Perdoceo Education Corporation — Q2 2021 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2021. Perdoceo operates Colorado Technical University (CTU) and the American InterContinental University System (AIU), primarily offering online postsecondary education. Amounts below are in millions unless noted.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $175.5 | $176.0 | $359.2 | $347.0 |
| Operating income | $36.0 | $37.4 | $76.6 | $74.7 |
| Operating margin | 20.5% | 21.2% | 21.3% | 21.5% |
| Net income | $26.6 | $28.2 | $57.4 | $57.3 |
| Diluted EPS | $0.37 | $0.40 | $0.80 | $0.80 |
| Operating cash flow | Not separately reported | Not separately reported | $82.7 | $105.4 |
Q2 revenue declined 0.3%, operating income 3.8%, and net income 5.4% year over year. For the first half, revenue rose 3.5% and operating income 2.6%, while net income was nearly flat. No separate gross margin is reported.
At June 30, cash, cash equivalents, restricted cash and short-term investments totaled $480.7, including $4.0 restricted cash; unrestricted cash and equivalents were $87.3. Current assets were $549.1 and current liabilities $117.8. There were no revolver borrowings; the $50.0 secured revolving facility matures January 20, 2022. Operating lease liabilities totaled approximately $50.3. First-half capital expenditures were $3.1.
Material changes and management commentary
- Total student enrollment increased 7.5% to 43,100: CTU rose 14.2% to 26,600, while AIU fell 1.8% to 16,500. Management cautioned that CTU's academic calendar redesign affected enrollment and revenue-day comparisons.
- Q2 CTU revenue rose 1.8% to $102.0 and operating income rose 7.0% to $35.4. AIU revenue fell 3.4% to $73.2 and operating income fell 12.0% to $9.2. AIU's quarterly results reflected lower Trident enrollment and added marketing expense.
- Management attributed enrollment softness in part to pandemic-related student engagement and deferrals. Trident also faced reduced in-person military marketing and technical challenges related to an Army education portal change; management said these effects may be temporary, but require further assessment.
- First-half operating cash flow declined to $82.7 from $105.4, which management attributed mainly to timing of Title IV receipts and income tax payments, partly offset by the additional months of Trident operations. About 81% of first-half tuition cash receipts came from Title IV funding.
- Non-GAAP adjusted operating income was $42.3 in Q2 versus $41.5; adjusted diluted EPS was $0.41 versus $0.41. The company excludes certain acquired-intangible amortization and legal fees from these measures; they are supplemental, not GAAP substitutes.
Outlook, risks and unusual items
- Management expects a 2021 effective tax rate of 26.0%–26.5%, capital expenditures of approximately 2% of revenue, and continued cash generation. It expects liquidity from operations and existing cash to meet requirements for at least the next 12 months. No specific full-year revenue or EPS guidance is provided.
- Regulatory risk is significant: the Department of Education was considering rulemaking on borrower defense, financial responsibility, gainful employment, administrative capability and other matters, including changes to the 90-10 rule. The company depends substantially on Title IV funding; reduced eligibility, funding delays or required letters of credit could materially affect operations.
- The Department notified the company it has several thousand borrower-defense applications involving its institutions, including closed institutions and campuses. The company is responding; outcomes remain uncertain. Accrued estimated legal fees and settlements were $2.9 at June 30, compared with $1.0 at year-end, and management expected higher legal fees for the remainder of 2021.
- Other risks include enrollment declines, competition, student receivable collectability, COVID-19 impacts, and possible changes in federal, state or accreditation requirements. The filing notes informal government requests and other litigation; management said an unfavorable outcome could adversely affect the business, despite its current view that the matters are not expected to have a material impact.
- After quarter-end, on August 2, 2021, Perdoceo acquired substantially all DigitalCrafts assets for initial cash consideration of $16.25, subject to working-capital adjustment, with up to $2.5 in contingent consideration expected in 2024.
- The company repurchased approximately 0.4 million shares for $5.4 during the quarter. Approximately $22.9 remained under the $50.0 repurchase authorization at June 30, which expires December 31, 2021.
Key facts for investors to verify
- Whether CTU enrollment growth persists after accounting for academic-calendar timing, and whether AIU/Trident enrollment stabilizes.
- Trident's military-student recruitment recovery and the performance and costs of its workforce-development programs.
- Department of Education rulemaking, 90-10 implementation and borrower-defense application outcomes, including potential financial exposure.
- Title IV funding concentration, student receivable allowance trends and the sustainability of operating cash flow.
- DigitalCrafts integration, contingent consideration and expected contribution to revenue diversification.
- Cash and investment balances, revolver maturity and permitted capital returns, including share repurchases.