cash alone were $174.1 million. Net cash increased $55.2 million year to date.
- No borrowings were outstanding under the $125 million revolving credit facility. The facility matures September 8, 2024; operating lease liabilities totaled $28.6 million. Current liabilities were $139.2 million and current assets $669.6 million.
- Student enrollments were 36,400 at quarter-end, down 12.7% year over year: CTU 26,400 (down 0.4%) and AIUS 10,000 (down 34.2%).
Material changes versus the prior comparable period
- CTU Q3 revenue rose 23.6% to $120.6 million, reflecting acquisition contribution, academic-calendar timing and organic enrollment growth. AIUS revenue fell 16.1% to $59.2 million, primarily due to lower enrollment.
- Management said temporary changes to AIUS admissions, outreach and enrollment processes, intended to prepare for regulatory changes, contributed to lower enrollment. The company began reverting toward normalized operations in Q4.
- Q3 general and administrative expense fell 11.4%, mainly as advertising and marketing costs decreased 31.1% and admissions costs decreased 10.7%. Educational services and facilities expense increased 11.1%; the company also recorded $7.4 million of Q3 impairment charges for certain definite-lived intangible assets.
- Nine-month operating cash flow declined to $98.8 million from $107.6 million, while investing cash outflow narrowed substantially, to $31.2 million from $255.7 million, including lower net purchases of investments and no comparable-year acquisition outlay.
- Deferred revenue, net, declined to $38.7 million from $71.6 million at year-end 2022; the filing attributes the change mainly to academic-term timing and lower AIUS enrollment.
Outlook, commentary, risks and unusual items
- Management expects full-year 2023 revenue to exceed 2022, supported by acquisitions, CTU calendar redesign and underlying retention and engagement improvements. It expects year-end enrollment to be below 2022, primarily due to AIUS operational changes. The filing does not provide a numerical revenue or earnings forecast.
- Management expects a 2023 effective tax rate of 22.5%–23.5% and capital expenditures of approximately 1.0% of revenue. It expects to generate cash during the remainder of 2023 and says existing cash and operating cash flow should meet anticipated needs for at least 12 months.
- The company declared its first quarterly cash dividend in Q3; $7.2 million of cash dividends were paid year to date. The $50 million repurchase authorization expires September 30, 2024; approximately $24.1 million remained available at quarter-end.
- Regulatory exposure is significant because student funding and business operations depend substantially on Title IV programs. New gainful-employment, financial-responsibility, administrative-capability and certification rules were published in 2023, generally effective July 1, 2024. Management could not determine the ultimate business impact of the gainful-employment rule.
- A relator’s False Claims Act suit alleges violations involving federal financial-aid credit-hour requirements. DOJ declined to intervene; the company says the outcome is uncertain, cannot reasonably estimate potential loss and has recorded no liability for this action. Other legal matters and government or accreditor inquiries also remain potential risks.
- Coding Dojo acquisition contingent consideration was valued at $12.0 million at quarter-end; $6.0 million was expected to be paid in Q4 2023 and a further $6.0 million in January 2025. The company also reported a $7.4 million Q3 intangible-asset impairment and the unusual $22.1 million noncash brand-rights transaction.
Most important facts for investors to verify
- Whether AIUS enrollment stabilizes as admissions and enrollment processes move back toward normalized operations, and whether management’s full-year revenue expectation is achieved.
- The effects of new Department of Education rules on program eligibility, Title IV funding, required financial protection and institutional compliance costs.
- Developments in the False Claims Act litigation, including whether the potential loss becomes estimable or an accrual is required.
- Cash-flow conversion, receivable collections and the reasons for lower operating cash flow despite higher reported earnings.
- Future effects of intangible-asset impairments, acquisition-related costs and Coding Dojo contingent payments on earnings and liquidity.
- Whether dividends and repurchases continue within credit-agreement and other regulatory constraints; confirm the revolving facility’s September 2024 maturity and renewal or replacement plans.