The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
Perdoceo’s 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 intellipath® 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.
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 June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021.
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 two reporting segments: CTU and AIU.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting guidance adopted in 2021
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions, including the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this ASU also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax and requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For all public business entities, ASU 2019-12 is effective for annual periods and interim periods beginning after December 15, 2020. We have evaluated and adopted this guidance effective January 1, 2021. The adoption did not significantly impact the presentation of our financial condition, results of operations and disclosures.
5
4. FINANCIAL INSTRUMENTS
Investments consist of the following as of June 30, 2021 and December 31, 2020 (dollars in thousands):
|
|
June 30, 2021
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
(Loss)
|
|
|
Fair Value
|
|
Short-term investments (available for sale):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
138
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
138
|
|
Non-governmental debt securities
|
|
|
386,509
|
|
|
|
81
|
|
|
|
(164
|
)
|
|
|
386,426
|
|
Treasury and federal agencies
|
|
|
2,746
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
2,746
|
|
Total short-term investments (available for sale)
|
|
$
|
389,393
|
|
|
$
|
82
|
|
|
$
|
(165
|
)
|
|
$
|
389,310
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
(Loss)
|
|
|
Fair Value
|
|
Short-term investments (available for sale):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
139
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
140
|
|
Non-governmental debt securities
|
|
|
288,578
|
|
|
|
331
|
|
|
|
(176
|
)
|
|
|
288,733
|
|
Treasury and federal agencies
|
|
|
11,799
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
11,803
|
|
Total short-term investments (available for sale)
|
|
$
|
300,516
|
|
|
$
|
338
|
|
|
$
|
(178
|
)
|
|
$
|
300,676
|
|
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 one year.
Our non-governmental debt securities primarily consist of commercial paper and certificates of deposit. Our treasury and federal agencies primarily consist of U.S. Treasury bills and federal home loan debt securities. We do not intend to sell our investments in these securities prior to maturity and it is not likely that we will be required to sell these investments before recovery of the amortized cost basis.
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 June 30, 2021, we held investments that are required to be measured at fair value on a recurring basis. These investments (available for sale) consist of municipal bonds, 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 June 30, 2021 and December 31, 2020. Additionally, money market funds of $38.2 million and $1.7 million included within cash and cash equivalents on our condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, respectively, were measured under Level 1 and certificates of deposit, commercial paper and treasury bills of $5.1 million included within cash and cash equivalents on our condensed consolidated balance sheets as of December 31, 2020 were measured under Level 2.
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 June 30, 2021, our investment in an equity affiliate equated to a 30.7%, or $3.2 million, non-controlling interest in CCKF, a Dublin-based educational technology company providing intelligent systems to power the delivery of individualized and personalized learning.
During the quarters ended June 30, 2021 and 2020, we recorded less than $0.1 million of loss and approximately $0.1 million of gain, respectively, and during the years to date ended June 30, 2021 and 2020, we recorded approximately $0.2 million of gain and $0.1 million of gain, respectively, related to our proportionate investment in CCKF within miscellaneous (expense) income on our unaudited condensed consolidated statements of income.
6
We make periodic operating maintenance payments related to proprietary rights that we use in our intellipath® personalized learning technology. The total fees paid during the quarters and years to date ended June 30, 2021 and 2020 were as follows (dollars in thousands):
|
Maintenance Fee Payments
|
|
For the quarter ended June 30, 2021
|
$
|
436
|
|
For the quarter ended June 30, 2020 (1)
|
$
|
-
|
|
For the year to date ended June 30, 2021
|
$
|
859
|
|
For the year to date ended June 30, 2020 (1)
|
$
|
1,443
|
|
________________________
(1)During the first quarter of 2020, the Company prepaid maintenance payments for the full year 2020, of which approximately $0.4 million and $0.8 million was recognized as expense for the quarter and year to date ended June 30, 2020, respectively.
Credit Agreement
On December 27, 2018, the Company; its wholly-owned subsidiary, CEC Educational Services, LLC; and the subsidiary guarantors thereunder, entered into a credit agreement with BMO Harris Bank N.A. (“BMO Harris”), in its capacities as the sole lender, the letter of credit issuer thereunder and the administrative agent for the lenders which from time to time may be parties to the credit agreement. The credit agreement provides the Company with the benefit of a $50.0 million revolving credit facility and is scheduled to mature on January 20, 2022. The loans and letter of credit obligations under the credit agreement are required to be 100% secured with cash and marketable securities deposited with the bank. As of June 30, 2021 and December 31, 2020, there were no outstanding borrowings under the revolving credit facility.
5. REVENUE RECOGNITION
Disaggregation of Revenue
The following tables disaggregate our revenue by major source for the quarters and years to date ended June 30, 2021 and 2020 (dollars in thousands):
|
|
For the Quarter Ended June 30, 2021
|
|
|
For the Quarter Ended June 30, 2020
|
|
|
|
CTU
|
|
|
AIU
|
|
|
Corporate and Other(3)
|
|
|
Total
|
|
|
CTU
|
|
|
AIU
|
|
|
Corporate and Other(3)
|
|
|
Total
|
|
Tuition
|
|
$
|
95,723
|
|
|
$
|
70,123
|
|
|
$
|
-
|
|
|
$
|
165,846
|
|
|
$
|
94,204
|
|
|
$
|
73,004
|
|
|
$
|
-
|
|
|
$
|
167,208
|
|
Technology fees
|
|
|
5,530
|
|
|
|
2,873
|
|
|
|
-
|
|
|
|
8,403
|
|
|
|
5,162
|
|
|
|
2,633
|
|
|
|
-
|
|
|
|
7,795
|
|
Other miscellaneous fees(1)
|
|
|
389
|
|
|
|
166
|
|
|
|
-
|
|
|
|
555
|
|
|
|
323
|
|
|
|
173
|
|
|
|
-
|
|
|
|
496
|
|
Total tuition and fees
|
|
|
101,642
|
|
|
|
73,162
|
|
|
|
-
|
|
|
|
174,804
|
|
|
|
99,689
|
|
|
|
75,810
|
|
|
|
-
|
|
|
|
175,499
|
|
Other revenue(2)
|
|
|
393
|
|
|
|
61
|
|
|
|
281
|
|
|
|
735
|
|
|
|
504
|
|
|
|
25
|
|
|
|
7
|
|
|
|
536
|
|
Total revenue
|
|
$
|
102,035
|
|
|
$
|
73,223
|
|
|
$
|
281
|
|
|
$
|
175,539
|
|
|
$
|
100,193
|
|
|
$
|
75,835
|
|
|
$
|
7
|
|
|
$
|
176,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year to Date Ended June 30, 2021
|
|
|
For the Year to Date Ended June 30, 2020
|
|
|
|
CTU
|
|
|
AIU
|
|
|
Corporate and Other(3)
|
|
|
Total
|
|
|
CTU
|
|
|
AIU
|
|
|
Corporate and Other(3)
|
|
|
Total
|
|
Tuition
|
|
$
|
195,328
|
|
|
$
|
144,621
|
|
|
$
|
-
|
|
|
$
|
339,949
|
|
|
$
|
191,755
|
|
|
$
|
137,549
|
|
|
$
|
-
|
|
|
$
|
329,304
|
|
Technology fees
|
|
|
11,013
|
|
|
|
5,668
|
|
|
|
-
|
|
|
|
16,681
|
|
|
|
10,282
|
|
|
|
5,290
|
|
|
|
-
|
|
|
|
15,572
|
|
Other miscellaneous fees(1)
|
|
|
681
|
|
|
|
324
|
|
|
|
-
|
|
|
|
1,005
|
|
|
|
695
|
|
|
|
322
|
|
|
|
-
|
|
|
|
1,017
|
|
Total tuition and fees
|
|
|
207,022
|
|
|
|
150,613
|
|
|
|
-
|
|
|
|
357,635
|
|
|
|
202,732
|
|
|
|
143,161
|
|
|
|
-
|
|
|
|
345,893
|
|
Other revenue(2)
|
|
|
835
|
|
|
|
87
|
|
|
|
620
|
|
|
|
1,542
|
|
|
|
1,049
|
|
|
|
70
|
|
|
|
17
|
|
|
|
1,136
|
|
Total revenue
|
|
$
|
207,857
|
|
|
$
|
150,700
|
|
|
$
|
620
|
|
|
$
|
359,177
|
|
|
$
|
203,781
|
|
|
$
|
143,231
|
|
|
$
|
17
|
|
|
$
|
347,029
|
|
__________________
|
(1)
|
Other miscellaneous fees include student activity fees and graduation fees.
|
|
(2)
|
Other revenue primarily includes contract training revenue and miscellaneous non-student related revenue.
|
|
(3)
|
Revenue recorded within Corporate and Other relates to miscellaneous non-student related revenue.
|
Performance Obligations
7
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. 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, 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 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 to students. These fees are earned over the applicable term and are not considered separate performance obligations.
Other revenue, which consists of contract training revenue, bookstore sales and miscellaneous non-student related revenue, is billed and recognized as goods are delivered or services are performed. Contract training revenue results from individual training courses that are stand-alone courses and not part of a degree or certificate program. Bookstore sales are primarily initiated by the student and are not included in the enrollment agreement at the onset of a student’s entrance to the institution. These types of sales constitute a separate performance obligation from classroom instruction.
Our institutions’ academic year is generally at least 30 weeks in length but varies both by institution and program of study and is divided by academic terms. Academic terms are determined by regulatory requirements mandated by the federal government and/or applicable accrediting body, which also vary by university and program. Academic terms are determined by start dates, which vary by university and program and are generally 8-12 weeks in length.
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 AIU’s Trident programs, students are billed as they register for courses, including courses related to future terms. Any billings for future terms would meet the definition of a contract asset as we do not have the unconditional right to receive payment as the academic term has not yet started. Contract assets related to future terms are offset against the deferred revenue associated with the respective future term.
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 terms. 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 terms remain as contract assets until the academic term begins and the student reaches the point in that academic term 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 June 30, 2021 and December 31, 2020 were as follows (dollars in thousands):
|
|
As of
|
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Gross deferred revenue
|
|
$
|
121,467
|
|
|
$
|
85,402
|
|
Gross contract assets
|
|
|
(76,253
|
)
|
|
|
(50,868
|
)
|
Deferred revenue, net
|
|
$
|
45,214
|
|
|
$
|
34,534
|
|
8
Deferred Revenue
Changes in our deferred revenue balances for the quarters and years to date ended June 30, 2021 and 2020 were as follows (dollars in thousands):
|
|
For the Quarter Ended June 30, 2021
|
|
|
For the Quarter Ended June 30, 2020
|
|
|
|
CTU
|
|
|
AIU
|
|
|
Total
|
|
|
CTU
|
|
|
AIU
|
|
|
Total
|
|
Gross deferred revenue, April 1
|
|
$
|
25,136
|
|
|
$
|
32,886
|
|
|
$
|
58,022
|
|
|
$
|
27,986
|
|
|
$
|
28,934
|
|
|
$
|
56,920
|
|
Revenue earned from prior balances
|
|
|
(22,814
|
)
|
|
|
(26,977
|
)
|
|
|
(49,791
|
)
|
|
|
(25,238
|
)
|
|
|
(22,929
|
)
|
|
|
(48,167
|
)
|
Billings during period(1)
|
|
|
155,861
|
|
|
|
83,904
|
|
|
|
239,765
|
|
|
|
99,464
|
|
|
|
86,343
|
|
|
|
185,807
|
|
Revenue earned for new billings during the period
|
|
|
(78,828
|
)
|
|
|
(46,185
|
)
|
|
|
(125,013
|
)
|
|
|
(74,451
|
)
|
|
|
(52,881
|
)
|
|
|
(127,332
|
)
|
Other adjustments
|
|
|
(1,537
|
)
|
|
|
21
|
|
|
|
(1,516
|
)
|
|
|
331
|
|
|
|
258
|
|
|
|
589
|
|
Gross deferred revenue, June 30
|
|
$
|
77,818
|
|
|
$
|
43,649
|
|
|
$
|
121,467
|
|
|
$
|
28,092
|
|
|
$
|
39,725
|
|
|
$
|
67,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year to Date Ended June 30, 2021
|
|
|
For the Year to Date Ended June 30, 2020
|
|
|
|
CTU
|
|
|
AIU
|
|
|
Total
|
|
|
CTU
|
|
|
AIU
|
|
|
Total
|
|
Gross deferred revenue, January 1
|
|
$
|
28,522
|
|
|
$
|
56,880
|
|
|
$
|
85,402
|
|
|
$
|
27,845
|
|
|
$
|
35,359
|
|
|
$
|
63,204
|
|
Business acquisition, beginning balance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,395
|
|
|
|
13,395
|
|
Revenue earned from prior balances
|
|
|
(25,698
|
)
|
|
|
(44,809
|
)
|
|
|
(70,507
|
)
|
|
|
(24,367
|
)
|
|
|
(39,533
|
)
|
|
|
(63,900
|
)
|
Billings during period(1)
|
|
|
257,645
|
|
|
|
136,465
|
|
|
|
394,110
|
|
|
|
202,508
|
|
|
|
132,991
|
|
|
|
335,499
|
|
Revenue earned for new billings during the period
|
|
|
(181,324
|
)
|
|
|
(105,804
|
)
|
|
|
(287,128
|
)
|
|
|
(178,365
|
)
|
|
|
(103,628
|
)
|
|
|
(281,993
|
)
|
Other adjustments
|
|
|
(1,327
|
)
|
|
|
917
|
|
|
|
(410
|
)
|
|
|
471
|
|
|
|
1,141
|
|
|
|
1,612
|
|
Gross deferred revenue, June 30
|
|
$
|
77,818
|
|
|
$
|
43,649
|
|
|
$
|
121,467
|
|
|
$
|
28,092
|
|
|
$
|
39,725
|
|
|
$
|
67,817
|
|
______________
|
1)
|
Billings during period includes adjustments for prior billings.
|
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. 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 universities 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 $2.3 million as of June 30, 2021 and December 31, 2020. Students are typically entitled to a partial refund until approximately halfway through their term. Pursuant to each university’s policy, once a student reaches the point in the term where no refund is given, the student would not have a refund due if withdrawing from the university subsequent to that date.
Management reassesses collectability when a student withdraws from the university and has unpaid tuition charges for the current term which the university is entitled to retain per the applicable refund policy. Such unpaid charges do not meet the threshold of reasonably collectible and are recognized as revenue in accordance with ASC Topic 606 when cash is received and the contract is terminated and neither party has further performance obligations. We have no remaining performance obligations for students who have withdrawn from our universities, and once the refund calculation is performed and funds are returned to the student, if applicable under our refund policy, no further consideration is due back to the student. We recognized $0.5 million and $0.3 million of revenue for the quarters ended June 30, 2021 and 2020, respectively, and $0.9 million and $0.6 million for the years to date ended June 30, 2021 and 2020, respectively, for payments received from withdrawn students.
9
6. 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. We do not charge interest or fees on any of our payment plans.
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. 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 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 30 weeks in length. Generally, a student receivable balance is written off once a student is out of school and it reaches greater than 90 days past due.
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 June 30, 2021 and December 31, 2020, 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 $1.5 million and $1.3 million, respectively.
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 June 30, 2021 and 2020 were as follows (dollars in thousands):
|
|
For the quarter ended June 30,
|
|
|
For the year to date ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Balance, beginning of period
|
|
$
|
43,785
|
|
|
$
|
36,095
|
|
|
$
|
42,147
|
|
|
$
|
31,964
|
|
Beginning balance related to business acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,174
|
|
Provision for credit losses
|
|
|
12,448
|
|
|
|
12,325
|
|
|
|
26,172
|
|
|
|
25,187
|
|
Amounts written-off
|
|
|
(14,253
|
)
|
|
|
(10,133
|
)
|
|
|
(27,320
|
)
|
|
|
(21,734
|
)
|
Recoveries
|
|
|
896
|
|
|
|
757
|
|
|
|
1,877
|
|
|
|
1,453
|
|
Balance, end of period
|
|
$
|
42,876
|
|
|
$
|
39,044
|
|
|
$
|
42,876
|
|
|
$
|
39,044
|
|
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.
7. LEASES
We lease most of our administrative and educational facilities under non-cancelable operating leases expiring at various dates through 2032. Lease terms generally range from five to ten years with one to four renewal options for extended terms. In most cases, we are required to make additional payments under facility operating leases for taxes, insurance and other operating expenses incurred during the operating lease period, which are typically variable in nature.
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):
10
|
For the Quarter Ended June 30, 2021
|
|
For the Year to Date Ended June 30, 2021
|
|
Lease expenses (1)
|
|
|
|
|
|
|
Fixed lease expenses - operating
|
$
|
2,806
|
|
$
|
5,821
|
|
Variable lease expenses - operating
|
|
1,239
|
|
|
2,752
|
|
Sublease income
|
|
(335
|
)
|
|
(834
|
)
|
Total lease expenses
|
$
|
3,710
|
|
$
|
7,739
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
Gross operating cash flows for operating leases (2)
|
$
|
(4,313
|
)
|
$
|
(9,534
|
)
|
Operating cash flows from subleases (2)
|
$
|
353
|
|
$
|
883
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended June 30, 2020
|
|
For the Year to Date Ended June 30, 2020
|
|
Lease expenses (1)
|
|
|
|
|
|
|
Fixed lease expenses - operating
|
$
|
3,116
|
|
$
|
6,264
|
|
Variable lease expenses - operating
|
|
1,627
|
|
|
3,542
|
|
Sublease income
|
|
(563
|
)
|
|
(1,351
|
)
|
Total lease expenses
|
$
|
4,180
|
|
$
|
8,455
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
Gross operating cash flows for operating leases (2)
|
$
|
(5,930
|
)
|
$
|
(12,120
|
)
|
Operating cash flows from subleases (2)
|
$
|
558
|
|
$
|
1,234
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
As of June 30, 2020
|
|
Weighted average remaining lease term (in months) – operating leases
|
|
72
|
|
|
73
|
|
Weighted average discount rate – operating leases
|
|
4.9
|
%
|
|
5.0
|
%
|
|
|
|
|
|
|
|
__________________
|
(1)
|
Lease expense and sublease income represent the amount recorded within our unaudited condensed consolidated statements of income. Variable lease amounts represent expenses recognized as incurred which are not included in the lease liability. Fixed lease expenses and sublease income are recorded on a straight-line basis over the lease term and therefore are not necessarily representative of cash payments during the same period.
|
|
(2)
|
Cash flows are presented on a consolidated basis and represent cash payments for fixed and variable lease costs.
|
Subleases
Historically, for certain of our leased locations we have vacated the facility and have fully or partially subleased the space. As of June 30, 2021, we only have one sublease remaining with a term of 23 months, for which we remain the guarantor under the lease and therefore become the intermediate lessor. We have recognized sublease income of $0.3 million and $0.6 million for the quarters ended June 30, 2021 and 2020, respectively, and $0.8 million and $1.4 million for the years to date ended June 30, 2021 and 2020, respectively, as an offset to lease expense on our unaudited condensed consolidated statements of income.
8. CONTINGENCIES
An accrual for estimated legal fees and settlements of $2.9 million and $1.0 million at June 30, 2021 and December 31, 2020, respectively, is presented within other current liabilities on our condensed consolidated balance sheets.
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.
11
We receive informal requests from state attorneys general and other government agencies relating to specific complaints they have received from students or former students which seek information about the student, our programs and other matters relating to our activities in the relevant state. 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 inquiry or investigation into our practices in a particular state. 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 graduates, 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 final 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.
9. 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 from continuing operations:
|
|
For the Quarter Ended June 30,
|
|
|
For the Year to Date Ended June 30,
|
|
(Dollars in Thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Pretax income
|
|
$
|
35,969
|
|
|
$
|
38,461
|
|
|
$
|
76,978
|
|
|
$
|
77,197
|
|
Provision for income taxes
|
|
$
|
9,319
|
|
|
$
|
10,272
|
|
|
$
|
19,564
|
|
|
$
|
19,876
|
|
Effective rate
|
|
|
25.9
|
%
|
|
|
26.7
|
%
|
|
|
25.4
|
%
|
|
|
25.7
|
%
|
As of December 31, 2020, a valuation allowance of $29.0 million was maintained with respect to our foreign tax credits not supported by an Overall Domestic Loss (“ODL”) account balance and state net operating losses. After considering both positive and negative evidence related to the realization of the deferred tax assets, we have determined that it is necessary to continue to maintain a $29.0 million valuation allowance against our non-ODL supported foreign tax credits and state net operating losses as of June 30, 2021.
The effective tax rate for the quarter and year to date ended June 30, 2021 was impacted by the tax effect of stock-based compensation and the release of previously recorded tax reserves. The effect of these discrete items decreased the effective tax rate for the quarter and year to date by 0.4% and 0.7%, respectively. The effective tax rate for the quarter and year to date ended June 30, 2020 was impacted by the tax effect of stock-based compensation and the release of previously recorded tax reserves. The effect of these discrete items increased the effective tax rate for the quarter by 0.3% and decreased the year to date rate by 0.8%.
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 $1.6 million in the next twelve months as a result of the completion of various tax audits currently in process and the expiration of the statute of limitations in several jurisdictions. The income tax rate for the quarter and year to date ended June 30, 2021 does not take into account the possible reduction of the liability for unrecognized tax benefits. The impact of a reduction to the liability will be treated as a discrete item in the period the reduction occurs. We recognize interest and penalties related to unrecognized tax benefits in tax expense. As of June 30, 2021, we had accrued $1.8 million as an estimate for reasonably possible interest and accrued penalties.
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.
10. 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
12
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 quarters ended June 30, 2021 and 2020, the Company granted less than 0.1 million restricted stock units in each period which are not “performance-based” and which have a grant-date fair value of approximately $0.8 million and $0.9 million, respectively. For the years to date ended June 30, 2021 and 2020, the Company granted approximately 0.4 million and 0.3 million restricted stock units, respectively, which are not “performance-based” and which have a grant-date fair value of approximately $4.4 million for each period.
For the years to date ended June 30, 2021 and 2020, the Company granted approximately 0.4 million and 0.3 million restricted stock units, respectively, which are “performance-based” and which have a grant-date fair value of approximately $4.2 million and $3.9 million, respectively. There were no “performance-based” restricted stock units granted during the quarters ended June 30, 2021 and 2020. The performance-based restricted stock units are subject to performance conditions which are determined at the time of grant and typically cover a three-year performance period. These performance conditions may result in all units being forfeited even if the requisite service period is met.
All restricted stock units granted in 2020 and 2021 are to be settled in shares of our common stock.
Stock Options
There were no stock options granted during each of the quarters or years to date ended June 30, 2021 and 2020.
Share-Based Compensation Expense
Total share-based compensation expense for the quarters and years to date ended June 30, 2021 and 2020 for all types of awards was as follows (dollars in thousands):
|
|
For the Quarter Ended June 30,
|
|
|
For the Year to Date Ended June 30,
|
|
Award Type
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
$
|
96
|
|
|
$
|
293
|
|
|
$
|
256
|
|
|
$
|
698
|
|
Restricted stock units settled in stock
|
|
|
3,577
|
|
|
|
2,994
|
|
|
|
7,165
|
|
|
|
5,797
|
|
Restricted stock units settled in cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(240
|
)
|
Total share-based compensation expense
|
|
$
|
3,673
|
|
|
$
|
3,287
|
|
|
$
|
7,421
|
|
|
$
|
6,255
|
|
As of June 30, 2021, we estimate that compensation expense of approximately $21.0 million will be recognized over the next four years for all unvested share-based awards that have been granted to participants. This amount excludes any estimates of forfeitures.
11. STOCK REPURCHASE PROGRAM
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 the Company’s outstanding common stock. 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. The program expires on December 31, 2021 and replaced all prior stock repurchase programs authorized by the Board of Directors.
During the quarter and year to date ended June 30, 2021, we repurchased 0.4 million shares of our common stock for approximately $5.4 million at an average price of $12.23 per share, and repurchased 1.3 million shares of our common stock for approximately $17.3 million at an average price of $13.48 per share during the year to date ended June 30, 2020. As of June 30, 2021, approximately $22.9 million was available under our authorized stock repurchase program to repurchase outstanding shares of our common stock. Shares of stock repurchased under the program are held as treasury shares. These repurchased shares have reduced the weighted average number of shares of common stock outstanding for basic and diluted earnings per share calculations.
13
12. 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 June 30, 2021 and 2020 were as follows (shares in thousands):
|
For the Quarter Ended June 30,
|
|
|
For the Year to Date Ended June 30,
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Basic common shares outstanding
|
|
70,299
|
|
|
|
69,094
|
|
|
|
70,224
|
|
|
|
69,467
|
|
Common stock equivalents
|
|
1,380
|
|
|
|
1,806
|
|
|
|
1,392
|
|
|
|
1,883
|
|
Diluted common shares outstanding
|
|
71,679
|
|
|
|
70,900
|
|
|
|
71,616
|
|
|
|
71,350
|
|
For the quarters and years to date ended June 30, 2021 and 2020, 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 0.4 million and 0.6 million shares for the quarters ended June 30, 2021 and 2020, respectively, and 0.4 million and 0.6 million shares for the years to date ended June 30, 2021 and 2020, respectively.
13. 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. These segments are organized by key market segments and to enhance brand focus within each segment to more effectively execute our business plan. As of June 30, 2021, our two segments are:
|
♦
|
Colorado Technical University (CTU) is committed to providing 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 the employer’s needs for a well-educated workforce. The university 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 June 30, 2021, students enrolled at CTU represented approximately 62% of our total student enrollments. Approximately 95% of CTU’s students are enrolled in programs offered fully online. CTU’s campus-based and blended-format students are currently pursuing their education solely through CTU’s online platform as a result of the COVID-19 pandemic.
|
|
♦
|
The American InterContinental University System (AIU) is comprised of two universities: American InterContinental University and Trident University International (“Trident” or “TUI”). AIU 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. AIU places emphasis on the educational, professional and personal growth of each student, and pursues this aim with a commitment to institutional integrity and ethics. AIU 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 June 30, 2021, students enrolled at AIU represented approximately 38% of our total student enrollments. Approximately 97% of AIU’s students are enrolled in programs offered fully online. A majority of AIU’s campus-based and blended-format students are currently pursuing their education solely through AIU’s online platform as a result of the COVID-19 pandemic.
|
14
Summary financial information by reporting segment is as follows (dollars in thousands):
|
|
For the Quarter Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Operating Income (Loss)
|
|
|
|
2021
|
|
|
% of Total
|
|
|
2020
|
|
|
% of Total
|
|
|
2021
|
|
|
2020
|
|
CTU
|
|
$
|
102,035
|
|
|
|
58.1
|
%
|
|
$
|
100,193
|
|
|
|
56.9
|
%
|
|
$
|
35,398
|
|
|
$
|
33,076
|
|
AIU
|
|
|
73,223
|
|
|
|
41.7
|
%
|
|
|
75,835
|
|
|
|
43.1
|
%
|
|
|
9,218
|
|
|
|
10,476
|
|
Corporate and Other (1)
|
|
|
281
|
|
|
|
0.2
|
%
|
|
|
7
|
|
|
|
0.0
|
%
|
|
|
(8,654
|
)
|
|
|
(6,184
|
)
|
Total
|
|
$
|
175,539
|
|
|
|
100.0
|
%
|
|
$
|
176,035
|
|
|
|
100.0
|
%
|
|
$
|
35,962
|
|
|
$
|
37,368
|
|
|
|
For the Year to Date Ended June 30,
|
|
|
|
Revenue
|
|
|
Operating Income (Loss)
|
|
|
|
2021
|
|
|
% of Total
|
|
|
2020
|
|
|
% of Total
|
|
|
2021
|
|
|
2020
|
|
CTU
|
|
$
|
207,857
|
|
|
|
57.9
|
%
|
|
$
|
203,781
|
|
|
|
58.7
|
%
|
|
$
|
71,541
|
|
|
$
|
67,695
|
|
AIU (2)
|
|
|
150,700
|
|
|
|
42.0
|
%
|
|
|
143,231
|
|
|
|
41.3
|
%
|
|
|
20,541
|
|
|
|
19,852
|
|
Corporate and Other (1)
|
|
|
620
|
|
|
|
0.1
|
%
|
|
|
17
|
|
|
|
0.0
|
%
|
|
|
(15,503
|
)
|
|
|
(12,876
|
)
|
Total
|
|
$
|
359,177
|
|
|
|
100.0
|
%
|
|
$
|
347,029
|
|
|
|
100.0
|
%
|
|
$
|
76,579
|
|
|
$
|
74,671
|
|
|
|
Total Assets as of (3)
|
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
CTU
|
|
$
|
113,450
|
|
|
$
|
96,922
|
|
AIU
|
|
|
146,863
|
|
|
|
141,602
|
|
Corporate and Other (1)
|
|
|
526,106
|
|
|
|
482,993
|
|
Total
|
|
$
|
786,419
|
|
|
$
|
721,517
|
|
(1)
|
Corporate and Other includes results of operations and total assets for closed campuses.
|
(2)
|
AIU’s revenue and operating income for the year to date ended June 30, 2020, include results of operations related to Trident from the March 2, 2020 date of acquisition and therefore do not reflect a full period of activity for Trident.
|
(3)
|
Total assets do not include intercompany receivable or payable activity between institutions and corporate and investments in subsidiaries.
|
14. SUBSEQUENT EVENT
On August 2, 2021, the Company acquired substantially all of the assets of DigitalCrafts. Launched in 2015, DigitalCrafts has helped provide individuals an opportunity in the technology area through reskilling and upskilling courses within the areas of web development, web design and cybersecurity. The acquisition of DigitalCrafts fits well with our overall objective of extending the breadth of our academic program offerings while diversifying revenue away from federal student financial aid funding.
The initial cash consideration for the acquisition of $16.25 million was funded with the Company’s available cash balances on the date of acquisition and is subject to a working capital adjustment. In addition, a post-closing contingent consideration payment of up to $2.5 million is expected to be paid in early 2024 based upon the level of achievement of certain financial metrics.
15