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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No
Number of shares of registrant’s common stock, par value $0.01, outstanding as of October 30, 2023:
PERDOCEO EDUCATION CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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Page |
PART I—FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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1 |
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2 |
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Condensed Consolidated Statements of Comprehensive Income (Unaudited) |
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Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
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Item 3. |
29 |
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Item 4. |
30 |
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PART II—OTHER INFORMATION |
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Item 1. |
31 |
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Item 1A. |
31 |
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Item 2. |
31 |
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Item 5. |
32 |
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Item 6. |
33 |
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34 |
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PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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(In Thousands, Except Share and Per Share Amounts) |
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2023 |
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2022 |
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ASSETS |
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(unaudited) |
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CURRENT ASSETS: |
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Cash and cash equivalents, unrestricted |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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Short-term investments |
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Total cash and cash equivalents, restricted cash and short-term investments |
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Student receivables, gross |
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Allowance for credit losses |
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Student receivables, net |
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Receivables, other |
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Prepaid expenses |
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Inventories |
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Other current assets |
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Total current assets |
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NON-CURRENT ASSETS: |
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Property and equipment, net of accumulated depreciation of $ |
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Right of use asset, net |
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Goodwill |
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Intangible assets, net of amortization of $ |
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Student receivables, gross |
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Allowance for credit losses |
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( |
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( |
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Student receivables, net |
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Deferred income tax assets, net |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Lease liability-operating |
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$ |
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$ |
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Accounts payable |
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Accrued expenses: |
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Payroll and related benefits |
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Advertising and marketing costs |
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Income taxes |
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Other |
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Deferred revenue |
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Total current liabilities |
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NON-CURRENT LIABILITIES: |
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Lease liability-operating |
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Other liabilities |
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Total non-current liabilities |
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STOCKHOLDERS' EQUITY: |
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stock, $ |
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- |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Retained earnings |
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Treasury stock, at cost; |
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( |
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Total stockholders' equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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For the Quarter Ended September 30, |
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For the Year to Date Ended September 30, |
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(In Thousands, Except Per Share Amounts) |
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2023 |
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2022 |
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2023 |
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2022 |
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REVENUE: |
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Tuition and fees, net |
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$ |
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$ |
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$ |
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$ |
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Other |
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Total revenue |
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OPERATING EXPENSES: |
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Educational services and facilities |
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General and administrative |
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Depreciation and amortization |
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Asset impairment |
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- |
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Total operating expenses |
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Operating income |
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OTHER INCOME: |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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Miscellaneous (expense) income |
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( |
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( |
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( |
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Total other income |
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PRETAX INCOME |
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Provision for income taxes |
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NET INCOME |
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NET INCOME PER SHARE - BASIC: |
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$ |
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$ |
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$ |
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$ |
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NET INCOME PER SHARE - DILUTED: |
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$ |
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$ |
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$ |
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$ |
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WEIGHTED AVERAGE SHARES OUTSTANDING: |
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Basic |
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Diluted |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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For the Quarter Ended September 30, |
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For the Year to Date Ended September 30, |
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(In Thousands) |
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2023 |
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2022 |
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2023 |
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2022 |
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NET INCOME |
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$ |
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$ |
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$ |
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$ |
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OTHER COMPREHENSIVE INCOME (LOSS), net of tax: |
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Foreign currency translation adjustments |
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( |
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( |
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( |
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( |
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Unrealized gain (loss) on investments |
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( |
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( |
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Total other comprehensive income (loss) |
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( |
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( |
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COMPREHENSIVE INCOME |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
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Common Stock |
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Treasury Stock |
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Accumulated Other |
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(In Thousands) |
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Issued Shares |
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$0.01 Par |
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Purchased Shares |
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Cost |
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Additional Paid-in Capital |
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Comprehensive Loss |
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Retained Earnings |
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Total |
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BALANCE, July 1, 2023 |
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$ |
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( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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- |
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- |
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- |
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- |
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- |
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- |
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Foreign currency translation |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Unrealized gain on investments, net of tax |
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- |
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- |
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- |
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- |
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- |
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- |
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Dividends to shareholders |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Share-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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Common stock issued |
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- |
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- |
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- |
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- |
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BALANCE, September 30, 2023 |
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$ |
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( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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$ |
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Common Stock |
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Treasury Stock |
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Accumulated Other |
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(In Thousands) |
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Issued Shares |
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$0.01 Par |
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Purchased Shares |
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Cost |
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Additional Paid-in Capital |
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Comprehensive Loss |
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Retained Earnings |
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Total |
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BALANCE, July 1, 2022 |
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$ |
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( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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- |
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- |
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- |
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- |
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- |
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- |
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Foreign currency translation |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Unrealized loss on investments, net of tax |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Treasury stock purchased |
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- |
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- |
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( |
) |
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( |
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- |
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- |
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- |
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( |
) |
Share-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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Common stock issued |
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- |
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- |
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- |
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- |
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- |
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BALANCE, September 30, 2022 |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Common Stock |
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Treasury Stock |
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Accumulated Other |
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(In Thousands) |
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Issued Shares |
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$0.01 Par |
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Purchased Shares |
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Cost |
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Additional Paid-in Capital |
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Comprehensive Loss |
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Retained Earnings |
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Total |
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||||||||
BALANCE, January 1, 2023 |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Net income |
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- |
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- |
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- |
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- |
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- |
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- |
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Foreign currency translation |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Unrealized gain on investments, net of tax |
|
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- |
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- |
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- |
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- |
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- |
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- |
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||
Dividends to shareholders |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Treasury stock purchased |
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- |
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- |
|
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( |
) |
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( |
) |
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- |
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- |
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- |
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|
|
( |
) |
Treasury stock acquired upon sale of asset |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Share-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Common stock issued |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|||
BALANCE, September 30, 2023 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
||||||||||||||
(In Thousands) |
|
Issued Shares |
|
|
$0.01 Par |
|
|
Purchased Shares |
|
|
Cost |
|
|
Additional Paid-in Capital |
|
|
Comprehensive Loss |
|
|
Retained Earnings |
|
|
Total |
|
||||||||
BALANCE, January 1, 2022 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Foreign currency translation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Unrealized loss on investments, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Treasury stock purchased |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Share-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Common stock issued |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|||
BALANCE, September 30, 2022 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Year to Date Ended September 30, |
|
|||||
(In Thousands) |
|
2023 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net |
|
|
|
|
|
|
||
cash provided by operating activities: |
|
|
|
|
|
|
||
Asset impairment |
|
|
|
|
|
|
||
Gain on sale of asset |
|
|
( |
) |
|
|
- |
|
Depreciation and amortization expense |
|
|
|
|
|
|
||
Bad debt expense |
|
|
|
|
|
|
||
Compensation expense related to share-based awards |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Changes in operating assets and liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Purchases of available-for-sale investments |
|
|
( |
) |
|
|
( |
) |
Sales of available-for-sale investments |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Business acquisition |
|
|
- |
|
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Issuance of common stock |
|
|
|
|
|
|
||
Purchase of treasury stock |
|
|
( |
) |
|
|
( |
) |
Payments of employee tax associated with stock compensation |
|
|
( |
) |
|
|
( |
) |
Payments of cash dividends |
|
|
( |
) |
|
|
- |
|
Release of cash held in escrow |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
|
|
|
( |
) |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period |
|
|
|
|
|
|
||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental non-cash disclosure: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Amounts placed in escrow during the period to secure indemnification obligations from business acquisition |
|
$ |
- |
|
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
Perdoceo’s accredited academic institutions offer a quality postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. The Company’s academic institutions – Colorado Technical University (“CTU”) and the American InterContinental University System (“AIUS” or “AIU System”) – provide degree programs from the associate through doctoral level as well as non-degree seeking and professional development programs. Our academic institutions offer students industry-relevant and career-focused academic programs that are designed to meet the educational needs of today’s busy adults. CTU and AIUS continue to show innovation in higher education, advancing personalized learning technologies like their intellipath® learning platform and using data analytics and technology to serve and educate students while enhancing overall learning and academic experiences. Perdoceo is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.
As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “Perdoceo” and “PEC” refer to Perdoceo Education Corporation and our wholly-owned subsidiaries.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the quarter and year to date ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.
The unaudited condensed consolidated financial statements presented herein include the accounts of Perdoceo Education Corporation and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.
Our reporting segments are determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280 – Segment Reporting and are based upon how the Company analyzes performance and makes decisions. Each segment represents a postsecondary education provider that offers a variety of academic programs. We organize our business across
3. BUSINESS ACQUISITION
On December 1, 2022, the Company acquired substantially all of the assets of Coding Dojo.
Founded in 2013, Coding Dojo offers computer programming and general technology upskilling and reskilling development opportunities supported by its quality technology platform and in-demand courses including software development, data science and cybersecurity. Coding Dojo is reported within the CTU segment.
The final purchase price of $
5
The following table summarizes the fair values of assets acquired and liabilities assumed as of December 1, 2022 (dollars in thousands):
|
|
Coding Dojo |
|
|
Assets: |
|
December 1, 2022 |
|
|
Student receivables, net |
|
$ |
|
|
Prepaid and other assets |
|
|
|
|
Property, equipment and ROU assets |
|
|
|
|
Intangible assets subject to amortization |
|
|
|
|
Trade name |
|
|
|
|
Customer relationships |
|
|
|
|
Developed technology |
|
|
|
|
Deferred tax asset, net |
|
|
|
|
Goodwill |
|
|
|
|
Total assets acquired |
|
$ |
|
|
Liabilities: |
|
|
|
|
Accounts payable and other accrued liabilities |
|
|
|
|
Deferred revenue |
|
|
|
|
Total liabilities assumed |
|
$ |
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
|
|
Pro forma financial information relating to the Coding Dojo acquisition is not presented because the acquisition is not deemed material to the Company.
4. RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting guidance not yet adopted
In June 2022, the FASB issued Accounting Standards Update ("ASU") No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For all public business entities, ASU 2022-03 is effective for annual periods and interim periods beginning after December 15, 2024; early adoption is permitted. We are currently evaluating this guidance and believe the adoption will not significantly impact the presentation of our financial condition, results of operations and disclosures.
5. FINANCIAL INSTRUMENTS
Investments consist of the following as of September 30, 2023 and December 31, 2022 (dollars in thousands):
|
|
September 30, 2023 |
|
|||||||||||||
|
|
|
|
|
Gross Unrealized |
|
|
|
|
|||||||
|
|
Cost |
|
|
Gain |
|
|
(Loss) |
|
|
Fair Value |
|
||||
Short-term investments (available for sale): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-governmental debt securities |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
||
Treasury and federal agencies |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Total short-term investments (available for sale) |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
December 31, 2022 |
|
|||||||||||||
|
|
|
|
|
Gross Unrealized |
|
|
|
|
|||||||
|
|
Cost |
|
|
Gain |
|
|
(Loss) |
|
|
Fair Value |
|
||||
Short-term investments (available for sale): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Municipal bonds |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
||
Non-governmental debt securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Treasury and federal agencies |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total short-term investments (available for sale) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
6
In the table above, unrealized holding gains (losses) relate to short-term investments that have been in a continuous unrealized gain (loss) position for less than
Our non-governmental debt securities primarily consist of corporate bonds, certificates of deposit and commercial paper. Our treasury and federal agencies primarily consist of U.S. Treasury bills and federal home loan debt securities.
Fair Value Measurements
FASB ASC Topic 820 – Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of September 30, 2023, we held investments that are required to be measured at fair value on a recurring basis. These investments (available for sale) consist of non-governmental debt securities and treasury and federal agencies securities. Available for sale securities included in Level 2 are estimated based on observable inputs other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
All of our available for sale investments were measured under Level 2 as of September 30, 2023 and December 31, 2022. Additionally, money market funds of $
Equity Method Investment
Our investment in an equity affiliate, which is recorded within other noncurrent assets on our condensed consolidated balance sheets, represents an international investment in a private company. As of September 30, 2023, our investment in an equity affiliate equated to
During the quarters ended September 30, 2023 and 2022, we recorded approximately $
We make periodic operating maintenance payments to our equity affiliate. The total fees recorded during the quarters and years to date ended September 30, 2023 and 2022 were as follows (dollars in thousands):
|
Maintenance Fee Payments |
|
|
For the quarter ended September 30, 2023 |
$ |
|
|
For the quarter ended September 30, 2022 |
$ |
|
|
For the year to date ended September 30, 2023 |
$ |
|
|
For the year to date ended September 30, 2022 |
$ |
|
|
Credit Agreement
On September 8, 2021, the Company and the subsidiary guarantors thereunder entered into a credit agreement with Wintrust Bank N.A. (“Wintrust”), in its capacities as the sole lead arranger, sole bookrunner, administrative agent and letter of credit issuer for the lenders from time to time parties thereto. The credit agreement provides the Company with the benefit of a $
The credit agreement and the ancillary documents executed in connection therewith contain customary affirmative, negative and financial maintenance covenants. The Company is required to maintain unrestricted cash, cash equivalents and short-term investments in domestic accounts in an amount at least equal to the aggregate loan commitments then in effect. Acquisitions to be undertaken by the Company must meet certain criteria, and the Company’s ability to make restricted payments, including payments in connection with a repurchase of shares of our common stock, is subject to an aggregate maximum of $
7
occurrence of certain regulatory events or if the Company’s unrestricted cash, cash equivalents and short term investments are less than
Under the credit agreement, outstanding principal amounts bear annual interest at a fluctuating rate equal to
As of September 30, 2023 and December 31, 2022, there were
6. REVENUE RECOGNITION
Disaggregation of Revenue
The following tables disaggregate our revenue by major source for the quarters and years to date ended September 30, 2023 and 2022 (dollars in thousands):
|
|
For the Quarter Ended September 30, 2023 |
|
|
For the Quarter Ended September 30, 2022 |
|
||||||||||||||||||||||||||
|
|
CTU (3) |
|
|
AIUS (4) |
|
|
Corporate and Other |
|
|
Total |
|
|
CTU |
|
|
AIUS (4) |
|
|
Corporate and Other |
|
|
Total |
|
||||||||
Tuition, net (1) |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||||||
Technology and miscellaneous fees |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||||
Total tuition and fees, net |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||||
Other revenue (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
For the Year to Date Ended September 30, 2023 |
|
|
For the Year to Date Ended September 30, 2022 |
|
||||||||||||||||||||||||||
|
|
CTU (3) |
|
|
AIUS (4) |
|
|
Corporate and Other |
|
|
Total |
|
|
CTU |
|
|
AIUS (4) |
|
|
Corporate and Other |
|
|
Total |
|
||||||||
Tuition, net (1) |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||||||
Technology and miscellaneous fees |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||||
Total tuition and fees, net |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||||
Other revenue (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
__________________
Performance Obligations
Our revenue, which is derived primarily from academic programs taught to students who attend our universities, is generally segregated into two categories: (1) tuition and fees, and (2) other. Tuition and fees represent costs to our students for educational services provided by our universities and are reflected net of scholarships and tuition discounts. Our universities charge tuition and fees at varying amounts, depending on the university, the type of program and specific curriculum. Our universities bill students a single charge that covers tuition, certain fees and required program materials, such as textbooks and supplies, which we treat as a single performance obligation. Generally, we bill student tuition at the beginning of each academic term for our degree programs and recognize the tuition as revenue on a straight-line basis over the academic term. As part of a student’s course of instruction, certain fees, such as technology fees and graduation fees, are billed separately to students. These fees are generally earned over the applicable
8
term and are not considered separate performance obligations. We generally bill student tuition upon enrollment for our non-degree professional development programs and recognize the tuition as revenue on a straight-line basis over the length of the offering.
Other revenue, which primarily consists of contract training revenue and miscellaneous non-student related revenue, is billed and recognized as goods are delivered or services are performed.
Our institutions’ academic year is generally at least
Contract Assets
For each term, the portion of tuition and fee payments received from students but not yet earned is recorded as deferred revenue and reported as a current liability on our condensed consolidated balance sheets, as we expect to earn these revenues within the next year. A contract asset is recorded for each student for the current term for which they are enrolled for the amount charged for the current term that has not yet been received as payment and to which we do not have the unconditional right to receive payment because the student has not reached the point in the student’s current academic term at which the amount billed is no longer refundable to the student. On a student by student basis, the contract asset is offset against the deferred revenue balance for the current term and the net deferred revenue balance is reflected within current liabilities on our condensed consolidated balance sheets. For certain of our institutions, students are billed as they enroll in courses, including courses related to future periods. Any billings for future periods would meet the definition of a contract asset as we do not have the unconditional right to receive payment as the course has not yet started. Contract assets related to future periods are offset against the respective deferred revenue associated with the future period.
Due to the short-term nature of our academic terms, the contract asset balance which exists at the beginning of each quarter will no longer be a contract asset at the end of that quarter, with the exception of the contract assets associated with future periods. The decrease in contract asset balances are a result of one of the following: it becomes a student receivable balance once a student reaches the point in a student’s academic term where the amount billed is no longer refundable to the student; a refund is made to withdrawn students for the portion entitled to be refunded under each institutions’ refund policy; we receive funds to apply against the contract asset balance; or a student makes a change to the number of classes they are enrolled in which may cause an adjustment to their previously billed amount. As of the end of each quarter, a new contract asset is determined on a student by student basis based on the most recently started term and a student’s progress within that term as compared to the date at which the student is no longer entitled to a refund under each institution’s refund policy. Contract assets associated with future periods remain as contract assets until the course begins and the student reaches the point in that course that they are no longer entitled to a refund.
The amount of deferred revenue balances which are being offset with contract assets balances as of September 30, 2023 and December 31, 2022 were as follows (dollars in thousands):
|
|
As of |
|
|||||
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Gross deferred revenue |
|
$ |
|
|
$ |
|
||
Gross contract assets |
|
|
( |
) |
|
|
( |
) |
Deferred revenue, net |
|
$ |
|
|
$ |
|
||
9
Deferred Revenue
Changes in our deferred revenue balances for the quarters and years to date ended September 30, 2023 and 2022 were as follows (dollars in thousands):
|
|
For the Quarter Ended September 30, 2023 |
|
|
For the Quarter Ended September 30, 2022 |
|
||||||||||||||||||
|
|
CTU |
|
|
AIUS |
|
|
Total |
|
|
CTU |
|
|
AIUS |
|
|
Total |
|
||||||
Gross deferred revenue, July 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Business acquisitions, beginning balance |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Revenue earned from prior balances |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Billings during period(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenue earned for new billings during the period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Gross deferred revenue, September 30 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
For the Year to Date Ended September 30, 2023 |
|
|
For the Year to Date Ended September 30, 2022 |
|
||||||||||||||||||
|
|
CTU |
|
|
AIUS |
|
|
Total |
|
|
CTU |
|
|
AIUS |
|
|
Total |
|
||||||
Gross deferred revenue, January 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Business acquisitions, beginning balance |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Revenue earned from prior balances |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Billings during period(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenue earned for new billings during the period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Gross deferred revenue, September 30 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
______________
Cash Receipts
Our students pay for their costs through a variety of funding sources, including federal loan and grant programs, institutional payment plans, employer reimbursement, Veterans’ Administration and other military funding and grants, private and institutional scholarships and cash payments, as well as private loans. Cash receipts from government related sources are typically received during the current academic term. We typically receive funds after the end of an academic term for students who receive employer reimbursements. Students who have not applied for any type of financial aid generally set up a payment plan with the university and make payments on a monthly basis per the terms of the payment plan.
If a student withdraws from one of our academic institutions prior to the completion of the academic term, we refund the portion of tuition and fees already paid that, pursuant to our refund policy and applicable federal and state law and accrediting agency standards, we are not entitled to retain. Generally, the amount to be refunded to a student is calculated based upon the percent of the term attended and the amount of tuition and fees paid by the student as of their withdrawal date. In certain circumstances, we have recognized revenue for students who have withdrawn that we are not entitled to retain. We have estimated a reserve for these limited circumstances based on historical evidence in the amount of $
7. STUDENT RECEIVABLES
Student receivables represent funds owed to us in exchange for the educational services provided to a student. Student receivables are reflected net of an allowance for credit losses at the end of the reporting period. Student receivables, net, are reflected on our condensed consolidated balance sheets as components of both current and non-current assets.
10
Our students pay for their costs through a variety of funding sources, including federal loan and grant programs, institutional payment plans, employer reimbursement, Veterans’ Administration and other military funding and grants, private and institutional scholarships and cash payments, as well as private loans. Cash receipts from government related sources are typically received during the current academic term. We typically receive funds after the end of an academic session for students who receive employer reimbursements. Students who have not applied for any type of financial aid or students whose financial aid may not fully cover the cost of their tuition and fees generally set up a payment plan with the institution and make payments on a monthly basis per the terms of the payment plan. For those balances that are not received during the academic term, the balance is typically due within the current academic year which is approximately
Our standard student receivable allowance is based on an estimate of lifetime expected credit losses for student receivables. Our estimation methodology considers a number of quantitative and qualitative factors that, based on our collection experience, we believe have an impact on our repayment risk and ability to collect student receivables. Changes in the trends in any of these factors may impact our estimate of the allowance for credit losses. These factors include, but are not limited to: internal repayment history, changes in the current economic, legislative or regulatory environments, internal cash collection forecasts and the ability to complete the federal financial aid process with the student. These factors are monitored and assessed on a regular basis. Overall, our allowance estimation process for student receivables is validated by trend analysis and comparing estimated and actual performance.
We have an immaterial amount of student receivables that are due greater than 12 months from the date of our condensed consolidated balance sheets. As of September 30, 2023 and December 31, 2022, the amount of non-current student receivables under payment plans that are longer than 12 months in duration, net of allowance for credit losses, was $
Allowance for Credit Losses
We define student receivables as a portfolio segment under ASC Topic 326 – Financial Instruments – Credit Losses. Changes in our current and non-current allowance for credit losses related to our student receivable portfolio in accordance with the guidance under ASU 2016-13 for the quarters and years to date ended September 30, 2023 and 2022 were as follows (dollars in thousands):
|
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Balance, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amounts written-off |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Fair Value Measurements
The carrying amount reported in our condensed consolidated balance sheets for the current portion of student receivables approximates fair value because of the nature of these financial instruments as they generally have short maturity periods. It is not practicable to estimate the fair value of the non-current portion of student receivables, since observable market data is not readily available, and no reasonable estimation methodology exists.
8. LEASES
We lease most of our administrative and educational facilities under non-cancelable operating leases expiring at various dates through
We determine if a contract contains a lease when the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Upon identification and commencement of a lease, we establish a right of use (“ROU”) asset and a lease liability.
Quantitative information related to leases is presented in the following table (dollars in thousands):
11
|
For the Quarter Ended September 30, 2023 |
|
For the Year to Date Ended September 30, 2023 |
|
||
Lease expenses (1) |
|
|
|
|
||
Fixed lease expenses - operating |
$ |
|
$ |
|
||
Variable lease expenses - operating |
|
|
|
|
||
Sublease income (2) |
|
- |
|
|
( |
) |
Total lease expenses |
$ |
|
$ |
|
||
|
|
|
|
|
||
Other information |
|
|
|
|
||
Gross operating cash flows for operating leases (3) |
$ |
( |
) |
$ |
( |
) |
Operating cash flows from subleases (3) |
$ |
- |
|
$ |
|
|
|
|
|
|
|
||
|
For the Quarter Ended September 30, 2022 |
|
For the Year to Date Ended September 30, 2022 |
|
||
Lease expenses (1) |
|
|
|
|
||
Fixed lease expenses - operating |
$ |
|
$ |
|
||
Variable lease expenses - operating |
|
|
|
|
||
Sublease income (2) |
|
( |
) |
|
( |
) |
Total lease expenses |
$ |
|
$ |
|
||
|
|
|
|
|
||
Other information |
|
|
|
|
||
Gross operating cash flows for operating leases (3) |
$ |
( |
) |
$ |
( |
) |
Operating cash flows from subleases (3) |
$ |
|
$ |
|
||
|
|
|
|
|
||
|
As of September 30, 2023 |
|
As of September 30, 2022 |
|
||
Weighted average remaining lease term (in months) – operating leases |
|
|
|
|
||
Weighted average discount rate – operating leases |
|
% |
|
% |
||
|
|
|
|
|
||
__________________
9. CONTINGENCIES
An accrual for estimated legal fees of $
We record a liability when we believe that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least quarterly, developments in our legal matters that could affect the amount of liability that was previously accrued and make adjustments as further information develops, circumstances change or contingencies are resolved. Significant judgment is required to determine both probability and the estimated amount. We may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (1) if the damages sought are indeterminate; (2) if the proceedings are in early stages; (3) if there is uncertainty as to the outcome of pending appeals, motions or settlements; (4) if there are significant factual issues to be determined or resolved; and (5) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.
United States of America, ex rel. Fiorisce LLC v. Perdoceo Education Corporation, Colorado Technical University, Inc. and American InterContinental University, Inc. On July 19, 2023, we became aware of an amended complaint filed in the U.S. District Court for the District of Colorado on May 19, 2023. The original complaint was filed under seal on February 25, 2021 by a former employee of Colorado Technical University through a limited liability company, on behalf of herself, any other interested parties affiliated with the LLC and the federal government. On July 18, 2023, the district court ordered the complaint unsealed and we were notified that the U.S. Department of Justice (DOJ) had declined to intervene in the action earlier this year on February 3, 2023. The
12
company had previously received a Civil Investigative Demand on April 8, 2022 from the DOJ and had been cooperating with the DOJ in its review. After the federal government declined to intervene in this case, the relator elected to pursue the litigation on behalf of the federal government. If she is successful, she would receive a portion of the federal government’s recovery. The amended complaint alleges violations of the False Claims Act related to the company’s compliance with federal financial aid credit hour requirements in connection with its use of its learning management system. Relator claims that defendants’ conduct caused the government to make payments of federal funds to defendants which the government would not have made if not for defendants’ alleged violation of the law. Relator seeks treble damages plus civil penalties and attorneys’ fees.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action. Accordingly, we have not recognized any liability associated with this action.
We receive from time-to-time requests from state attorneys general, federal and state government agencies and accreditors relating to our institutions, to specific complaints they have received from students or former students or to student loan forgiveness claims which seek information about students, our programs, and other matters relating to our activities. These requests can be broad and time consuming to respond to, and there is a risk that they could expand and/or lead to a formal action or claims of non-compliance. We are subject to a variety of other claims, lawsuits, arbitrations and investigations that arise from time to time out of the conduct of our business, including, but not limited to, matters involving prospective students, students or former students, alleged violations of the Telephone Consumer Protection Act, both individually and on behalf of a putative class, and employment matters. Periodically matters arise that we consider outside the scope of ordinary routine litigation incidental to our business. While we currently believe that these matters, individually or in aggregate, will not have a material adverse impact on our financial position, cash flows or results of operations, these matters are subject to inherent uncertainties, and management’s view of these matters may change in the future. Were an unfavorable outcome to occur in any one or more of these matters, there exists the possibility of a material adverse impact on our business, reputation, financial position and cash flows.
Contingent Consideration for Business Acquisition
10. INCOME TAXES
The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which we operate and the ongoing development of tax planning strategies during the year. In addition, our provision for income taxes can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.
The following is a summary of our provision for income taxes and effective tax rate:
|
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||
(Dollars in Thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Pretax income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Effective rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
As of June 30, 2023, a valuation allowance of $
13
The effective tax rate for the quarter and year to date ended September 30, 2023 was primarily impacted by a $
We estimate that it is reasonably possible that the gross liability for unrecognized tax benefits for a variety of uncertain tax positions will decrease by up to $
Our tax returns are routinely examined by federal, state and local tax authorities and these audits are at various stages of completion at any given time. The Internal Revenue Service has completed its examination of our U.S. income tax returns through our tax year ended December 31, 2014.
11. SHARE-BASED COMPENSATION
Overview
The Perdoceo Education Corporation Amended and Restated 2016 Incentive Compensation Plan (the “2016 Plan”) became effective (as the Career Education Corporation 2016 Incentive Compensation Plan) on May 24, 2016, and the amendment and restatement of the 2016 Plan became effective on June 3, 2021, upon its approval by the Company’s stockholders. Under the 2016 Plan, Perdoceo may grant to eligible participants awards of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock, performance units, annual incentive awards, and substitute awards, which generally may be settled in cash or shares of our common stock. The vesting of all types of awards is subject to possible acceleration in certain circumstances. If a plan participant terminates employment for any reason other than by death or disability during the vesting period, the right to unvested awards is generally forfeited.
Restricted Stock Units
For the years to date ended September 30, 2023 and 2022, the Company granted approximately
For the years to date ended September 30, 2023 and 2022, the Company granted approximately
There were
All restricted stock units granted in 2023 and 2022 are to be settled in shares of our common stock.
Stock Options
There were
Share-Based Compensation Expense
14
Total share-based compensation expense for the quarters and years to date ended September 30, 2023 and 2022 for all types of awards was as follows (dollars in thousands):
|
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||
Award Type |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Stock options |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
Restricted stock units settled in stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total share-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of September 30, 2023, we estimate that total compensation expense of approximately $
12. STOCK REPURCHASE PROGRAM
On January 27, 2022, the Board of Directors of the Company approved a stock repurchase program for up to $
The timing of purchases and the number of shares repurchased under the program will be determined by the Company’s management and will depend on a variety of factors including stock price, trading volume and other general market and economic conditions, its assessment of alternative uses of capital, regulatory requirements and other factors. Repurchases will be made in open market transactions, including block purchases, conducted in accordance with Rule 10b-18 under the Exchange Act as well as may be made pursuant to trading plans established under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The stock repurchase program does not obligate the Company to purchase shares and the Company may, in its discretion, begin, suspend or terminate repurchases at any time, without any prior notice.
During the year to date ended September 30, 2023, we repurchased approximately
As of September 30, 2023, approximately $
13. WEIGHTED AVERAGE COMMON SHARES
Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock Method and reflects the additional shares that would be outstanding if dilutive stock options were exercised and restricted stock units were settled for common shares during the period.
The weighted average number of common shares used to compute basic and diluted net income per share for the quarters and years to date ended September 30, 2023 and 2022 were as follows (shares in thousands):
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Basic common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock equivalents |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
15
For the quarters and years to date ended September 30, 2023 and 2022, certain unexercised stock option awards are excluded from our computations of diluted earnings per share, as these shares were out-of-the-money and their effect would have been anti-dilutive. The anti-dilutive options that were excluded from our computations of diluted earnings per share were
14. SEGMENT REPORTING
Our segments are determined in accordance with FASB ASC Topic 280—Segment Reporting and are based upon how the Company analyzes performance and makes decisions. Each segment is comprised of an accredited postsecondary education institution that offers a variety of academic programs. As of September 30, 2023, our
♦ Colorado Technical University (CTU) is committed to providing quality and industry-relevant higher education to a diverse student population through innovative technology and experienced faculty, enabling the pursuit of personal and professional goals. CTU is focused on serving adult, non-traditional students seeking career advancement, as well as addressing employer’s needs for a well-educated workforce. CTU offers academic programs in the career-oriented disciplines of business and management, nursing, healthcare management, computer science, engineering, information systems and technology, project management, cybersecurity and criminal justice. Students pursue their degrees through fully-online programs, local campuses and blended formats, which combine campus-based and online education. As of September 30, 2023, students enrolled at CTU represented approximately
♦ The American InterContinental University System (AIUS or AIU System) is committed to providing quality and accessible higher education opportunities for a diverse student population, including adult and other non-traditional learners and the military community. AIUS places emphasis on the educational, professional and personal growth of each student. AIUS offers academic programs in the career-oriented disciplines of business studies, information technologies, education, health sciences and criminal justice. Students pursue their degrees through fully-online programs, local campuses and blended formats, which combine campus-based and online education. As of September 30, 2023, students enrolled at AIUS represented approximately
Summary financial information by reporting segment is as follows (dollars in thousands):
|
|
For the Quarter Ended September 30, |
|
|||||||||||||||||||||
|
|
Revenue |
|
|
Operating Income (Loss) |
|
||||||||||||||||||
|
|
2023 |
|
|
% of Total |
|
|
2022 |
|
|
% of Total |
|
|
2023 |
|
|
2022 |
|
||||||
CTU (1) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
||||||
AIUS (2) |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
||||||
Corporate and Other |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
( |
) |
|
|
( |
) |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
||||||
|
|
For the Year to Date Ended September 30, |
|
|||||||||||||||||||||
|
|
Revenue |
|
|
Operating Income (Loss) |
|
||||||||||||||||||
|
|
2023 |
|
|
% of Total |
|
|
2022 |
|
|
% of Total |
|
|
2023 |
|
|
2022 |
|
||||||
CTU (1) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
||||||
AIUS (2) |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
||||||
Corporate and Other |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
( |
) |
|
|
( |
) |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
||||||
|
|
Total Assets as of (3) |
|
|||||
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
CTU |
|
$ |
|
|
$ |
|
||
AIUS |
|
|
|
|
|
|
||
Corporate and Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
16
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below and other items in this Quarterly Report on Form 10-Q contain “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current expectations regarding our future growth, results of operations, cash flows, performance and business prospects and opportunities, as well as assumptions made by, and information currently available to, our management. We have tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “expect,” “plan,” “may,” “should,” ”will,” “continue to,” “focused on” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors, including, but not limited to, those matters discussed in Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2022 that could cause our actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Among the factors that could cause actual results to differ materially from those expressed in, or implied by, our forward-looking statements are the following:
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to help investors understand the results of operations, financial condition and present business environment. The MD&A is organized as follows:
OVERVIEW
Our accredited academic institutions offer a quality postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. The Company’s academic institutions – Colorado Technical University (“CTU”) and the American InterContinental University System (“AIUS” or “AIU System”) – provide degree programs from the associate through doctoral level as well as non-degree seeking and professional development programs. Our academic institutions offer students industry-relevant and career-focused academic programs that are designed to meet the educational needs of today’s busy
18
adults. CTU and AIUS continue to show innovation in higher education, advancing personalized learning technologies like their intellipath® learning platform and using data analytics and technology to serve and educate students while enhancing overall learning and academic experiences. Perdoceo is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.
Our reporting segments are determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280 – Segment Reporting and are based upon how the Company analyzes performance and makes decisions. Each segment represents a postsecondary education provider that offers a variety of academic programs. We organize our business across two reporting segments: CTU and AIUS.
Regulatory Environment and Political Uncertainty
We operate in a highly regulated industry, which has significant impacts on our business and creates risks and uncertainties. In recent years, Congress, the Department, states, accrediting agencies, the Consumer Financial Protection Bureau, the Federal Trade Commission, state attorneys general and the media have all scrutinized the for-profit postsecondary education sector. Congressional hearings and roundtable discussions were held regarding various aspects of the education industry, including issues surrounding student debt as well as publicly reported student outcomes that may be used as part of an institution’s recruiting and admissions practices, and reports were issued that are highly critical of for-profit colleges and universities. A group of influential U.S. senators, consumer advocacy groups and some media outlets have strongly and repeatedly encouraged the Department, the Department of Defense and the Department of Veterans Affairs and its state approving agencies to take action to limit or terminate the participation of institutions such as ours in existing tuition assistance programs. In addition, targeted loan relief to student borrowers is a stated priority for the Department, and consumer advocacy groups and others are focusing their lobbying and other efforts relating to student debt forgiveness on for-profit colleges and universities, encouraging loan discharge applications and complaints by former students.
The current administration, as well as Congress, are pursuing significant legislative, regulatory and administrative actions affecting our business. A loss or material reduction in Title IV Programs or the amount of student financial aid for which our students are eligible would materially impact our student enrollments and profitability and could impact the continued viability of our business as currently conducted.
We encourage you to review Item 1, “Business,” and Item 1A, “Risk Factors,” in our Annual Report on Form 10-K to learn more about our highly regulated industry and related risks and uncertainties, in addition to the MD&A in our 2023 Quarterly Reports on Form 10-Q.
Note Regarding Non-GAAP measures
We believe it is useful to present non-GAAP financial measures which exclude certain significant and non-cash items as a means to understand the performance of our core business. As a general matter, we use non-GAAP financial measures in conjunction with results presented in accordance with GAAP to help analyze the performance of our core business, assist with preparing the annual operating plan, and measure performance for some forms of compensation. In addition, we believe that non-GAAP financial information is used by analysts and others in the investment community to analyze our historical results and to provide estimates of future performance.
We believe certain non-GAAP measures allow us to compare our current operating results with respective historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by items we do not consider reflective of underlying operating performance. We believe the items we are adjusting for are not normal operating expenses necessary to run our business. In evaluating the use of non-GAAP measures, investors should be aware that in the future we may incur expenses similar to the adjustments presented below. Our presentation of non-GAAP measures should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine or non-recurring. A non-GAAP measure has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for net income, operating income, earnings per diluted share, or any other performance measure derived in accordance with and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of our liquidity.
Non-GAAP financial measures, when viewed in a reconciliation to respective GAAP financial measures, provide an additional way of viewing the Company's results of operations and the factors and trends affecting the Company's business. Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the respective financial results presented in accordance with GAAP.
2023 Third Quarter Overview
During the quarter ended September 30, 2023 ("current quarter"), we continued to execute on our operational priorities and remained focused on improving student experiences and academic outcomes. Additionally, we experienced continued improvement in student retention and engagement at both of our academic institutions supported by the various operating changes and student initiatives that we have undertaken over the past several years.
19
Total student enrollments decreased 12.7% at September 30, 2023 as compared to September 30, 2022, primarily driven by a decrease at AIUS of 34.2% while total student enrollments remained relatively flat at CTU. The decrease in total student enrollments for AIUS was driven by certain operational changes made during the current year within admissions, outreach and enrollment processes for prospective students. These changes were made to ensure compliance with any anticipated or final regulatory changes by the Department. We made these changes only for the short term and have begun to revert to normalized levels of operations within our admissions and enrollment processes during the fourth quarter. At CTU, improved student retention and student enrollment growth in corporate partnerships for the current quarter end as compared to the prior year quarter end were offset with a negative timing impact from the academic calendar redesign.
We believe that student retention and engagement have improved, in part, due to an increased focus on enrolling students who we believe will be more likely to succeed at one of our institutions as well as changes we have made to better serve and onboard new learners in a more efficient and effective manner. Additionally, federal aid initiatives implemented by the current administration simplified processes for students to receive the financial support needed to continue their education, thus leading to improved retention and engagement. As a result, we expect full year revenue to be higher as compared to 2022, resulting from recent acquisitions, the academic calendar redesign at CTU and underlying organic improvements in student retention and engagement. However, total student enrollments at the end of 2023 are expected to be lower as compared to year end 2022, due to the operational changes that were undertaken at AIUS to ensure compliance with any anticipated or final regulatory changes.
We believe investments in technology positively impact student experiences and academic outcomes and we remain committed to investing in and upgrading technology to further enhance academic experiences for our students. Additionally, we are exploring various ways we can apply generative artificial intelligence (“AI”) to administrative processes as well as student support processes and the online classroom. We view technology as a catalyst and differentiator for us and we will continue to further invest in this area to provide our students with a more relevant and meaningful experience.
Financial Highlights
Revenue for the quarter ended September 30, 2023 increased by 6.8% or $11.5 million as compared to the prior year quarter, driven by an increase in revenue at CTU. The improvement in revenue at CTU for the current quarter was driven by a positive timing impact from the academic calendar and the 2022 acquisition that was not in the comparable prior year period, as well as an increase in organic total student enrollments. CTU's academic calendar redesign may impact the comparability of revenue-earning days and enrollment results in any given quarter, with the impact on revenue and total student enrollments not necessarily having the same magnitude or directional impact. Revenue declined at AIUS for the current quarter as compared to the prior year quarter driven primarily by the decrease in total student enrollments discussed above.
Operating income for the current quarter increased by 46.9% to $43.1 million as compared to operating income of $29.3 million in the prior year quarter. The increase in operating income for the current quarter was primarily due to the increase in revenue as well as decreased advertising and admissions expenses.
The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant and non-cash items, as a means to understand the performance of its operations. (See tables below for a GAAP to non-GAAP reconciliation.) Adjusted operating income was $47.2 million for the current quarter as compared to $38.7 million for the prior year quarter.
Adjusted operating income and adjusted earnings per diluted share for the quarters and years to date ended September 30, 2023 and 2022 is presented below (dollars in thousands, unless otherwise noted):
20
|
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||
Adjusted Operating Income |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
$ |
43,073 |
|
|
$ |
29,324 |
|
|
$ |
134,503 |
|
|
$ |
106,963 |
|
Depreciation and amortization (1) |
|
|
3,914 |
|
|
|
5,065 |
|
|
|
13,438 |
|
|
|
14,856 |
|
Legal fee expense related to certain matters (2) |
|
|
246 |
|
|
|
4,294 |
|
|
|
7,574 |
|
|
|
9,728 |
|
Adjusted Operating Income |
|
$ |
47,233 |
|
|
$ |
38,683 |
|
|
$ |
155,515 |
|
|
$ |
131,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||
Adjusted Earnings Per Diluted Share |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reported Earnings Per Diluted Share |
|
$ |
0.62 |
|
|
$ |
0.32 |
|
|
$ |
1.92 |
|
|
$ |
1.16 |
|
Pre-tax adjustments included in operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization for acquired intangible assets (1) |
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.09 |
|
|
|
0.08 |
|
Legal fee expense related to certain matters (2) |
|
|
- |
|
|
|
0.06 |
|
|
|
0.11 |
|
|
|
0.14 |
|
Gain on sale of intangible asset (3) |
|
|
- |
|
|
|
- |
|
|
|
(0.32 |
) |
|
|
- |
|
Total pre-tax adjustments |
|
$ |
0.03 |
|
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
0.22 |
|
Tax effect of adjustments (4) |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
0.03 |
|
|
|
(0.06 |
) |
Total adjustments after tax |
|
|
0.02 |
|
|
|
0.07 |
|
|
|
(0.09 |
) |
|
|
0.16 |
|
Adjusted Earnings Per Diluted Share |
|
$ |
0.64 |
|
|
$ |
0.39 |
|
|
$ |
1.83 |
|
|
$ |
1.32 |
|
Regulatory Updates
Borrower Defense to Repayment and Closed School Regulations Update
On August 7, 2023, a three-judge Fifth Circuit Court of Appeals panel granted a motion for an injunction pending appeal in the lawsuit filed by the Career Colleges and Schools of Texas (“CCST”) in the U.S. District Court for the Northern District of Texas seeking to have the Borrower Defense to Repayment (“BDR”) Final Rule vacated and enjoined. The motion stayed the effective date of the borrower defense to repayment and closed school loan discharge provisions of the BDR Final Rule. The stay is in effect until at least November 6, 2023, when that same Fifth Circuit panel will hear the appeal.
See Item 1, “Business – Legislative Action and Recent Department Regulatory Initiatives” and “Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for an overview of BDR.
See Item 1A, “Risk Factors – Risks Related to the Highly Regulated Field in Which We Operate – ‘Borrower defense to repayment' regulations, including closed school loan discharges, may subject us to significant repayment liability to the Department for discharged federal student loans and posting of substantial letters of credit that may limit our ability to make investments in our business which could negatively impact our future growth,’” in our Annual Report on Form 10-K for the year ended December 31, 2022 for more information about risks associated with the BDR and closed school loan discharge regulations.
Published Regulations
In addition to the information set forth below, see Item 1, “Business – Legislative Action and Recent Department Regulatory Initiatives” and “Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for an overview of the previously adopted and rescinded gainful employment regulation and the current rules relating to financial responsibility, administrative capability and certification procedures.
21
See Item 1A, “Risk Factors – Risks Related to the Highly Regulated Field in Which We Operate – The extensive regulatory requirements applicable to our business may change, in particular as a result of the scrutiny of the for-profit postsecondary education sector and the efforts of the Biden administration, which could require us to make substantial changes to our business, reduce our profitability and make compliance more difficult,” in our Annual Report on Form 10-K for the year ended December 31, 2022 for information about the potential impact of new regulations on our business.
While we are still reviewing the new gainful employment rules and the revised financial responsibility, administrative capability and certification rules discussed below, they impose a broad range of additional requirements on our institutions and would increase the possibility that our schools could be subject to additional restrictions, financial protection, and reporting requirements, potential liabilities and sanctions, and potential loss of Title IV liability, which would have a material adverse effect on our business and results of operations.
Gainful Employment Rule
On October 10, 2023, the U.S. Department of Education (“Department”) published final regulations for the Gainful Employment (“GE”) Rule. The GE rule includes an eligibility framework that imposes additional requirements on for-profit sector programs, including our schools. The regulation uses two key metrics: Debt-to-Earnings (“D/E”) and Earnings Premium (“EP”) metrics to determine whether a program prepares students for gainful employment. The D/E metrics measure student debt at a program level against a measure of earnings. The EP metric measures student earnings at a program level against working individuals with only a high school diploma or equivalent. GE programs that fail either the D/E or the EP metric in two of three consecutive years will lose Title IV eligibility. Programs offered by both AIUS and CTU are subject to the GE Rule and could lose Title IV eligibility if their programs fail to pass the D/E rates and/or the EP measures. The rule also requires our institutions to warn current and prospective students if a program fails any metric in any year. The issuance of required GE warnings could deter prospective students from enrolling at our institutions and current students from continuing in their programs.
The GE Rule becomes effective on July 1, 2024. According to the Department's announcement, the first official GE rates will be published in early 2025, and programs may be deemed ineligible to participate in Title IV programs in 2026. A loss or material reduction in eligible Title IV programs due to the GE rule would materially impact our student enrollments and profitability and could impact the continued viability of our business as currently conducted. We are continuing to evaluate the regulation, but given the complexity of the rules and the lack of our access to and the lack of the Department providing transparency regarding the earnings data used to calculate the metrics, we are unable to determine the ultimate impact of the regulation on our business at this time.
Financial Responsibility
On October 31, 2023, the Department published new regulations on financial responsibility that become effective July 1, 2024. The Financial Responsibility regulations would, among other things, significantly modify and expand the mandatory and discretionary triggering events that require an institution to post a letter of credit or other form of financial protection with the Department. The rule also provides that a separate letter of credit of not less than 10% of the institution’s prior year Title IV receipts is required for each mandatory or discretionary triggering event, such that multiple triggering events could subject our institutions to substantial cumulative financial protection obligations.
Examples of mandatory triggering events in the rule include: lawsuits by federal or state authorities to impose an injunction, establish fines or penalties, or to obtain financial relief, or in a qui tam action in which the federal government has intervened, subject to certain timing requirements; an action by the Department to recover from the institution for adjudicated borrower defense to repayment claims where the potential amount of recovery would cause the institution’s recalculated composite score to drop below 1.0; the institution has received at least 50% of its Title IV funds in its most recently completed fiscal year programs that are failing the GE rule; the institution is required to submit a teach-out plan by a state or federal agency, an accrediting agency, or other oversight body for reasons related to financial concerns; for an institution owned at least 50% by a publicly traded entity, the entity is subject to certain actions or events specified in the rule initiated by the Securities and Exchange Commission; the institution fails the 90/10 rule for its most recently completed fiscal year; and, the institution is subject to a default or other adverse condition under a line of credit, loan agreement, security agreement or other financing arrangement due to an action by the Department.
Specified discretionary triggers would provide the Department flexibility on whether to require a letter of credit based on the financial impact the triggering event would have on the institution. Examples of discretionary triggers include: an accrediting agency or a federal, state, or other authority places the institution on probation, show cause, or comparable status; the institution is subject to a default or other specified adverse condition under a credit or financing arrangement (unless due to an action by the Department, which is a mandatory trigger); a “significant fluctuation” in Direct Loan or Pell Grant funds received by the institution over different award years that cannot be accounted for by changes in those programs; the institution has high annual dropout rates as calculated by the Department; the institution is under prior financial reporting obligations to the Department and has any of the following occurrences: negative cash flows, failure of other financial ratios, cash flows that significantly miss projections submitted to the Department, significant increases in withdrawal rates or other indicators of a significant change in the institution’s financial condition; pending group-process BDR claims; a discontinuation of programs that enroll more than 25% of the institution’s students who receive Title IV funds; a closure of locations that enroll more than 25% of its students who receive Title IV funds; a citation by a state licensing agency
22
for failing to meet its requirements; the institution or a program loses eligibility to participate in another federal educational assistance program due to an administrative action; for an institution owned at least 50% by a publicly traded entity, a disclosure by the entity in a public filing that we are under investigation for possible violations of state, federal or foreign law; a citation and potential loss of education assistance funds from another federal agency if it does not comply with agency requirements; the institution is required to submit a teach-out plan or agreement, including programmatic teach-outs, by a state, the Department or another federal agency, an accrediting agency, or other oversight body; or any other event or condition that the Department learns about from the institution or other parties where the Department determines that the event or condition is likely to have a significant adverse effect on the financial condition of the institution.
The new rule also adds additional circumstances that would deem an institution to lack financial responsibility, such as: failing to make debt payments for more than 90 days; failing to meet payroll obligations; borrowing from employee retirement plans or restricted funds without authorization; failing to make timely refunds or returns of Title IV funds or pay Title IV credit balances; or failing to make repayments of any Title IV liabilities. Finally, the regulations establish new rules for evaluating financial responsibility during a change in ownership.
Administrative Capability
On October 31, 2023, the Department published new regulations on administrative capability that become effective July 1, 2024. The Administrative Capability regulations expand the requirements for institutions to demonstrate that they are administratively capable of providing the education they promise and of properly managing Title IV program funds, adding new standards related to financial counseling and career services, adequate clinical and externship opportunities, timely disbursement of Title IV funds, compliance with high school diploma verification requirements, aggressive and deceptive recruitment tactics or conduct, gainful employment requirements, and significant negative actions with a federal, state or accreditation agencies. The changes also provide the Department with increased and explicit authority to make an administrative capability finding based on a broader set of issues than it has used historically. Such findings could lead to fines, limitations, suspensions, terminations or other actions, including placing the institution on a provisional program participation agreement or heightened cash monitoring.
Certification
On October 31, 2023, the Department published new regulations on certification procedures that become effective July 1, 2024. The revised Certification rule provides a more rigorous process for certifying institutions to participate in the Title IV programs, both initially and on an ongoing basis. The changes increase the Department’s oversight of institutions at critical points of institutional review including initial certification, during provisional certification, after a change of ownership, at recertification, and when there is a risk of closure.
The rule adds additional events that lead to provisional certification, such as if an institution is required to post a letter of credit because of a mandatory or discretionary triggers in the financial responsibility regulations, the Department determines the institution is at risk of closure, or the institution fails the 90/10 rule. It establishes new supplementary performance measures the Department may consider in determining whether to certify or condition the participation of the institution, such as withdrawal rates, the amount of educational and pre-enrollment expenditures, and licensure pass rates where the institution is required by an accrediting agency or state to report licensure exam passage rates.
The rule also adds a provision to include all federal agencies and add state attorneys general to the list of entities that have the authority to share with each other and the Department any information pertaining to an institution’s eligibility for or participation in Title IV programs or any information on fraud, abuse, or other violations of law.
The new rule establishes a non-exhaustive list of conditions that the Department may apply to provisionally certified institutions, such as the submission of teach-out plans, the release of holds on student transcripts, restrictions or limitations on the addition of new programs or locations, restrictions on growth in enrollments or Title IV volume, restrictions on the ability to provide a teach-out on behalf of another institution, restrictions on the acquisition of other institutions, additional financial reporting requirements, and limitations on entering into written arrangements with other institutions for the provision of educational instruction.
The new rule requires provisionally certified schools that have major consumer protection issues to recertify after no more than three years. For institutions alleged or found to have engaged in misrepresentation, aggressive recruiting, or incentive compensation violations, the Department may require that the institution engage a monitor and submit marketing materials to the Department for its review and approval.
New Negotiated Rulemakings
On August 31, 2023, the Department issued a notice of its intent to establish a Student Loan Debt Relief negotiated rulemaking committee to prepare proposed regulations for the Federal Student Aid programs authorized under the HEA. As part of this rulemaking, the Department is considering revisions to its federal student loan compromise regulations, as well as adding regulations on the circumstances under which the Department may waive all or part of federal student loan debts. Negotiating sessions of Student Loan Debt Relief negotiated rulemaking committee are scheduled for October, November and December 2023. The Department has indicated
23
its intent to complete this rulemaking “as quickly as possible.” We are closely monitoring the Department’s negotiated rulemaking process, but we are unable to determine the potential impact of any future final regulations on our business at this time.
CONSOLIDATED RESULTS OF OPERATIONS
The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the quarters and years to date ended September 30, 2023 and 2022 (dollars in thousands):
|
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||||||||||||||||||||||||||
|
|
2023 |
|
|
% of Total Revenue |
|
|
2022 |
|
|
% of Total Revenue |
|
|
2023 vs 2022 % Change |
|
|
2023 |
|
|
% of Total Revenue |
|
|
2022 |
|
|
% of Total Revenue |
|
|
2023 vs 2022 % Change |
|
||||||||||
TOTAL REVENUE |
|
$ |
179,923 |
|
|
|
|
|
$ |
168,420 |
|
|
|
|
|
|
6.8 |
% |
|
$ |
562,085 |
|
|
|
|
|
$ |
519,063 |
|
|
|
|
|
|
8.3 |
% |
||||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Educational services and facilities (1) |
|
|
33,502 |
|
|
|
18.6 |
% |
|
|
30,149 |
|
|
|
17.9 |
% |
|
|
11.1 |
% |
|
|
100,101 |
|
|
|
17.8 |
% |
|
|
85,506 |
|
|
|
16.5 |
% |
|
|
17.1 |
% |
General and administrative: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Advertising and marketing |
|
|
22,611 |
|
|
|
12.6 |
% |
|
|
32,827 |
|
|
|
19.5 |
% |
|
|
-31.1 |
% |
|
|
79,742 |
|
|
|
14.2 |
% |
|
|
96,051 |
|
|
|
18.5 |
% |
|
|
-17.0 |
% |
Admissions |
|
|
21,198 |
|
|
|
11.8 |
% |
|
|
23,732 |
|
|
|
14.1 |
% |
|
|
-10.7 |
% |
|
|
70,511 |
|
|
|
12.5 |
% |
|
|
70,175 |
|
|
|
13.5 |
% |
|
|
0.5 |
% |
Administrative |
|
|
40,653 |
|
|
|
22.6 |
% |
|
|
39,418 |
|
|
|
23.4 |
% |
|
|
3.1 |
% |
|
|
128,556 |
|
|
|
22.9 |
% |
|
|
113,000 |
|
|
|
21.8 |
% |
|
|
13.8 |
% |
Bad debt |
|
|
7,592 |
|
|
|
4.2 |
% |
|
|
7,905 |
|
|
|
4.7 |
% |
|
|
-4.0 |
% |
|
|
26,519 |
|
|
|
4.7 |
% |
|
|
32,284 |
|
|
|
6.2 |
% |
|
|
-17.9 |
% |
Total general and administrative expense |
|
|
92,054 |
|
|
|
51.2 |
% |
|
|
103,882 |
|
|
|
61.7 |
% |
|
|
-11.4 |
% |
|
|
305,328 |
|
|
|
54.3 |
% |
|
|
311,510 |
|
|
|
60.0 |
% |
|
|
-2.0 |
% |
Depreciation and amortization |
|
|
3,914 |
|
|
|
2.2 |
% |
|
|
5,065 |
|
|
|
3.0 |
% |
|
|
-22.7 |
% |
|
|
13,438 |
|
|
|
2.4 |
% |
|
|
14,856 |
|
|
|
2.9 |
% |
|
|
-9.5 |
% |
Asset impairment |
|
|
7,380 |
|
|
|
4.1 |
% |
|
|
- |
|
|
|
0.0 |
% |
|
NM |
|
|
|
8,715 |
|
|
|
1.6 |
% |
|
|
228 |
|
|
|
0.0 |
% |
|
NM |
|
||
OPERATING INCOME |
|
|
43,073 |
|
|
|
23.9 |
% |
|
|
29,324 |
|
|
|
17.4 |
% |
|
|
46.9 |
% |
|
|
134,503 |
|
|
|
23.9 |
% |
|
|
106,963 |
|
|
|
20.6 |
% |
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
PRETAX INCOME |
|
|
48,088 |
|
|
|
26.7 |
% |
|
|
31,292 |
|
|
|
18.6 |
% |
|
|
53.7 |
% |
|
|
169,744 |
|
|
|
30.2 |
% |
|
|
109,841 |
|
|
|
21.2 |
% |
|
|
54.5 |
% |
PROVISION FOR INCOME TAXES |
|
|
6,781 |
|
|
|
3.8 |
% |
|
|
9,225 |
|
|
|
5.5 |
% |
|
|
-26.5 |
% |
|
|
39,280 |
|
|
|
7.0 |
% |
|
|
29,929 |
|
|
|
5.8 |
% |
|
|
31.2 |
% |
Effective tax rate |
|
|
14.1 |
% |
|
|
|
|
|
29.5 |
% |
|
|
|
|
|
|
|
|
23.1 |
% |
|
|
|
|
|
27.2 |
% |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
NET INCOME |
|
$ |
41,307 |
|
|
|
23.0 |
% |
|
$ |
22,067 |
|
|
|
13.1 |
% |
|
|
87.2 |
% |
|
$ |
130,464 |
|
|
|
23.2 |
% |
|
$ |
79,912 |
|
|
|
15.4 |
% |
|
|
63.3 |
% |
Revenue
The current quarter and year to date revenue increased by 6.8% or $11.5 million and 8.3% or $43.0 million, respectively, as compared to the prior year periods, primarily driven by increased revenue at CTU. The improvement in revenue at CTU for the current quarter and current year to date was driven by a positive timing impact from the academic calendar and the 2022 acquisition that was not in the comparable prior year periods, as well as an increase in organic total student enrollments. Revenue declined at AIUS for the current quarter and year to date driven by the decline in total student enrollments as compared to the prior year period.
Educational Services and Facilities Expense (dollars in thousands)
|
|
For the Quarter Ended September 30, |
|
For the Year to Date Ended September 30, |
||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 vs 2022 % Change |
|
2023 |
|
|
2022 |
|
|
2023 vs 2022 % Change |
||||
Educational services and facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Academics & student related |
|
$ |
30,991 |
|
|
$ |
25,674 |
|
|
20.7% |
|
$ |
92,347 |
|
|
$ |
72,251 |
|
|
27.8% |
Occupancy |
|
|
2,511 |
|
|
|
4,475 |
|
|
-43.9% |
|
|
7,754 |
|
|
|
13,255 |
|
|
-41.5% |
Total educational services and facilities |
|
$ |
33,502 |
|
|
$ |
30,149 |
|
|
11.1% |
|
$ |
100,101 |
|
|
$ |
85,506 |
|
|
17.1% |
The educational services and facilities expense for the current quarter and year to date increased by 11.1% or $3.4 million and 17.1% or $14.6 million, respectively, as compared to the prior year periods. Academics and student related costs increased by 20.7% or $5.3 million and 27.8% or $20.1 million for the current quarter and year to date, respectively, as compared to the prior year periods. The current quarter and year to date increases were impacted by a full period of expenses associated with the 2022 acquisitions as compared to a partial period of expenses in the comparative prior year periods. Partially offsetting the current quarter and year to date
24
increase in academic and student related costs was a decrease in occupancy expense of 43.9% or $2.0 million and 41.5% or $5.5 million, respectively, as compared to the prior year periods.
General and Administrative Expense (dollars in thousands)
|
|
For the Quarter Ended September 30, |
|
For the Year to Date Ended September 30, |
||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 vs 2022 % Change |
|
2023 |
|
|
2022 |
|
|
2023 vs 2022 % Change |
||||
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advertising and marketing |
|
$ |
22,611 |
|
|
$ |
32,827 |
|
|
-31.1% |
|
$ |
79,742 |
|
|
$ |
96,051 |
|
|
-17.0% |
Admissions |
|
|
21,198 |
|
|
|
23,732 |
|
|
-10.7% |
|
|
70,511 |
|
|
|
70,175 |
|
|
0.5% |
Administrative |
|
|
40,653 |
|
|
|
39,418 |
|
|
3.1% |
|
|
128,556 |
|
|
|
113,000 |
|
|
13.8% |
Bad debt |
|
|
7,592 |
|
|
|
7,905 |
|
|
-4.0% |
|
|
26,519 |
|
|
|
32,284 |
|
|
-17.9% |
Total general and administrative expense |
|
$ |
92,054 |
|
|
$ |
103,882 |
|
|
-11.4% |
|
$ |
305,328 |
|
|
$ |
311,510 |
|
|
-2.0% |
The general and administrative expense for the current quarter and year to date decreased by 11.4% or $11.8 million and 2.0% or $6.2 million, respectively, as compared to the prior year periods, primarily driven by decreases in advertising and marketing and bad debt expenses, as explained more fully below. Partially offsetting the current quarter and year to date decreases in these expenses were increased administrative costs as compared to the prior year periods.
Advertising and marketing expense for the current quarter and year to date decreased by 31.1% or $10.2 million and 17.0% or $16.3 million, respectively, as compared to the prior year periods, primarily driven by short-term operational changes made within AIUS during the current year.
Admissions expense for the current quarter decreased by 10.7% or $2.5 million and increased by 0.5% or $0.3 million for the current year to date, as compared to the prior year periods. The current quarter improvement was driven by decreased expenses within AIUS as a result of lower student enrollments and operational changes made during the current year. The year to date increase was primarily impacted by a full period of expense associated with the 2022 acquisitions as compared to less than a full comparable period of expense in the prior year period.
Administrative expense for the current quarter and year to date increased by 3.1% or $1.2 million and 13.8% or $15.6 million, respectively, as compared to the prior year periods. The current quarter increase was primarily due to the 2022 acquisitions, as mentioned above, and the current year to date increase was primarily driven by increased costs within Corporate and Other as well as the 2022 acquisitions as compared to the prior year to date.
Bad debt expense incurred by each of our segments during the quarters and years to date ended September 30, 2023 and 2022 was as follows (dollars in thousands):
|
|
For the Quarter Ended September 30, |
|
|
For the Year to Date Ended September 30, |
|
||||||||||||||||||||||||||||||||||
|
|
2023 |
|
|
% of |
|
|
2022 |
|
|
% of |
|
|
2023 vs 2022 % Change |
|
|
2023 |
|
|
% of |
|
|
2022 |
|
|
% of |
|
|
2023 vs 2022 % Change |
|
||||||||||
Bad debt expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
CTU |
|
$ |
4,529 |
|
|
|
3.8 |
% |
|
$ |
3,678 |
|
|
|
3.8 |
% |
|
|
23.1 |
% |
|
$ |
16,225 |
|
|
|
4.5 |
% |
|
$ |
16,853 |
|
|
|
5.4 |
% |
|
|
-3.7 |
% |
AIUS |
|
|
3,068 |
|
|
|
5.2 |
% |
|
|
4,232 |
|
|
|
6.0 |
% |
|
|
-27.5 |
% |
|
|
10,307 |
|
|
|
5.2 |
% |
|
|
15,465 |
|
|
|
7.5 |
% |
|
|
-33.4 |
% |
Corporate and Other |
|
|
(5 |
) |
|
NM |
|
|
|
(5 |
) |
|
NM |
|
|
NM |
|
|
|
(13 |
) |
|
NM |
|
|
|
(34 |
) |
|
NM |
|
|
NM |
|
||||||
Total bad debt expense |
|
$ |
7,592 |
|
|
|
4.2 |
% |
|
$ |
7,905 |
|
|
|
4.7 |
% |
|
|
-4.0 |
% |
|
$ |
26,519 |
|
|
|
4.7 |
% |
|
$ |
32,284 |
|
|
|
6.2 |
% |
|
|
-17.9 |
% |
Bad debt expense improved by 4.0% or $0.3 million and 17.9% or $5.8 million for the current quarter and year to date, respectively, as compared to the prior year periods. AIUS' bad debt expense decreased by 27.5% or $1.2 million which more than offset CTU's increased bad debt expense of 23.1% or $0.9 million for the current quarter as compared to the prior year period. For the year to date both CTU and AIUS' bad debt expense improved by 3.7% or $ 0.6 million and 33.4% or $5.2 million, respectively, as compared to the prior year period.
Our student support teams have maintained their focus on financial aid documentation collection and are counseling students through the Title IV financial aid process so that they are better prepared to start school. Additionally, federal aid initiatives simplified processes for students to receive the financial support needed to continue their education. We have also focused on emphasizing employer-paid and other direct-pay education programs such as corporate partnerships as students within these programs typically have lower bad debt expense associated with them. We continue to expect quarterly fluctuations in bad debt expense. We regularly evaluate our reserve rates, which includes a quarterly update of our analysis of historical student receivable collectability based on the
25
most recent data available and a review of current known factors which we believe could affect future collectability of our student receivables, such as the number of students that do not complete the financial aid process.
Operating Income
Operating income increased by 46.9% or $13.7 million and 25.7% or $27.5 million for the current quarter and year to date, respectively, as compared to the prior year periods. The current quarter and year to date improvement was primarily driven by the increased revenue along with lower advertising and bad debt expenses as compared to the prior year periods, partially offset with asset impairment charges of $7.4 million for the current quarter and $8.7 million for the current year to date.
Provision for Income Taxes
For the current quarter and year to date, we recorded a provision for income taxes of $6.8 million, reflecting an effective tax rate of 14.1% and $39.3 million, reflecting an effective tax rate of 23.1%, respectively, as compared to a provision for income taxes of $9.2 million, reflecting an effective tax rate of 29.5% and $29.9 million, reflecting an effective tax rate of 27.2% for the respective prior year periods.
The effective tax rate for the quarter and year to date ended September 30, 2023 was primarily impacted by a $4.5 million favorable discrete adjustment related to the recognition of the tax benefits associated with a previously disclosed prior year ordinary loss attributable to the stock of a worthless subsidiary, which decreased the effective tax rate for the quarter and year to date by 9.3% and 2.6%, respectively. The effective tax rate for the quarter and year to date ended September 30, 2023 reflects federal and state tax credits claimed for the 2022 tax return, which decreased the effective tax rate for the quarter and year to date by 0.6% and 0.2%, respectively. Additionally, the tax effect of stock-based compensation and the release of other previously recorded tax reserves reduced the effective tax rate for the quarter and year to date ended September 30, 2023 by 0.2% and 0.6%, respectively. The effective tax rate for the prior year quarter and year to date was impacted by the tax effect of a $1.4 million valuation allowance increase related to select combined state net operating losses which increased the effective tax rate for the quarter and year to date by 4.6% and 1.3%, respectively. The effective tax rate for the prior year quarter and year to date benefitted by the tax effect of federal and state tax credits claimed for the 2021 tax return, which decreased the effective tax rate by 0.3% and 0.1%, respectively. The tax effect of stock-based compensation and the release of previously recorded tax reserves for the 2022 year to date tax rate reflects 0.2% net benefit. For the full year 2023, we expect our effective tax rate to be between 22.5% to 23.5%.
SEGMENT RESULTS OF OPERATIONS
The following tables present unaudited segment results for the reported periods (dollars in thousands):
|
|
For the Quarter Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
REVENUE |
|
|
OPERATING INCOME (LOSS) |
|
|
OPERATING MARGIN |
|
|||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
CTU (1) |
|
$ |
120,552 |
|
|
$ |
97,562 |
|
|
|
23.6 |
% |
|
$ |
34,491 |
|
|
$ |
31,506 |
|
|
|
9.5 |
% |
|
|
28.6 |
% |
|
|
32.3 |
% |
AIUS (2) |
|
|
59,226 |
|
|
|
70,582 |
|
|
|
-16.1 |
% |
|
|
15,602 |
|
|
|
9,590 |
|
|
|
62.7 |
% |
|
|
26.3 |
% |
|
|
13.6 |
% |
Corporate and other |
|
|
145 |
|
|
|
276 |
|
|
|
-47.5 |
% |
|
|
(7,020 |
) |
|
|
(11,772 |
) |
|
|
-40.4 |
% |
|
NM |
|
|
NM |
|
||
Total |
|
$ |
179,923 |
|
|
$ |
168,420 |
|
|
|
6.8 |
% |
|
$ |
43,073 |
|
|
$ |
29,324 |
|
|
|
46.9 |
% |
|
|
23.9 |
% |
|
|
17.4 |
% |
|
|
For the Year to Date Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
REVENUE |
|
|
OPERATING INCOME (LOSS) |
|
|
OPERATING MARGIN |
|
|||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
CTU (1) |
|
$ |
364,336 |
|
|
$ |
311,171 |
|
|
|
17.1 |
% |
|
$ |
118,632 |
|
|
$ |
107,540 |
|
|
|
10.3 |
% |
|
|
32.6 |
% |
|
|
34.6 |
% |
AIUS (2) |
|
|
197,128 |
|
|
|
207,034 |
|
|
|
-4.8 |
% |
|
|
44,683 |
|
|
|
29,846 |
|
|
|
49.7 |
% |
|
|
22.7 |
% |
|
|
14.4 |
% |
Corporate and other |
|
|
621 |
|
|
|
858 |
|
|
|
-27.6 |
% |
|
|
(28,812 |
) |
|
|
(30,423 |
) |
|
|
-5.3 |
% |
|
NM |
|
|
NM |
|
||
Total |
|
$ |
562,085 |
|
|
$ |
519,063 |
|
|
|
8.3 |
% |
|
$ |
134,503 |
|
|
$ |
106,963 |
|
|
|
25.7 |
% |
|
|
23.9 |
% |
|
|
20.6 |
% |
26
_________________
|
|
TOTAL STUDENT ENROLLMENTS |
|
|||||||||
|
|
As of September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
CTU |
|
|
26,400 |
|
|
|
26,500 |
|
|
|
-0.4 |
% |
AIUS |
|
|
10,000 |
|
|
|
15,200 |
|
|
|
-34.2 |
% |
Total |
|
|
36,400 |
|
|
|
41,700 |
|
|
|
-12.7 |
% |
Total student enrollments do not include learners participating in: a) non-degree seeking and professional development programs, and b) degree seeking, non-Title IV, self-paced programs at our universities. Total student enrollments represent students who are active as of the last day of the reporting period. Active students are defined as those students who are considered in attendance by participating in class related activities during the previous two weeks.
CTU. Current quarter and year to date revenue increased by 23.6% or $23.0 million and 17.1% or $53.2 million, respectively, as compared to the prior year periods. The increase in revenue was benefitted by a positive timing impact of the academic calendar and the 2022 acquisition which was not part of the comparative prior year periods, as well as underlying organic enrollment growth. Total student enrollments remained relatively flat at September 30, 2023 as compared September 30, 2022 due to a negative timing impact of the academic calendar redesign that offset underlying organic growth driven by improved student retention and growth in student enrollment from corporate partnerships. CTU’s academic calendar redesign may impact the comparability of revenue-earning days and enrollment results in any given quarter, with the impact on revenue and total student enrollments not necessarily having the same magnitude or directional impact.
Current quarter and year to date operating income for CTU increased by 9.5% or $3.0 million and 10.3% or $11.1 million, respectively, as compared to the prior year periods driven by the increase in revenue discussed above, partially offset with increased operating expenses, including asset impairment charges of $7.4 million during the current quarter.
AIUS. Current quarter and year to date revenue decreased by 16.1% or $11.4 million and 4.8% or $9.9 million, respectively, as compared to the prior year periods. The decrease was primarily driven by a decrease in total student enrollments of 34.2% at September 30, 2023 as compared to September 30, 2022. The decline in student enrollments was impacted by short-term operating changes made during the current year discussed above within "2023 Third Quarter Overview".
Current quarter and year to date operating income for AIUS increased by 62.7% or $6.0 million and 49.7% or $14.8 million, respectively, as compared to the prior year periods driven by lower advertising and marketing, admissions, occupancy and bad debt expenses as compared to the prior year periods, which more than offset the decrease in revenue.
Corporate and Other. This category includes unallocated costs that are incurred on behalf of the entire company. Total Corporate and Other operating loss for the current quarter and year to date decreased by 40.4% or $4.8 million and 5.3% or $1.6 million, respectively, as compared to the prior year periods, primarily driven by decreased legal fee expense.
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A detailed discussion of the accounting policies and estimates that we believe are most critical to our financial condition and results of operations that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties is included under the caption “Summary of Critical Accounting Policies and Estimates” included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022. Note 2 “Summary of Significant Accounting Policies” of the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 also includes a discussion of these and other significant accounting policies.
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
As of September 30, 2023, cash, cash equivalents, restricted cash and available-for-sale short-term investments (“cash balances”) totaled $603.7 million. Restricted cash as of September 30, 2023 was $8.5 million and relates to amounts held in escrow accounts to secure post-closing indemnification obligations of the sellers pursuant to recent acquisitions. Our cash flows from operating activities have historically been adequate to fulfill our liquidity requirements. We have historically financed our operating activities, organic growth and acquisitions primarily through cash generated from operations and existing cash balances. We expect to continue to generate cash during the remainder of 2023. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, our working capital needs, capital expenditures, lease commitments and quarterly dividends payments through at least the next 12 months primarily with cash generated by operations and existing cash balances.
27
We maintain a balanced capital allocation strategy that focuses on maintaining a strong balance sheet and adequate liquidity, while (i) investing in organic projects at our universities, in particular technology-related initiatives which are designed to benefit our students, and (ii) evaluating diverse strategies to enhance stockholder value, including acquisitions, share repurchases and quarterly dividend payments. Ultimately, our goal is to deploy resources in a way that drives long term stockholder value while supporting and enhancing the academic value of our institutions.
On January 27, 2022, the Board of Directors of the Company approved a stock repurchase program for up to $50.0 million which commenced March 1, 2022 and expires September 30, 2024. The timing of purchases and the number of shares repurchased under the program will be determined by the Company’s management and will depend on a variety of factors including stock price, trading volume and other general market and economic conditions, its assessment of alternative uses of capital, regulatory requirements and other factors. Share repurchases will remain a part of our capital allocation strategy. Since the March 1, 2022 inception date, the Company repurchased approximately 2.3 million shares for $25.9 million.
On September 8, 2021, the Company and the subsidiary guarantors thereunder entered into a credit agreement with Wintrust Bank N.A. (“Wintrust”), in its capacities as the sole lead arranger, sole bookrunner, administrative agent and letter of credit issuer for the lenders from time to time parties thereto. The credit agreement provides the Company with the benefit of a $125.0 million senior secured revolving credit facility. The $125.0 million revolving credit facility under the credit agreement is scheduled to mature on September 8, 2024. So long as no default has occurred and other conditions have been met, the Company may request an increase in the aggregate commitment in an amount not to exceed $50.0 million. The loans and letter of credit obligations under the credit agreement are secured by substantially all assets of the Company and the subsidiary guarantors.
The discussion above reflects management’s expectations regarding liquidity; however, as a result of the significance of the Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV funds that our students are eligible to receive or any impact on timing or our ability to receive Title IV Program funds due to new or proposed regulations, or any requirement to post a significant letter of credit to the Department, may have a significant impact on our operations and our financial condition. In addition, our financial performance is dependent on the level of student enrollments which could be impacted by external factors. See Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Sources and Uses of Cash
Operating Cash Flows
During the years to date ended September 30, 2023 and 2022, net cash flows provided by operating activities totaled $98.8 million and $107.6 million, respectively.
Our primary source of cash flows from operating activities is tuition collected from our students. Our students derive the ability to pay tuition costs through the use of a variety of funding sources, including, among others, federal loan and grant programs, state grant programs, private loans and grants, institutional payment plans, private and institutional scholarships and cash payments.
For further discussion of Title IV Program funding and other funding sources for our students, see Item 1, “Business - Student Financial Aid and Related Federal Regulation,” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Our primary uses of cash to support our operating activities include, among other things, cash paid and benefits provided to our employees for services, to vendors for products and services, to lessors for rents and operating costs related to leased facilities, to suppliers for textbooks and other institution supplies, and to federal, state and local governments for income and other taxes.
Investing Cash Flows
During the years to date ended September 30, 2023 and 2022, net cash flows used in investing activities totaled $31.2 million and $255.7 million, respectively.
Purchases and Sales of Available-for-Sale Investments. Purchases and sales of available-for-sale investments resulted in a net cash outflow of $26.4 million and $207.6 million for the years to date ended September 30, 2023 and 2022, respectively.
Capital Expenditures. Capital expenditures decreased to $4.8 million for the year to date ended September 30, 2023 as compared to $9.1 million for the year to date ended September 30, 2022. Capital expenditures represented approximately 0.9% and 1.8% of total revenue for the years to date ended September 30, 2023 and 2022, respectively. For the full year 2023, we expect capital expenditures to be approximately 1.0% of revenue.
Financing Cash Flows
During the years to date ended September 30, 2023 and 2022, net cash flows used in financing activities totaled $12.4 million and $27.8 million, respectively. Payments to repurchase shares of our common stock were $2.7 million for the year to date ended
28
September 30, 2023 and $23.1 million for the year to date September 30, 2022. The current year to date included a $7.2 million dividend payment to Perdoceo shareholders.
Payments of employee tax associated with stock compensation. Payments of employee tax associated with stock compensation were $2.2 million and $1.6 million for the years to date ended September 30, 2023 and 2022, respectively.
Changes in Financial Position
Selected condensed consolidated balance sheet account changes from December 31, 2022 to September 30, 2023 were as follows (dollars in thousands):
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
ASSETS |
|
|
|
|
|
|
|
|
|
|||
NON-CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|||
Intangible assets, net of amortization |
|
|
39,973 |
|
|
|
53,564 |
|
|
|
-25 |
% |
Goodwill |
|
|
241,162 |
|
|
|
243,540 |
|
|
|
-1 |
% |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|||
Income taxes |
|
|
12,611 |
|
|
|
7,814 |
|
|
|
61 |
% |
Deferred revenue |
|
|
38,704 |
|
|
|
71,590 |
|
|
|
-46 |
% |
Intangible assets, net of amortization: The decrease is primarily related to impairments associated with certain definite-lived intangible assets during the current quarter.
Goodwill: The decrease relates to opening balance sheet adjustments associated with the Coding Dojo acquisition.
Income taxes: The increase primarily relates to amounts owed with respect to estimated payments of federal and state income tax for 2023.
Deferred revenue: The decrease is primarily related to the timing impact of the academic terms within CTU and AIUS as well as the decrease in total student enrollments at AIUS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, primarily changes in interest rates. We use various techniques to manage our interest rate risk. We have no derivative financial instruments or derivative commodity instruments, and believe the risk related to cash equivalents and available for sale investments is limited due to the adherence to our investment policy, which focuses on capital preservation and liquidity. In addition, we use asset managers who conduct initial and ongoing credit analysis on our investment portfolio and monitor that investments are in compliance with our investment policy. Despite the investment risk mitigation strategies we employ, we may incur investment losses as a result of unusual and unpredictable market developments and may experience reduced investment earnings if the yields on investments deemed to be low risk remain low or decline.
Interest Rate Exposure
Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell investments that have declined in market value due to changes in interest rates. At September 30, 2023, a 10% increase or decrease in interest rates applicable to our investments or borrowings would not have a material impact on our future earnings, fair values or cash flows.
Under the credit agreement, outstanding principal amounts bear annual interest at a fluctuating rate equal to 1.0% less than the administrative agent’s prime commercial rate, subject to a 3.0% minimum rate. A higher rate may apply to late payments or if any event of default exists. As of September 30, 2023, we had no outstanding borrowings under this facility.
Our financial instruments are recorded at their fair values as of September 30, 2023 and December 31, 2022. We believe that the exposure of our consolidated financial position and results of operations and cash flows to adverse changes in interest rates applicable to our investments or borrowings is not significant.
29
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We completed an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q (“Report”) under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Report was recorded, processed, summarized and reported within the time periods specified in the rules and forms provided by the U.S. Securities and Exchange Commission (“SEC”), and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Our management does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
30
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Note 9 “Contingencies” to our unaudited condensed consolidated financial statements is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, Item 1A “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 23, 2022.
Dividends on our common stock are only payable if declared by the Board of Directors of the Company and permitted by Delaware law.
We declared our first quarterly cash dividend in the third quarter of 2023. We may in the future pay cash dividends to our stockholders but our Board of Directors may, in its discretion, decrease the level of dividends or discontinue the payment of dividends entirely. Our declaration and payment of future cash dividends are subject to the final determination by our Board of Directors that (i) the dividend will be made in compliance with laws applicable to the declaration and payment of cash dividends, including Delaware law, and (ii) the payment of dividends remains in our best interests, which determination will be based on a number of factors, which may include the impact of changing laws and regulations, economic conditions, our results of operations and/or financial condition, including our earnings and cash flows, capital spending plans, the ability to satisfy financial covenants and other factors considered relevant by the Board of Directors. There can be no assurance our Board of Directors will approve the payment of cash dividends in the future. Any discontinuance of the payment of a dividend or changes to the amount of a dividend compared to prior dividends could cause our stock price to decline.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 27, 2022, the Board of Directors of the Company approved a stock repurchase program which authorizes the Company to repurchase up to $50.0 million of the Company’s outstanding common stock. See Note 12 “Stock Repurchase Program” to our unaudited condensed consolidated financial statements for further information.
The following table sets forth information regarding purchases made by us of shares of our common stock on a monthly basis during the year to date ended September 30, 2023:
Issuer Purchases of Equity Securities
Period |
|
Total Number |
|
|
Average Price |
|
|
Total Number |
|
|
Maximum |
|
||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
$ |
26,840,200 |
|
|||
January 1, 2023—January 31, 2023 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
26,840,200 |
|
February 1, 2023—February 28, 2023 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,840,200 |
|
March 1, 2023—March 31, 2023 |
|
|
225,154 |
|
|
|
13.43 |
|
|
|
59,920 |
|
|
|
26,023,778 |
|
April 1, 2023—April 30, 2023 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,023,778 |
|
May 1, 2023—May 31, 2023 |
|
|
161,074 |
|
|
|
11.88 |
|
|
|
161,074 |
|
|
|
24,107,027 |
|
June 1, 2023—June 30, 2023 |
|
|
1,800,000 |
|
(3) |
|
12.27 |
|
|
|
- |
|
|
|
24,107,027 |
|
July 1, 2023—July 31, 2023 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,107,027 |
|
August 1, 2023—August 31, 2023 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,107,027 |
|
September 1, 2023—September 30, 2023 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,107,027 |
|
Total |
|
|
2,186,228 |
|
|
|
|
|
|
220,994 |
|
|
|
|
||
31
Item 5. Other Information
None
32
Item 6. Exhibits
The exhibits required to be filed by Item 601 of Regulation S-K are listed in the “Exhibit Index,” which is attached hereto and incorporated by reference herein.
|
|
INDEX TO EXHIBITS |
|
|
Exhibit Number |
|
Exhibit |
|
Incorporated by Reference to: |
|
|
|
|
|
*10.1 |
|
Notice Regarding Payment of Dividend Equivalents on Restricted Stock Units |
|
Exhibit 10.2 to our Form 10-Q filed on August 3, 2023 |
|
|
|
|
|
*10.2 |
|
Notice Regarding Payment of Dividend Equivalents on Deferred Stock Units |
|
Exhibit 10.3 to our Form 10-Q filed on August 3, 2023 |
|
|
|
|
|
+31.1 |
|
Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
+31.2 |
|
Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
+32.1 |
|
Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
+32.2 |
|
Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
+101.INS |
|
Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
|
|
+101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
+101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
+101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
+101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
+101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
+104 |
|
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (included in Exhibit 101) |
|
|
|
|
____ |
|
|
|
|
* Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-Q |
|
|
|
|
+Filed herewith. |
|
|
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
PERDOCEO EDUCATION CORPORATION |
||
|
|
|
|
Date: November 2, 2023 |
By: |
|
/s/ ANDREW H. HURST |
|
|
|
Andrew H. Hurst President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: November 2, 2023 |
By: |
|
/s/ ASHISH R. GHIA |
|
|
|
Ashish R. Ghia Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
34
