Executive Summary / Key Takeaways

• Perdoceo Education (PRDO) operates in the complex for-profit postsecondary education sector, leveraging technology like its intellipath platform to differentiate offerings and enhance student outcomes, positioning it against larger competitors like Grand Canyon Education (LOPE) and Adtalem Global Education (ATGE).
• The recent acquisition of the University of St. Augustine for Health Sciences (USAHS) significantly diversifies PRDO's academic portfolio into graduate health sciences, contributing substantially to revenue and adjusted operating income growth in Q1 2025 and expected to be accretive and drive further growth in 2025 and 2026.
• Q1 2025 results exceeded expectations, driven by the USAHS acquisition and organic growth at CTU, supported by strong student retention, engagement, and increased prospective student interest, leading management to raise full-year 2025 adjusted operating income guidance to $220-$235 million and adjusted EPS to $2.40-$2.56.
• Despite positive operational momentum and strategic expansion, PRDO faces significant regulatory risks, including ongoing scrutiny from the Department of Education and legal proceedings, which could impact future operations and financial performance.
• The company maintains a strong balance sheet and balanced capital allocation strategy, including investments in technology and real estate, alongside returning capital to shareholders via dividends and share repurchases, aiming to enhance long-term stockholder value amidst industry challenges.

Setting the Scene: A Tech-Enabled Approach in a Challenging Sector

Perdoceo Education Corporation operates within the dynamic and often scrutinized landscape of postsecondary education. The company's core mission is to provide career-focused education to a diverse student population, primarily busy adults seeking to advance their skills and careers. PRDO achieves this through its accredited academic institutions: Colorado Technical University (CTU), the American InterContinental University System (AIUS), and the recently acquired University of St. Augustine for Health Sciences (USAHS). These institutions offer a mix of fully online, campus-based, and hybrid programs, adapting to the evolving needs of modern learners.

The company's history reflects a strategic evolution, moving towards technology-driven educational models and diversification. A key foundational strength lies in its investment in proprietary technology designed to enhance the learning experience. CTU and AIUS, for instance, utilize the intellipath learning platform, a personalized learning technology that adapts to individual student progress. This platform, coupled with the use of data analytics, is intended to improve student engagement, retention, and ultimately, academic outcomes. Specific quantifiable benefits of intellipath over alternative learning models are not detailed with precise percentages, management emphasizes its role in advancing personalized learning and enhancing overall student experiences, suggesting a tangible benefit in student success metrics like retention. The company views technology as a catalyst and differentiator, actively investing in updates and exploring AI-based solutions across student support processes.

In the broader competitive landscape, PRDO competes with a range of institutions, including other publicly traded for-profit education providers like Grand Canyon Education, Adtalem Global Education, and Strayer Education (STRA), as well as non-profit institutions and emerging online platforms. This sector is characterized by significant regulatory oversight and sensitivity to economic conditions and federal student aid policies. PRDO's strategic positioning leverages its technological capabilities and targeted program offerings, particularly in high-demand fields like healthcare (enhanced by the USAHS acquisition), business, and technology, to carve out its market share. Precise, directly comparable market share figures for all niche competitors are not publicly detailed, PRDO's focus on specific adult learner demographics and career-oriented programs allows it to compete effectively.

Strategic Expansion and Operational Momentum

A pivotal development in PRDO's recent history, and central to its current strategy, was the acquisition of the University of St. Augustine for Health Sciences (USAHS), completed on December 2, 2024. This all-cash transaction, with a net cash payment of approximately $137 million, represents a significant step in diversifying PRDO's academic offerings into the graduate health sciences field, including physical therapy, occupational therapy, speech language therapy, and nursing. USAHS operates through a network of ground campuses and online programs, bringing a traditional university calendar structure (Spring, Summer, Fall terms) into PRDO's portfolio. Management views this acquisition as accretive to adjusted operating income starting in 2025 and expects it to provide further growth in 2026, broadening the company's reach and community impact in a high-demand sector.

This strategic expansion is occurring alongside positive operational trends within the existing CTU and AIUS segments. The company has experienced consistently high levels of student retention and engagement, described as being near multi-year highs. This underlying momentum, coupled with increased prospective student interest observed since the latter half of 2024, is a key driver of recent performance and future expectations. Management has responded by increasing marketing and admissions spending to effectively engage with these prospective students, while continuing to refine strategies using data analytics to identify those most likely to succeed. Growth in corporate student programs at both CTU and AIUS also remains a priority, with ongoing investments in dedicated teams and technology to support this channel.

Financial Performance Reflecting Strategy and Acquisition

The impact of these strategic and operational factors is evident in PRDO's recent financial results. For the first quarter ended March 31, 2025, total revenue increased significantly by 26.6%, or $44.7 million, to $213.0 million compared to $168.3 million in the prior year quarter. This increase was primarily driven by the inclusion of USAHS, which contributed $39.2 million in revenue for the quarter. Organic growth at CTU also contributed, supported by a 10.6% increase in total student enrollments at March 31, 2025, compared to the prior year, reaching 33,400 students. AIUS revenue remained relatively flat at $54.1 million, with total student enrollments decreasing by 4.5% to 10,600, though management expects AIUS to return to total enrollment growth in the second quarter of 2025. USAHS reported 4,200 enrolled students in its spring term as of March 31, 2025, with new enrollments increasing versus the prior year, particularly in nursing and speech language therapy programs.

Operating income for Q1 2025 increased by 11.8% to $51.7 million, up from $46.3 million in the prior year quarter. Adjusted operating income, which excludes certain non-cash items like depreciation and amortization, showed stronger growth, increasing by 28.9% to $63.5 million compared to $49.3 million. This improvement was supported by the revenue growth at CTU and lower operating expenses within AIUS, notably a decrease in bad debt expense for that segment, which more than offset an increase in bad debt expense at CTU. Overall bad debt expense increased by 15.3% to $7.6 million. Educational services and facilities expense saw a substantial 62.6% increase, primarily due to the full quarter inclusion of USAHS expenses. General and administrative expenses also rose by 15.4%, influenced by USAHS and increased corporate overhead. Depreciation and amortization expense increased significantly by $8.8 million, largely attributable to the USAHS acquisition, including amortization for acquired intangibles and finance leases.

Net income for the first quarter was $43.7 million, or $0.65 per diluted share, compared to $39.4 million, or $0.59 per diluted share, in the prior year. Adjusted earnings per diluted share, excluding certain non-cash items, was $0.70 for Q1 2025 compared to $0.60 for Q1 2024. The effective tax rate for the quarter was 22.7%, down from 25.4% in the prior year, benefiting from the tax effect of stock-based compensation and the release of previously recorded tax reserves.

From a liquidity perspective, PRDO maintains a strong financial position. As of March 31, 2025, cash, cash equivalents, restricted cash, and available-for-sale short-term investments totaled $612.2 million. Net cash provided by operating activities in Q1 2025 was $65.1 million, an increase from $54.5 million in the prior year, driven by improved adjusted operating income. The company's balanced capital allocation strategy includes investing in organic projects (capital expenditures were $1.7 million in Q1 2025, expected to be 1-2% of revenue for the full year, largely driven by USAHS), evaluating acquisitions, and returning capital to shareholders. Quarterly dividends are an integral part of this strategy, and the company repurchased approximately 1.0 million shares for $25.2 million during Q1 2025 under its $50 million stock repurchase program, which expires September 30, 2025, with $21.9 million remaining authorization.

Outlook and the Path Forward

Based on the better-than-anticipated operating trends in the first quarter, management has raised its outlook for the full year 2025. Adjusted operating income is now expected to range between $220 million and $235 million, up from the prior range and significantly higher than the $188.9 million reported in 2024. Adjusted earnings per diluted share guidance is set between $2.40 and $2.56, compared to $2.26 in 2024. For the second quarter of 2025, adjusted operating income is projected to be in the range of $59 million to $61 million, with adjusted EPS between $0.64 and $0.66.

This positive outlook is underpinned by several key assumptions. Management expects the consistently high levels of student retention and engagement to persist throughout 2025. The higher levels of prospective student interest experienced recently are also assumed to continue. Furthermore, the outlook incorporates the expected positive contribution from the USAHS acquisition and anticipates organic growth in revenue and total enrollments for CTU and AIUS for the full year 2025, with organic revenue and total enrollments expected to increase for each remaining quarter compared to the prior year. While AIUS may see some quarterly enrollment variability, an additional academic session start in December 2025 is expected to significantly boost year-over-year total enrollment comparisons by year-end. The effective tax rate for the full year 2025 is expected to be between 25.5% and 26.5%.

The company plans to continue its strategic investments in technology, data analytics, real estate (for USAHS), academics, and student support processes, believing these are crucial for enhancing academic outcomes and student experiences. The balanced capital allocation strategy will continue, aiming to grow the ending cash balance in 2025 compared to 2024, while supporting organic growth initiatives and shareholder returns.

Risks and Competitive Dynamics

Despite the positive momentum and strategic expansion, PRDO operates under the shadow of significant risks inherent in the for-profit education sector. The industry is highly regulated and subject to intense scrutiny from federal and state agencies, as well as accreditors. A primary risk is the company's high dependence on Title IV Program funds, which are a major source of tuition funding for students. Any adverse changes to these programs, including eligibility requirements, funding levels, or the need to post significant letters of credit, could materially impact operations and financial condition. The political environment, particularly with a new presidential administration, introduces uncertainty regarding potential changes to Title IV regulations and interpretations.

Legal and regulatory challenges also pose a risk. The company is involved in ongoing legal proceedings, including a False Claims Act case related to its learning management system and a recent Civil Investigative Demand from the DOJ concerning admissions compensation and a credit program at CTU. The outcomes of these matters are uncertain and could result in significant liabilities, although the company has not recognized a loss accrual for the False Claims Act case due to the inability to reasonably estimate a potential loss range at this time. Routine requests for information from various governmental bodies are also time-consuming and carry the risk of escalating into formal actions.

In the competitive arena, while PRDO's technology like intellipath offers a potential differentiator in student outcomes and efficiency, competitors like LOPE and ATGE often benefit from larger scale, potentially lower operating costs per student, and established brand recognition. Comparing TTM financial ratios, PRDO's Gross Profit Margin (80.78%) is notably higher than LOPE (53%) and ATGE (56%), suggesting strong pricing power or cost control at the direct cost level. However, PRDO's Operating Profit Margin (24.75%) is closer to LOPE (27%) and higher than ATGE (14%) and STRA (13%), indicating varying levels of efficiency in broader operating expenses (marketing, admin, etc.). PRDO's Net Profit Margin (20.91%) is comparable to LOPE (22%) and higher than ATGE (9%) and STRA (9%). PRDO's Debt/Equity ratio (0.13) is lower than ATGE (0.62) and STRA (0.08), suggesting a less leveraged balance sheet compared to some peers, though higher than LOPE (0.14). The P/E ratio (14.27) suggests a valuation relative to earnings that is below LOPE (21.07) and ATGE (19.38), but higher than STRA (19.40), potentially reflecting a mix of growth expectations, profitability, and perceived risk. PRDO's strategic response involves leveraging its technological edge and diversifying through acquisitions like USAHS to compete effectively, but it must manage its cost structure and navigate the complex regulatory environment to sustain profitability and growth.

Conclusion

Perdoceo Education Corporation is executing a strategy centered on enhancing student outcomes through technology, expanding into high-demand fields via strategic acquisitions, and maintaining a disciplined capital allocation approach. The successful integration of USAHS and positive operational momentum at CTU, characterized by strong retention and prospective student interest, drove better-than-expected results in the first quarter of 2025 and underpin a raised outlook for the full year. The company's proprietary technology, particularly the intellipath platform, serves as a key differentiator in a competitive market, aiming to improve the educational experience and student success.

However, the investment narrative for PRDO remains inextricably linked to the inherent risks of the for-profit education sector, most notably regulatory uncertainty and potential legal challenges. While the company's strong balance sheet provides a buffer, the ability to sustain growth and profitability will depend on successfully navigating these external pressures while continuing to execute on its strategic initiatives, including the effective integration and expansion of USAHS and ongoing technological advancements. Investors should monitor enrollment trends, regulatory developments, and the outcomes of legal proceedings as critical factors influencing the company's future performance and the realization of its investment potential.