# PERDOCEO EDUCATION Corp: Form 10-Q for the period ended Mar 31, 2021

- Company: [PERDOCEO EDUCATION Corp](/companies/prdo.md) (CIK 1046568)
- Form: 10-Q
- Filed: 2021-05-06
- Accepted by EDGAR: May 6, 2021, 16:20 ET
- Period: 2021-03-31
- Accession: 0001564590-21-025004
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1046568/000156459021025004/prdo-10q_20210331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1046568/000156459021025004/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-01-01 to 2021-03-31 | $183.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2021-01-01 to 2021-03-31 | $40.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-01-01 to 2021-03-31 | $109.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | $10.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | $30.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | $0.43 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-01-01 to 2021-03-31 | $0.44 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-01-01 to 2021-03-31 | 71,482,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-01-01 to 2021-03-31 | $44.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2021-03-31 | $86.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-03-31 | $506.1m | us-gaap:AssetsCurrent |
| Total assets | at 2021-03-31 | $750.4m | us-gaap:Assets |
| Current liabilities | at 2021-03-31 | $103.2m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2021-03-31 | $588.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 41,982 characters.

*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,” “seek,” “should,” ”will,” “continue to,” “outlook,” “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, 2020 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:*

- *declines in enrollment or interest in our programs;*
- *our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the 90-10, financial responsibility and administrative capability standards prescribed by the U.S. Department of Education (the “Department”)), as well as applicable accreditation standards and state regulatory requirements;*
- *the impact of various versions of “borrower defense to repayment” regulations;*
- *rulemaking by the Department or any state or accreditor and increased focus by Congress and governmental agencies on, or increased negative publicity about, for-profit education institutions;*
- *the success of our initiatives to improve student experiences, retention and academic outcomes;*
- *our continued eligibility to participate in educational assistance programs for veterans and other military personnel;*
- *increased competition;*
- *the impact of management changes; and*
- *changes in the overall U.S. economy which may continue to be impacted by the global COVID-19 pandemic.*

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
- Consolidated Results of Operations
- Segment Results of Operations
- Summary of Critical Accounting Policies and Estimates
- Liquidity, Financial Position and Capital Resources

### OVERVIEW

Our academic institutions offer a quality postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. Our accredited institutions – Colorado Technical University (“*CTU”)* and the American InterContinental University System (“*AIU”) –* provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. Our universities offer students industry-relevant and career-focused academic programs that are designed to meet the educational needs of today’s busy adults. CTU and AIU continue to show innovation in higher education, advancing personalized learning technologies like their intelli**path®** learning platform and using data analytics and technology to support students and enhance learning. 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.

On March 2, 2020, the Company acquired substantially all of the assets of Trident University International (“*Trident University”*), an accredited university offering online undergraduate, master’s and doctoral programs with a strong focus on graduate programs. Trident University’s operations were brought within the AIU segment, preserving the “Trident” name and programs as part of American InterContinental University’s operations. Results of operations related to the acquisition of substantially all of the assets of Trident University (the “*Trident acquisition”*) are included in the consolidated financial statements from the date of acquisition. Effective November 5, 2020, AIU implemented a university system model, the American InterContinental University System, which is comprised of two universities: American InterContinental University and Trident University International (“*Trident”* or “*TUI”).* The system structure provides a new framework for American InterContinental University and Trident to continue to serve their unique student populations while benefitting from one university system.

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 AIU. These segments are organized by key market segments and to enhance brand focus within each segment to more effectively execute our business plan.

### 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 CFPB, the FTC, state attorneys general and the media have scrutinized the for-profit postsecondary education sector. Congressional hearings and roundtable discussions were held regarding various aspects of the education industry 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 Departments of Education, Defense and Veterans Affairs to take action to limit or terminate the participation of for-profit educational institutions, including Perdoceo, in existing tuition assistance programs.

The results of the 2020 Presidential and Congressional elections are likely to significantly impact legislative and regulatory 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 and Risk Factors in our 2021 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. 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.

### 2021 First Quarter Overview

Our financial results for the first quarter ended March 31, 2021 (“*current quarter”*) reflected improvements in revenue and operating income as compared to the prior year quarter. Additionally, total student enrollments improved as compared to the prior year quarter end. The financial results include the Trident acquisition commencing on the March 2, 2020 date of acquisition and therefore the quarter ended March 31, 2020 reflects one month of financial results for Trident as compared to a full quarter of results for Trident for the current quarter. During the current quarter we continued to make targeted investments within our student support processes as well as other initiatives.

Total student enrollments increased 9.7% as of March 31, 2021 as compared to March 31, 2020, with CTU increasing by 12.8% and AIU increasing by 5.0%. We believe our investments in technology and student-serving functions have positively contributed to student experiences and student learning. Both CTU and AIU have continued to increase their student-serving staff and leverage data analytics and technology to enhance the effectiveness of their services to students. Additionally, CTU’s academic calendar redesign positively impacted the total student enrollments as of March 31, 2021 due to a session start date on March 30th this year as compared to a session start date that was in April in the prior year.

During the current quarter we made investments in two initiatives, both of which are designed to allow students to use their employer’s or their own resources to complete their program with little or no debt. One investment relates to expanding our corporate partnership program within CTU. This additional staff should be fully trained and integrated in the second half of the year. Our corporate partnership team identifies, contacts and supports corporations, leveraging their tuition assistance programs to provide debt-free education to their employees through one of our universities. An additional investment that we focused on during the quarter relates to implementing workforce development training programs, which are shorter duration programs. We identified several non-degree, online courses that we believe will offer learning opportunities where one can develop skills and knowledge in a specific endeavor or area of interest. Our training programs are designed to assist adult learners in obtaining additional credentials that are job-focused and can help workers increase skills and prepare for changes in the workplace. We expect to begin offering these programs before the end of the second quarter. We plan to grow these programs first at Trident and then possibly across our other universities.

With respect to the COVID-19 pandemic, we have not experienced any material disruptions to date as our strong balance sheet and technology infrastructure provided us with the ability to adapt our operations in response. While we continue to monitor for future impacts of a potential worsening of global economic conditions on our university operations, we are also monitoring for changes in prospective student interest or student engagement levels as social distancing requirements are relaxed and the U.S. economy continues to reopen.

### Financial Highlights

Revenue for the first quarter ended March 31, 2021 increased $12.6 million or 7.4% as compared to the prior year quarter, reflecting revenue growth at both CTU and AIU as a result of the positive enrollment results discussed above and, for AIU, the Trident acquisition. Operating income for the current quarter increased to $40.6 million as compared to operating income of $37.3 million for the prior year quarter. The growth in revenue along with operating efficiencies was partially offset with increases in all general and administrative expense categories primarily due to the Trident acquisition and investments in student-serving functions.

Revenue within our CTU segment increased $2.2 million or 2.2% for the first quarter of 2021 as compared to the prior year quarter reflecting the increase in total student enrollments. Operating income for CTU increased by $1.5 million to $36.1 million for the current quarter as compared to operating income of $34.6 million for the prior year quarter driven by the increase in revenue as well as operating efficiencies partially offset with increased expenses relating to marketing and admissions.

Revenue within our AIU segment increased $10.1 million or 15.0% for the first quarter of 2021 as compared to the prior year quarter due to the Trident acquisition as well as organic total student enrollment growth. Operating income for AIU increased by $1.9 million to $11.3 million for the current quarter as compared to the prior year quarter driven by the increase in revenue as well as operating efficiencies, partially offset with increased expenses within all general and administrative categories primarily as a result of the Trident acquisition and investments in student-serving functions.

Within our Corporate and Other category, operating loss of $6.8 million increased from $6.7 million in the prior year quarter as the reduction in operating losses associated with closed campuses was offset with increased employee related and other corporate support 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 for the total company was $44.6 million for the current quarter as compared to $39.9 million in the prior year quarter with the improvement primarily driven by revenue gowth at both CTU and AIU and efficiencies within operating processes partially offset with increases in all general and administrative expense categories primarily due to the Trident acquisition and investments in student-serving functions.

Beginning in 2021, we no longer adjust operating income or earnings per diluted share for expenses related to vacated facilities at closed campuses as these expenses are expected to be immaterial. The prior period amounts were recast to maintain comparability to 2021 non-GAAP measures.

Adjusted operating income and adjusted earnings per diluted share for the quarters ended March 31, 2021 and 2020 is presented below (dollars in thousands, unless otherwise noted):

| Adjusted Operating Income | ACTUAL For the Quarter Ended March 31, 2021 | 2020 (3) |
| --- | ---: | ---: |
| **Operating income** | **$40,617** | **$37,303** |
| Depreciation and amortization (1) | 4,002 | 2,639 |
| **Adjusted Operating Income** | **$44,619** | **$39,942** |
|  | **ACTUAL** |  |
|  | **For the Quarter Ended March 31,** |  |
| **Adjusted Earnings Per Diluted Share** | **2021** | **2020 (3)** |
| **Reported Earnings Per Diluted Share** | **$0.43** | **$0.41** |
| **Pre-tax adjustments included in operating expenses:** |  |  |
| Amortization for acquired intangible assets (1) | 0.01 | - |
| **Total pre-tax adjustments** | $0.01 | $- |
| **Tax effect of adjustments (2)** | - | - |
| **Total adjustments after tax** | 0.01 | - |
| **Adjusted Earnings Per Diluted Share** | **$0.44** | **$0.41** |

(1) Amortization for acquired intangible assets relate to definite-lived intangible assets associated with the Trident acquisition.

(2) The tax effect of adjustments was calculated by multiplying the pre-tax adjustments with a tax rate of 25%. This tax rate is intended to reflect federal and state taxable jurisdictions as well as the nature of the adjustments.

(3) 2020 results include the Trident acquisition commencing on the March 2, 2020 date of acquisition.

### Regulatory Updates

On March 11, 2021, President Biden signed a multi-faceted legislative package that includes new economic stimulus measures broadly targeting various aspects of the U.S. economy. Congress included in this legislation a modification to the 90-10 Rule applicable to for-profit institutions that alters the measurement under the rule from the percentage of Title IV Program tuition revenue an institution receives to the percentage of “federal educational assistance” an institution receives. While the required ratio to maintain Title IV Program eligibility will remain at below 90%, specific details on the modified rule and what constitutes “federal educational assistance” are expected to be determined pursuant to a negotiated rulemaking process. The legislation directs the Department to commence negotiated rulemaking no earlier than October 1, 2021 and specifies that the modified rule shall apply for institutional fiscal years beginning on or after January 1, 2023 to provide institutions time to evaluate and comply with the modified rule. See Item 1, “Business – Student Financial Aid and Related Federal Regulation – Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations – ’90-10 Rule’” in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information about the 90-10 Rule.

### 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 ended March 31, 2021 and 2020 (dollars in thousands):

|  | For the Quarter Ended March 31, 2021 | % of Total Revenue | 2020 | % of Total Revenue | 2021 vs 2020 % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| TOTAL REVENUE | $183,638 |  | $170,994 |  | 7.4% |
| OPERATING EXPENSES |  |  |  |  |  |
| Educational services and facilities (1) | 28,974 | 15.8% | 26,911 | 15.7% | 7.7% |
| General and administrative: (2) |  |  |  |  |  |
| Advertising and marketing | 36,794 | 20.0% | 35,057 | 20.5% | 5.0% |
| Admissions | 25,840 | 14.1% | 24,693 | 14.4% | 4.6% |
| Administrative | 33,687 | 18.3% | 30,917 | 18.1% | 9.0% |
| Bad debt | 13,724 | 7.5% | 12,862 | 7.5% | 6.7% |
| Total general and administrative expense | 110,045 | 59.9% | 103,529 | 60.5% | 6.3% |
| Depreciation and amortization | 4,002 | 2.2% | 2,639 | 1.5% | 51.6% |
| Asset impairment | - | 0.0% | 612 | 0.4% | NM |
| OPERATING INCOME | 40,617 | 22.1% | 37,303 | 21.8% | 8.9% |
| PRETAX INCOME | 41,009 | 22.3% | 38,736 | 22.7% | 5.9% |
| PROVISION FOR INCOME TAXES | 10,245 | 5.6% | 9,604 | 5.6% | 6.7% |
| Effective tax rate | 25.0% |  | 24.8% |  |  |
| INCOME FROM CONTINUING OPERATIONS | 30,764 | 16.8% | 29,132 | 17.0% | 5.6% |
| LOSS FROM DISCONTINUED OPERATIONS, net of tax | (11) | 0.0% | (26) | 0.0% | -57.7% |
| **NET INCOME** | **$30,753** | **16.7%** | **$29,106** | **17.0%** | **5.7%** |

(1) Educational services and facilities expense includes costs attributable to the educational activities of our universities, including: salaries and benefits of faculty, academic administrators and student support personnel, and costs of educational supplies and facilities, such as rents on leased facilities and certain costs of establishing and maintaining computer laboratories. Also included in educational services and facilities expense are rents on leased administrative facilities, such as our corporate headquarters, and costs of other goods and services provided by our campuses, including costs of textbooks and laptop computers.

(2) General and administrative expense includes operating expenses associated with, including salaries and benefits of personnel in, corporate and campus administration, marketing, admissions, information technology, financial aid, accounting, human resources, legal and compliance. Other expenses within this expense category include costs of advertising and production of marketing materials and bad debt expense.

### Revenue

Revenue for the first quarter of 2021 (“*current quarter”*) increased 7.4% or $12.6 million as compared to the prior year quarter supported by a 9.7% increase in total student enrollments. The current quarter revenue increase was also benefitted by three months of revenue related to Trident as compared to only one month of revenue in the prior year quarter.

### Educational Services and Facilities Expense (dollars in thousands)

| Educational services and facilities: | For the Quarter Ended March 31, 2021 | 2020 | 2021 vs 2020 % Change |
| --- | ---: | ---: | ---: |
| Academics & student related | $23,833 | $21,512 | 10.8% |
| Occupancy | 5,141 | 5,399 | -4.8% |
| **Total educational services and facilities** | **$28,974** | **$26,911** | **7.7%** |

19

The educational services and facilities expense for the current quarter increased by 7.7% or $2.1 million as compared to the prior year quarter. Academics and student related costs increased by 10.8% or $2.3 million for the current quarter as compared to the prior year quarter, primarily as a result of the Trident acquisition. Occupancy expenses for the current quarter improved by 4.8% or $0.3 million as compared to the prior year quarter, primarily driven by decreases associated with our closed campuses as those leased facilities reach the end of their lease terms.

### General and Administrative Expense (dollars in thousands)

| General and administrative: | For the Quarter Ended March 31, 2021 | 2020 | 2021 vs 2020 % Change |
| --- | ---: | ---: | ---: |
| Advertising and marketing | $36,794 | $35,057 | 5.0% |
| Admissions | 25,840 | 24,693 | 4.6% |
| Administrative | 33,687 | 30,917 | 9.0% |
| Bad debt | 13,724 | 12,862 | 6.7% |
| **Total general and administrative expense** | **$110,045** | **$103,529** | **6.3%** |

The general and administrative expense for the current quarter increased by 6.3% or $6.5 million as compared to the prior year quarter, driven by increases in administration, advertising and marketing, admissions and bad debt expenses. The administrative expense increased by 9.0% or $2.8 million for the current quarter as compared to the prior year quarter, primarily driven by increased employee related and other corporate support expenses within Corporate and Other as compared to the prior year quarter, as well as increases within AIU primarily related to the Trident acquisition.

The advertising and marketing expense for the current quarter increased by 5.0% or $1.7 million as compared to the prior year quarter, due to increased spending to address prospective student interest. This increase supported the positive total student enrollment growth within both CTU and AIU. Admissions expense increased by 4.6% or $1.1 million for the current quarter as compared to the prior year quarter, primarily as a result of the Trident acquisition.

Bad debt expense incurred by each of our segments during the quarters ended March 31, 2021 and 2020 was as follows (dollars in thousands):

| Bad debt expense: | For the Quarter Ended March 31, 2021 | % of Segment Revenue | 2020 | % of Segment Revenue | 2021 vs 2020 % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| CTU | $6,323 | 6.0% | $6,683 | 6.5% | -5.4% |
| AIU | 7,415 | 9.6% | 6,201 | 9.2% | 19.6% |
| Corporate and Other | (14) | NM | (22) | NM | NM |
| **Total bad debt expense** | **$13,724** | **7.5%** | **$12,862** | **7.5%** | **6.7%** |

Bad debt expense increased by 6.7% or $0.9 million for the current quarter as compared to the prior year quarter, in line with the increase in revenue. Bad debt as a percentage of revenue remained flat at 7.5% for the current quarter and prior year quarter. AIU’s 40 basis point increase as a percentage of revenue was offset with CTU’s 50 basis point decrease as a percentage of revenue as we continue to see quarterly fluctuations in bad debt expense. We regularly monitor our reserve rates, which includes a review of our analysis of historical student receivable collectability which we update quarterly based on the most recent data available, along with current known factors which we believe could affect future collectability of our student receivables, including the number of students that do not complete the financial aid process. Our student support teams have maintained their focus on financial aid documentation collection and are counseling students through the Title IV process so that they are better prepared to start school. 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.

### Operating Income

Operating income increased by 8.9% or $3.3 million for the current quarter as compared to the prior year quarter. The increase was primarily due to the increased revenue for the current quarter as compared to the prior year quarter but also reflects efficiencies within operating processes. Partially offsetting the revenue growth and efficiencies within operating processes were increased expenses within all general and administrative expense categories primarily due to the Trident acquisition as well as investments in student-serving functions. Depreciation and amortization expense also increased as compared to the prior year quarter as a result of increased investments in technology initiatives and the Trident acquisition.

### Provision for Income Taxes

For the quarter ended March 31, 2021, we recorded a provision for income taxes of $10.2 million or 25.0% as compared to a provision for income taxes of $9.6 million or 24.8% for the prior year quarter. The effective tax rate for the quarter ended March 31, 2021 was benefitted by the release of previously recorded tax reserves, which reduced the effective tax rate by 1.3%. The effective tax rate for the quarter ended March 31, 2020 was benefitted by the tax effect of stock-based compensation and the release of previously recorded tax reserves, which reduced the effective tax rate by 1.9%. For the full year 2021, we expect our effective tax rate to be between 26.0% and 27.0%.

### SEGMENT RESULTS OF OPERATIONS

The following tables present unaudited segment results for the reported periods (dollars in thousands):

| REVENUE: | For the Quarter Ended March 31, REVENUE 2021 | 2020 | % Change | OPERATING INCOME (LOSS) 2021 | 2020 | % Change | OPERATING MARGIN 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| CTU | $105,822 | $103,588 | 2.2% | $36,143 | $34,619 | 4.4% | 34.2% | 33.4% |
| AIU (1) | 77,477 | 67,396 | 15.0% | 11,323 | 9,376 | 20.8% | 14.6% | 13.9% |
| Corporate and other (2) | 339 | 10 | NM | (6,849) | (6,692) | -2.3% | NM | NM |
| Total | $183,638 | $170,994 | 7.4% | $40,617 | $37,303 | 8.9% | 22.1% | 21.8% |

(1) AIU’s revenue and operating income for the quarter ended March 31, 2020, include results of operations related to Trident from the March 2, 2020 date of acquisition and therefore do not reflect a full quarter of activity for Trident.

(2) Results of operations for closed campuses are included within Corporate and Other.

Total student enrollments represent all 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.

Beginning in the first quarter of 2021, we redesigned CTU’s academic calendar to strategically place breaks between sessions and provide more opportunities for students to continue with their academic programs. We believe this redesign will improve student experiences and engagement. CTU’s academic calendar redesign, along with the previous academic calendar redesign at AIU, may impact the comparability of revenue-earning days and enrollment days as well as new enrollment results between periods and new enrollment results may not be reflective of operating performance and enrollment growth. As a result, we no longer report new student enrollment results and focus our discussions on total student enrollments.

|  | TOTAL STUDENT ENROLLMENTS As of March 31, 2021 | 2020 | % Change |
| --- | ---: | ---: | ---: |
| CTU | 27,300 | 24,200 | 12.8% |
| AIU | 16,800 | 16,000 | 5.0% |
| Total | 44,100 | 40,200 | 9.7% |

***CTU.*** Current quarter revenue increased by 2.2% or $2.2 million due to total student enrollment growth as compared to the prior year quarter. CTU experienced an increase in total student enrollments of 12.8% as of the end of the quarter as compared to the prior year quarter end. CTU’s academic calendar redesign positively impacted the total student enrollments as of March 31, 2021 due to a session start date on March 30th this year as compared to a session start date that was in April in the prior year.

Current quarter operating income for CTU increased by 4.4% or $1.5 million as compared to the prior year quarter driven by the increase in revenue as well as efficiencies within operating processes, which were partially offset with increased advertising and marketing and admissions expense for the current quarter as compared to the prior year quarter.

***AIU.*** Current quarter revenue increased by 15.0% or $10.1 million driven by the Trident acquisition as well as total student enrollment growth of 5.0% as of the end of the quarter as compared to the prior year quarter end. The current quarter benefitted from a full quarter of revenue related to Trident as compared to one month in the prior year quarter. AIU’s increase in total student enrollments reflects consistent levels of prospective student interest which were well-served by AIU’s student enrollment and support teams.

Current quarter operating income for AIU increased by 20.8% or $1.9 million as compared to the prior year quarter, primarily driven by the increase in revenue as well as efficiencies within operating processes, which were partially offset with increases in all general and administrative expenses categories during the current quarter as compared to the prior year quarter primarily due to the Trident acquisition which has a full quarter of operating expenses during the current quarter as compared to one month in the prior year quarter.

***Corporate and Other.*** This category includes unallocated costs that are incurred on behalf of the entire company and remaining expenses associated with closed campuses. Total Corporate and Other operating loss for the current quarter increased by 2.3% or $0.2 million as compared to the prior year quarter, primarily as a result of increased employee related and other corporate support expenses which more than offset the decreased operating losses associated with our closed campuses.

### 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, 2020. 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, 2020 also includes a discussion of these and other significant accounting policies, and Note 3 "*Recent Accounting Pronouncements*" in this Form 10-Q describes accounting policies adopted in 2021.

### LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of March 31, 2021, cash, cash equivalents, restricted cash and available-for-sale short-term investments (“*cash balances”)* totaled $451.0 million. Restricted cash as of March 31, 2021 was $4.0 million and relates to amounts held in an escrow account to secure post-closing indemnification obligations of the seller pursuant to the Trident acquisition. 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 2021. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, our working capital needs, capital expenditures and lease commitments through at least the next 12 months primarily with cash generated by operations and existing cash balances.

Our credit agreement allows us to borrow up to a maximum amount of $50.0 million and is scheduled to mature on January 20, 2022. The credit agreement contains customary affirmative, negative and financial maintenance covenants, including a requirement to maintain a balance of cash, cash equivalents and marketable securities in our domestic accounts with the bank of at least $50.0 million at all times. Amounts borrowed under the credit agreement are required to be 100% secured with deposits of cash and marketable securities with the bank. Under the credit agreement, the Company’s ability to make restricted payments, including payments in connection with an acquisition or a repurchase of shares of our common stock, is subject to limitations. Taking into consideration restricted payments already made by the Company during the term of the credit agreement, the Company may make up to an additional $184.4 million of restricted payments through January 20, 2022.

We maintain a balanced capital allocation strategy that focuses on maintaining a strong balance sheet and adequate liquidity, while (i) prudently investing in organic growth projects at our universities, such as student-serving initiatives and new academic program development, and (ii) evaluating diverse strategies to enhance stockholder value, including acquisitions of quality educational institutions or programs and share repurchases. 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 November 4, 2019, the Board of Directors of the Company approved a stock repurchase program which authorizes the Company to repurchase up to $50.0 million of our common stock from time to time depending on market conditions and other considerations. The program expires on December 31, 2021. Since the November 4, 2019 inception date, the Company repurchased approximately 1.6 million shares for $21.7 million.

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, 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, 2020.

### Sources and Uses of Cash

### Operating Cash Flows

During the quarters ended March 31, 2021 and 2020, net cash flows provided by operating activities totaled $44.7 million and $44.8 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 the quarter ended March 31, 2021, approximately 81% of our institutions’ aggregate cash receipts from tuition payments came from Title IV Program funding as compared to 80% for the full year of 2020. This percentage differs from the Title IV Program percentage calculated under the 90-10 Rule due to the treatment of certain funding types and certain student level limitations on what and how much to count as prescribed under the rule.

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, 2020.

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 quarters ended March 31, 2021 and 2020, net cash flows used in investing activities totaled $62.6 million and $93.9 million, respectively. The prior year quarter included a payment of $34.1 million for the Trident acquisition.

*Purchases and Sales of Available-for-Sale Investments.* Purchases and sales of available-for-sale investments resulted in a net cash outflow of $61.6 million and $58.9 million for the quarters ended March 31, 2021 and 2020, respectively.

*Capital Expenditures.* Capital expenditures were $1.0 million for each of the quarters ended March 31, 2021 and 2020. Capital expenditures represented less than 1.0% of total revenue for each of the quarters ended March 31, 2021 and 2020. For the full year 2021, we expect capital expenditures to be approximately 1.5% to 2.0% of revenue.

### Financing Cash Flows

During the quarters ended March 31, 2021 and 2020, net cash flows used in financing activities totaled $1.7 million and $17.6 million, respectively. The prior year quarter included $17.3 million of payments to repurchase shares of our common stock.

*Payments of employee tax associated with stock compensation.* Payments of employee tax associated with stock compensation were $2.0 million for the quarter ended March 31, 2021 and $0.7 million for the quarter ended March 31, 2020.

### Changes in Financial Position

Selected condensed consolidated balance sheet account changes from December 31, 2020 to March 31, 2021 were as follows (dollars in thousands):

| ASSETS CURRENT ASSETS: | March 31, 2021 | December 31, 2020 | % Change |
| --- | ---: | ---: | ---: |
| Total cash and cash equivalents, restricted cash and short-term investments | $451,017 | $410,360 | 10% |
| **NON-CURRENT ASSETS:** |  |  |  |
| Deferred income tax assets, net | 35,584 | 40,351 | -12% |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |  |
| **CURRENT LIABILITIES:** |  |  |  |
| Accrued expenses - payroll and related benefits | 15,207 | 22,661 | -33% |
| Accrued expenses - income taxes | 6,627 | 1,402 | 373% |

*Total cash and cash equivalents, restricted cash and short-term investments*: The increase is primarily driven by cash provided by operating activities as a result of the increase in total revenue within CTU and AIU during the current quarter, partially offset with cash outflows related to the payment of annual incentive compensation.

*Deferred income tax assets, net:* The decrease reflects the usage of deferred tax assets associated with the offset of income taxes payable.

*Accrued expenses - payroll and related benefits:* The decrease is driven primarily by the payments during the current quarter of annual incentive compensation.

*Accrued expenses – income taxes:* The increase is driven by the exhaustion of previous net operating losses which the Company utilized to offset its income taxes payable in prior periods. With the exhaustion of net operating losses, the Company began making income tax payments with respect to the first quarter of 2021.

## Market risk

As filed, 2,277 characters.

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 March 31, 2021, 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.

Any outstanding borrowings under our revolving credit facility bear annual interest at fluctuating rates under either the Base Rate Loan or as determined by the London Interbank Offered Rate (“*LIBOR”)* for the relevant currency, plus the applicable rate based on the type of loan. Under the credit agreement, if LIBOR cannot be determined or an announcement is made about a specific date after which LIBOR will no longer be used for determining interest rates for loans, an alternative to LIBOR or a mechanism to establish an alternate rate is specified. As of March 31, 2021, we had no outstanding borrowings under this facility.

Our financial instruments are recorded at their fair values as of March 31, 2021 and December 31, 2020. 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.

## Controls and procedures

As filed, 3,227 characters.

### 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 March 31, 2021, 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 March 31, 2021 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.

## Risk factors

As filed, 337 characters.

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, 2020, which was filed with the Securities and Exchange Commission on February 24, 2021.

Filed May 6, 2021.
Source: SEC EDGAR, the filing index for accession 0001564590-21-025004. Last ingested by Listed: Nov 5, 2026, 16:27 ET. No prices; not investment advice.