Perdoceo Education Corporation — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The company, formerly Career Education Corporation, adopted the Perdoceo name on January 1, 2020. Its continuing education business is primarily online and operates Colorado Technical University (CTU) and American InterContinental University (AIU).
Financial and operating highlights
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $627.7 million | $581.3 million |
| Operating income / margin | $86.5 million / 13.8% | $71.3 million / 12.3% |
| Net income | $70.0 million | $55.2 million |
| Diluted EPS | $0.97 | $0.77 |
| Operating cash flow | $73.1 million | $57.0 million |
| Cash, restricted cash and short-term investments at year-end | $294.2 million | $229.2 million |
- Revenue increased 8.0%. CTU revenue rose 4.4% to $392.3 million; AIU revenue rose 14.9% to $235.4 million.
- Year-end University Group enrollment increased 6.4% to approximately 36,600. New student enrollments grew 7.0% at CTU and 26.6% at AIU; AIU’s growth was partly affected by more enrollment days than in 2018.
- Operating income improved 21.3%, although it included $37.1 million in significant legal settlement charges. Management’s non-GAAP adjusted operating income was $134.3 million versus $105.2 million; adjusted diluted EPS was $1.37 versus $1.05.
- Bad debt expense increased 35.7% to $43.5 million, or 6.9% of revenue, reflecting higher reserve rates and increased AIU write-offs.
- Operating cash flow rose despite $35.0 million of legal settlement payments. Approximately $39.3 million of Title IV funds arrived in January 2020 rather than late 2019, affecting year-end cash and receivables.
- Working capital was $256.6 million. The company reported no revolving-credit borrowings and was in covenant compliance. Its facility provides up to $50 million, is secured by cash and marketable securities, and matures in January 2022.
- Adoption of lease accounting added $50.4 million of right-of-use assets and $64.2 million of operating lease liabilities at year-end. These are lease obligations, not reported borrowings.
Fourth-quarter context
FY 2019 included fourth-quarter revenue of $158.5 million, operating income of $32.0 million, net income of $27.5 million and diluted EPS of $0.38. Fourth-quarter 2018 figures were $145.5 million, $20.2 million, $14.1 million and $0.20, respectively. The filing reports the full fiscal year, not a standalone quarterly 10-K.
Outlook, commentary and material risks
- For 2020, management forecast operating income of $135.5–$140.5 million, adjusted operating income of $147–$152 million, diluted EPS of $1.43–$1.48 and adjusted diluted EPS of $1.44–$1.49. The outlook assumes continued enrollment growth, stable prospective-student interest and no material legal or regulatory changes; it excludes Trident results and potential stock repurchases.
- Management expected 2020 capital expenditures of approximately 2% of revenue and said available liquidity and operating cash flow should cover requirements for at least 12 months.
- The proposed acquisition of substantially all Trident University International assets remained subject to regulatory approval. The anticipated cash price was $35–$44 million, expected at the high end, plus approximately $1 million in employee-related costs. Management expected the acquisition to be accretive in 2020; Trident was excluded from the outlook.
- Regulatory dependence is substantial: approximately 79% of tuition cash receipts came from Title IV funding, and about 81% of students in a program during 2019 participated in Title IV. The filing says no institution exceeded the 90-10 limit in the preliminary review, but does not provide a clear institution-by-institution percentage.
- AIU remained on provisional Department of Education certification because of open reviews; both universities’ participation agreements ran through March 31, 2021. Loss or restriction of Title IV eligibility, accreditation or state authorization could materially affect operations.
- The company settled an FTC inquiry in 2019 and recorded $30.0 million related to it; it also recorded a $7.1 million Oregon arbitration settlement. The FTC agreement includes compliance obligations lasting 20 years, and state attorney-general agreements include monitoring and operational commitments.
- Other key risks include student-receivable collectability, competition and enrollment trends, changes to federal student-aid rules, borrower-defense or closed-school discharge claims, and execution and regulatory approval of the Trident acquisition.
Important facts for investors to verify
- Whether student enrollment and retention growth continue, particularly at AIU, separating underlying trends from academic-calendar effects.
- Whether bad debt expense and student receivables stabilize; net student receivables increased to $55.0 million and the allowance rose to $32.0 million.
- Current institution-level 90-10 calculations and the status of AIU’s provisional certification and other Department of Education reviews.
- Final Trident closing price, regulatory approvals, integration costs, and any closed-school discharge exposure.
- Actual costs and compliance findings under the FTC and state attorney-general settlements, along with the resolution of other legal matters.
- Whether 2020 results meet management’s assumptions and guidance, including the excluded effects of acquisition activity and share repurchases.