PERDOCEO EDUCATION Corp

Previous wording

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 0OPERATIONS

Current wording

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

During the second quarter ended June 30, 2024 ("current quarter"), we continued to experience high levels of student retention and engagement at both CTU and AIUS, with student retention at multi-year highs. Our faculty and student support teams remain dedicated to educating and serving our students, and we anticipate that student retention should continue to trend at these levels through the remainder of 2024.

Current wording

During the third quarter ended September 30, 2024 ("current quarter"), we continued to experience high levels of student retention and engagement at both CTU and AIUS, with student retention remaining at multi-year highs. Our faculty and student support teams remain dedicated to educating and serving our students, and we anticipate that student retention should continue to trend at these levels through the remainder of 2024.

Previous wording

Total student enrollments increased 4.2% at June 30, 2024 as compared to June 30, 2023, with CTU’s increase of 14.7% being partially offset with AIUS’ decrease of 18.2%. CTU's increase in total student enrollments was driven by a positive timing impact from the academic calendar comparability resulting in more enrollment days for the current year to date as compared to the prior year to date as well as organic student enrollment growth within our corporate engagement programs. The total student enrollment decrease at AIUS was expected and due to the operational changes made within prospective student enrollment, marketing and outreach processes by AIUS in the prior year to address regulatory changes which went into effect in July of 2023.

Current wording

Total student enrollments increased 11.0% at September 30, 2024 as compared to September 30, 2023, with both academic institutions contributing to this increase. CTU's total student enrollments increased 13.6% as compared to the prior year quarter end driven by student enrollment growth within our corporate engagement programs as well as a positive timing impact from the academic calendar comparability resulting in more enrollment days for the current year to date as compared to the prior year to date. Total student enrollments increased 4.0% at AIUS for the current quarter end as compared to the prior year quarter end as AIUS' total student enrollment comparability had continued to improve during the current year to date since reverting to normalized levels of operations beginning in the fourth quarter of 2023.

Previous wording

We view technology as a catalyst and differentiator for us and remain committed to making selective investments that deliver a more meaningful and relevant educational experience for our learners while continuing to improve the efficiency and effectiveness of our academic institutions’ student support functions. Additionally, we remained focused on investing in and improving processes that support our corporate engagement programs. These programs remain a focus and a priority for both academic institutions and we will continue to make necessary investments in staff and technology to further grow their programs in an efficient and effective manner. Lastly, marketing and admissions spend, and commensurately prospective student inquiry generation, was lower during the current quarter as compared to the prior year quarter. Aided by data analytics, we continue to adjust our marketing strategies to further improve our focus on identifying prospective students who are more likely to succeed at one of our universities, as well as comply with updated expectations from various federal agencies around prospective student outreach.

Current wording

We view technology as a catalyst and differentiator for us and remain committed to making selective investments that deliver a more meaningful and relevant educational experience for our learners while continuing to improve the efficiency and effectiveness of our academic institutions’ student support functions. Additionally, we remained focused on investing in and improving processes that support our corporate engagement programs. Lastly, marketing and admissions spend increased during the current quarter as compared to the prior year quarter, driven by AIUS operating at normalized levels during the current year. We continue to adjust our marketing strategies to further improve our focus on identifying prospective students who are more likely to succeed at one of our universities, as well as comply with updated expectations from various federal agencies around prospective student outreach.

Previous wording

We expect the strong levels of student retention and engagement experienced through the current year to date, to continue through the remainder of 2024. Additionally, as AIUS had mostly reverted to normalized levels of operations in the fourth quarter of 2023, we expect AIUS to experience total student enrollment growth at December 31, 2024 as compared to the prior year end. Full year revenue is expected to be lower for 2024 primarily due to the lag impact on revenue of lower beginning total student enrollments at AIUS as well as lower revenue due to simplification of our professional development offerings at CTU.

Current wording

We expect the strong levels of student retention and engagement experienced through the current year to date, to continue through the remainder of 2024 and expect to end the year with total student enrollment growth at both of our academic institutions as of December 31, 2024. Full year revenue is expected to be lower for 2024 primarily due to the lag impact on revenue of lower beginning total student enrollments at AIUS as well as lower revenue due to simplification of our professional development offerings at CTU.

Previous wording

Revenue for the current quarter decreased by 10.6% or $19.8 million as compared to the prior year quarter, resulting from a decrease in revenue for CTU of 5.4% or $6.5 million and a decrease for AIUS of 19.9% or $13.3 million. The decrease in revenue at CTU was driven by changes within our professional development program offerings and the decrease within AIUS was driven by a lag impact on revenue of the operational changes undertaken during 2023.

Current wording

Revenue for the current quarter decreased by 5.6% or $10.1 million as compared to the prior year quarter, resulting from a decrease in revenue for CTU of 4.0% or $4.8 million and a decrease for AIUS of 9.0% or $5.3 million. The decrease in revenue at CTU was driven by changes within our professional development program offerings as well as a negative timing impact of revenue-earning days due to the academic calendar for the current quarter as compared to the prior year period. CTU's academic calendar 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. The decrease within AIUS was driven by a lag impact on revenue of the operational changes undertaken during 2023.

Previous wording

Operating income for the current quarter decreased to $46.0 million as compared to operating income of $48.1 million in the prior year quarter. The decrease in operating income for the current quarter was a result of lower revenue which was only partially offset with lower operating expenses across most functional categories in the current quarter as compared to the prior year quarter.

Current wording

Operating income for the current quarter increased to $44.8 million as compared to operating income of $43.1 million in the prior year quarter. The increase in operating income for the current quarter was a result of decreased operating expenses, primarily in the areas of asset impairment, academics and administrative expenses, which more than offset the decrease in revenue during the current quarter as compared to the prior year quarter.

Previous wording

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 $50.9 million for the current quarter as compared to $55.2 million for the prior year quarter.

Current wording

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 $48.6 million for the current quarter as compared to $47.2 million for the prior year quarter.

Previous wording

The current quarter and year to date revenue decreased by 10.6% or $19.8 million and 12.3% or $47.2 million, respectively, as compared to the prior year periods, driven by decreases in revenue within both CTU and AIUS. The decline for the current quarter and year to date was driven by the lag impact on revenue due to the operational changes made at AIUS in the prior year as well as changes within our professional development program offerings at CTU. Typically, total student enrollment balances at the end of any given quarter have a lag impact on revenue in the subsequent quarter.

Current wording

The current quarter and year to date revenue decreased by 5.6% or $10.1 million and 10.2% or $57.3 million, respectively, as compared to the prior year periods, driven by decreases in revenue within both CTU and AIUS. The decline for the current quarter and year to date was primarily driven by the lag impact on revenue due to the operational changes made at AIUS in the prior year as well as changes within our professional development program offerings at CTU. Typically, total student enrollment balances at the end of any given quarter have a lag impact on revenue in the subsequent quarter. Additionally, the current quarter and current year to date had a decrease in revenue-earning days at CTU as compared to the prior year periods due to a timing impact of the academic calendar.

Previous wording

The educational services and facilities expense for the current quarter and year to date decreased by 16.0% or $5.2 million and 13.9% or $9.2 million, respectively, as compared to the prior year periods. Academics and student related costs decreased by 13.8% or $4.2 million and 12.5% or $7.7 million for the current quarter and year to date, respectively, as compared to the prior year periods, primarily driven by operational changes made to align with recent student enrollments trends. Occupancy expenses for the current quarter and year to date improved by 41.9% or $1.1 million and 29.3% or $1.5 million, respectively, as compared to the prior year periods, driven by the optimization of leased space.

Current wording

The educational services and facilities expense for the current quarter and year to date decreased by 15.6% or $5.2 million and 14.4% or $14.4 million, respectively, as compared to the prior year periods. Academics and student related costs decreased by 14.1% or $4.4 million and 13.1% or $12.1 million for the current quarter and year to date, respectively, as compared to the prior year periods, primarily driven by operational changes made to align with recent student enrollments trends. Occupancy expenses for the current quarter and year to date improved by 33.1% or $0.8 million and 30.5% or $2.4 million, respectively, as compared to the prior year periods, driven by the continued optimization of leased space.

Previous wording

The general and administrative expense for the current quarter and year to date decreased by 11.2% or $11.3 million and 17.1% or $36.5 million, respectively, as compared to the prior year periods, driven by decreases within all expense categories for the current comparative period.

Current wording

The general and administrative expense for the current quarter increased by 1.8% or $1.6 million and decreased by 11.4% or $34.8 million for the current year to date, as compared to the prior year periods. The current quarter increase was primarily driven by increased advertising and marketing expense, which was only partially offset with a decrease in admissions and administrative expenses. The year to date improvement was driven by decreases within all expense categories as compared to comparative prior year period.

Previous wording

Admissions expense for the current quarter and year to date decreased by 14.4% or $3.4 million and 17.2% or $8.5 million, respectively, as compared to the prior year periods, primarily driven by decreased expenses within both CTU and AIUS as a result of the operational changes made during the prior year.

Current wording

Admissions expense for the current quarter and year to date decreased by 5.5% or $1.2 million and 13.7% or $9.6 million, respectively, as compared to the prior year periods. Admissions expense for the current quarter decreased within CTU, which more than offset the increase within AIUS as a result of the return to normalized operating levels. The current year to date improvement was primarily driven by decreased expenses within both CTU and AIUS as a result of the operational changes made during the prior year.

Previous wording

The administrative expense for the current quarter and year to date decreased by 7.2% or $3.1 million and 13.6% or $12.0 million, respectively, as compared to the prior year periods, primarily driven by operational efficiencies within our academic institutions and decreased legal fees within Corporate and Other.

Current wording

The administrative expense for the current quarter and year to date decreased by 6.2% or $2.5 million and 11.3% or $14.5 million, respectively, as compared to the prior year periods, primarily driven by operational efficiencies within our academic institutions and decreased legal fees within Corporate and Other for the year to date period.

Previous wording

We regularly evaluate our reserve rates, which includes a quarterly update of our analysis of historical student receivable collectability based on the 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. We continue to expect quarterly fluctuations in bad debt expense.

Current wording

Bad debt expense for the current quarter increased by 15.0% or $1.1 million and decreased by 19.4% or $5.2 million for the current year to date, as compared to the prior year periods. We regularly evaluate our reserve rates, which includes a quarterly update of our analysis of historical student receivable collectability based on the 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. We continue to expect quarterly fluctuations in bad debt expense.

Previous wording

For the quarter and year to date ended June 30, 2024, we recorded a provision for income taxes of $14.6 million reflecting an effective tax rate of 27.5% and $28.0 million reflecting an effective tax rate of 26.4%, respectively, as compared to a provision for income taxes of $19.9 million reflecting an effective tax rate of 26.7% and $32.5 million reflecting an effective tax rate of 26.7% for the respective prior year periods.

Current wording

For the quarter and year to date ended September 30, 2024, we recorded a provision for income taxes of $14.1 million reflecting an effective tax rate of 26.9% and $42.1 million reflecting an effective tax rate of 26.6%, respectively, as compared to 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% for the respective prior year periods.

Previous wording

The effective tax rate for the quarter and year to date ended June 30, 2024 was impacted by the tax effect of stock-based compensation and the release of previously recorded tax reserves, which decreased the effective tax rate for the quarter and year to date by 1.4% and 2.0%, respectively. The effective tax rate for the quarter and year to date ended June 30, 2023 was impacted by a $5.3 million unfavorable discrete adjustment related to the $22.1 million gain on the sale of the Le Cordon Bleu trademark, which was taxed at 24.1%. The effective tax rate for the quarter and year to date ended June 30, 2023 also included the tax effect of stock-based compensation and the release of previously recorded tax reserves, which decreased the effective tax rate for the quarter and year to date by 0.6% and 0.7%, respectively. For the full year 2024, we expect our effective tax rate to be between 26.5% and 27.5%.

Current wording

The effective tax rate for the quarter and year to date ended September 30, 2024 reflects federal tax credits claimed for the 2023 tax return, which decreased the effective tax rate for the quarter and year to date by 0.4% and 0.1%, respectively. Additionally, the tax effect of stock-based compensation and the release of previously recorded tax reserves reduced the effective tax rate for the quarter and year to date ended September 30, 2024 by 0.2% and 1.4%, respectively. 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.

Previous wording

CTU. Current quarter and year to date revenue decreased by 5.4% or $6.5 million and 7.1% or $17.4 million, respectively, as compared to the prior year periods. The decrease was primarily driven by changes within the professional development program offerings at CTU. CTU's total student enrollments increase of 14.7% as compared to the prior year quarter end was primarily driven by a positive timing impact of the academic calendar through the current year to date as well as growth in student enrollments from corporate engagement programs.

Current wording

CTU. Current quarter and year to date revenue decreased by 4.0% or $4.8 million and 6.1% or $22.2 million, respectively, as compared to the prior year periods. The decrease was primarily driven by changes within the professional development program offerings at CTU as well as a negative timing impact of revenue-earning days due to the academic calendar for the current quarter and year to date as compared to the prior year periods. CTU experienced total student enrollment growth of 13.6% at September 30, 2024 as compared to the prior year quarter end which was driven by growth in student enrollments from corporate engagement programs as well as a positive timing impact of the academic calendar on enrollment days. CTU's academic calendar 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.

Previous wording

Current quarter and year to date operating income for CTU increased by 6.0% or $2.4 million and 1.1% or $0.9 million, respectively, as compared to the prior year periods, driven by decreases in operating expenses, including decreases related to right-sizing of the cost structure to align with more simplified professional development offerings, which more than offset the declines in revenue.

Current wording

Current quarter and year to date operating income for CTU increased by 28.1% or $9.7 million and 8.9% or $10.6 million, respectively, as compared to the prior year periods. The improvement in operating income was primarily supported by lower academics and admissions expenses as well as right-sizing of the cost structure to align with more simplified professional development offerings, which more than offset the declines in revenue. The current quarter and year to date also included lower asset impairment charges of $7.4 million and $6.2 million, respectively, as compared to the comparative prior year periods.

Previous wording

AIUS. Current quarter and year to date revenue decreased by 19.9% or $13.3 million and 21.5% or $29.7 million, respectively, as compared to the prior year periods. The decreases were driven by a decrease in total student enrollments of 18.2% at June 30, 2024 as compared to the prior year period due to the lag impact from the operational changes made during the latter half of 2023.

Current wording

AIUS. Current quarter and year to date revenue decreased by 9.0% or $5.3 million and 17.8% or $35.0 million, respectively, as compared to the prior year periods. The decreases were driven by a lag impact from the operational changes made during the latter half of 2023. AIUS' experienced total student enrollment growth of 4.0% at September 30, 2024 as compared to the prior year quarter end as the return to normalized operating levels in the fourth quarter of 2023 contributed to increased student enrollments.

Previous wording

Current quarter and year to date operating income for AIUS decreased by 24.3% or $4.2 million and 23.6% or $6.9 million, respectively, as compared to the prior year periods, driven by the decrease in revenue discussed above, which was only partially offset with decreased operating expenses.

Current wording

Current quarter and year to date operating income for AIUS decreased by 41.9% or $6.5 million and 30.0% or $13.4 million, respectively, as compared to the prior year periods, driven by the decrease in revenue discussed above.

Previous wording

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 increased by 4.0% or $0.4 million as compared to the prior year quarter primarily driven by acquisition costs, partially offset with reduced legal fees associated with borrower defense to repayment applications. The year to date operating loss improved by 31.3% or $6.8 million as compared to the prior year period as a result of lower legal expenses.

Current wording

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 increased by 20.6% or $1.4 million as compared to the prior year quarter primarily driven by acquisition costs and increased legal fees for the current quarter. The year to date operating loss improved by 18.6% or $5.4 million as compared to the prior year period primarily as a result of lower legal expenses.

Previous wording

As of June 30, 2024, cash, cash equivalents, restricted cash and available-for-sale short-term investments(“cash balances”) totaled $675.2 million. 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 2024. 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, quarterly dividends payments and pending acquisition through at least the next 12 months primarily with cash generated by operations and existing cash balances.

Current wording

As of September 30, 2024, cash, cash equivalents, restricted cash and available-for-sale short-term investments(“cash balances”) totaled $722.6 million. 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 2024. 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, quarterly dividends payments and pending acquisition through at least the next 12 months primarily with cash generated by operations and existing cash balances.

Previous wording

During the years to date ended June 30, 2024 and 2023, net cash flows provided by operating activities totaled $93.0 million and $66.2 million, respectively. The increase in net cash flows provided by operating activities for the current year to date as compared to the prior year to date was primarily driven by timing differences between the cash inflows related to academic session start dates as compared to revenue earned from those sessions.

Current wording

During the years to date ended September 30, 2024 and 2023, net cash flows provided by operating activities totaled $144.0 million and $98.8 million, respectively. The increase in net cash flows provided by operating activities for the current year to date as compared to the prior year to datewas primarily driven by timing of working capital payments and Title IV cash drawdowns, as well as certain compensation-related payments.

Previous wording

During the years to date ended June 30, 2024 and 2023, net cash flows used in investing activities totaled $60.1 million and $30.5 million, respectively.

Current wording

During the year to date ended September 30, 2024, net cash flows provided by investing activities totaled $7.3 million compared to net cash flows used in investing activities of $31.2 million for the prior year to date.

Previous wording

Purchases and Sales of Available-for-Sale Investments. Purchases and sales of available-for-sale investments resulted in a net cash outflow of $58.1 million and $26.9 million for the years to date ended June 30, 2024 and 2023, respectively.

Current wording

Purchases and Sales of Available-for-Sale Investments. Purchases and sales of available-for-sale investments resulted in a net cash inflow of $10.3 million for the current year to date as compared to a net cash outflow of $26.4 million for the prior year to date.

Previous wording

Capital Expenditures. Capital expenditures decreased to $2.0 million for the year to date ended June 30, 2024 as compared to $3.6 million for the year to date ended June 30, 2023. For the full year 2024, we expect capital expenditures to be approximately 1.5% of revenue.

Current wording

Capital Expenditures. Capital expenditures decreased to $3.0 million for the year to date ended September 30, 2024 as compared to $4.8 million for the year to date ended September 30, 2023. For the full year 2024, we expect capital expenditures to be approximately 1.0% of revenue.

Previous wording

During the years to date ended June 30, 2024 and 2023, net cash flows used in financing activities totaled $23.0 million and $4.6 million, respectively. Payments to repurchase shares of our common stock were $6.8 million for the year to date ended June 30, 2024 and $2.7 million for the year to date ended June 30, 2023.

Current wording

During the years to date ended September 30, 2024 and 2023, net cash flows used in financing activities totaled $31.5 million and $12.4 million, respectively. Payments to repurchase shares of our common stock were $6.8 million for the year to date ended September 30, 2024 and $2.7 million for the year to date ended September 30, 2023.

Previous wording

Payments of cash dividends and dividend equivalents. During the year to date ended June 30, 2024, the Company made dividend payments of $14.6 million.

Current wording

Payments of cash dividends and dividend equivalents. During the years to date ended September 30, 2024 and 2023, the Company made dividend payments of $23.2 million and $7.2 million, respectively.

Previous wording

Deferred revenue: The increase is primarily related to the timing impact of the academic terms within CTU and AIUS along with an increase in total student enrollments at CTU.

Current wording

Deferred revenue: The increase is primarily related to the timing impact of the academic terms within CTU and AIUS along with an increase in total student enrollments.