Perdoceo Education Corporation (NASDAQ:PRDO) reported strong first quarter 2024 results, with net income of $39.4 million and revenue of $168.3 million. The company's full-year 2023 performance was also impressive, with annual net income of $147.7 million and revenue of $710.0 million. Perdoceo's operating cash flow and free cash flow for 2023 were $112.0 million and $105.6 million, respectively.

In the first quarter of 2024, Perdoceo's net income increased 14.4% year-over-year to $39.4 million, while revenue declined 14.0% to $168.3 million. The revenue decline was primarily driven by a timing impact of the academic calendar at Colorado Technical University (CTU) and lower total student enrollments at American InterContinental University System (AIUS) over the past few quarters. However, the company's operating income increased 6.8% to $46.3 million, as lower operating expenses across most functional areas more than offset the revenue decline.

Business Overview

Perdoceo's accredited academic institutions, CTU and AIUS, offer a quality postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. CTU provides degree programs from the associate through doctoral level, as well as non-degree seeking and professional development programs, in career-oriented disciplines such as business, nursing, computer science, and criminal justice. AIUS offers similar academic programs in fields like business, information technology, education, and health sciences.

Both CTU and AIUS continue to invest in innovative technologies, such as their intellipath® learning platform, to enhance the educational experience and improve student outcomes. The company remains focused on serving the needs of non-traditional adult learners, including the military community, and closing the gap between learners seeking career advancement and employers needing a qualified workforce.

Risks and Challenges

Perdoceo operates in a highly regulated industry, which creates significant risks and uncertainties. The company has faced increased scrutiny from Congress, the Department of Education, state agencies, and other stakeholders in recent years. Regulatory changes, such as the new 90-10 rule and borrower defense to repayment regulations, have required the company to adapt its operations to comply with the evolving regulatory landscape.

The current administration's focus on student loan forgiveness has also impacted the for-profit education sector, including Perdoceo. The company has been cooperating with various information requests and reviews by the Department of Education, which has required significant resources and could lead to additional claims of noncompliance.

Segment Performance

Perdoceo's two reporting segments are CTU and AIUS. In the first quarter of 2024, CTU's revenue decreased 8.8% to $113.6 million, primarily due to a lower number of revenue-earning days during the quarter compared to the prior year. However, CTU's operating income decreased by only 3.5% to $42.2 million, as lower expenses in areas like admissions, marketing, and bad debt partially offset the revenue decline.

AIUS's first quarter revenue decreased 23.1% to $54.5 million, in line with expectations due to the lag impact from operational changes made in the prior year. AIUS's operating income decreased 22.6% to $9.3 million, as the revenue decline was mostly offset by lower operating expenses.

Liquidity

As of March 31, 2024, Perdoceo had $642.4 million in cash, cash equivalents, restricted cash, and available-for-sale short-term investments. The company's net cash flows from operations were $54.5 million in the first quarter of 2024, compared to $4.6 million in the prior year quarter, driven by the timing of academic terms.

Perdoceo's capital allocation strategy focuses on maintaining a strong balance sheet, investing in organic projects (particularly technology initiatives), and evaluating diverse strategies to enhance shareholder value, including acquisitions, quarterly dividend payments, and share repurchases. During the first quarter of 2024, the company repurchased approximately 0.4 million shares for $6.8 million and paid $7.2 million in dividends.

Outlook

For the full year 2024, Perdoceo expects adjusted operating income to range between $175 million and $190 million, compared to $174.9 million in 2023. Adjusted earnings per diluted share are expected to be between $2.11 and $2.27, versus $2.10 in 2023.

The company's outlook reflects its belief that the high levels of student retention and engagement experienced over the past few quarters will continue through the remainder of 2024. However, Perdoceo's revenue is expected to be lower in 2024 compared to 2023 due to the academic calendar comparability at CTU and the lag impact of lower beginning total enrollments at AIUS.

For the second quarter of 2024, Perdoceo expects adjusted operating income to be in the range of $48 million to $50 million, with adjusted earnings per diluted share between $0.57 and $0.59. The company notes that the first half of 2024 is expected to have lower adjusted operating income compared to the first half of 2023, while the second half is expected to show growth.

Conclusion

Perdoceo Education Corporation delivered solid first quarter 2024 results, with strong operating income growth despite a decline in revenue. The company's focus on enhancing student experiences, retention, and academic outcomes, as well as its investments in technology and corporate engagement programs, have positioned it well for the future.

However, Perdoceo continues to navigate a challenging regulatory environment, with the Department of Education's ongoing rule-making and interpretation changes posing potential risks and operational impacts. The company's balanced capital allocation strategy, including dividends and share repurchases, demonstrates its commitment to creating shareholder value.

Overall, Perdoceo's performance in the first quarter of 2024 and its optimistic outlook for the full year suggest the company is well-positioned to navigate the industry's complexities and continue delivering value to its students and shareholders.