PRDO Generates $53 Million Free Cash Flow In Q1, Stock Soars

Perdoceo Education (PRDO) reported better-than-anticipated quarterly results on May 1. Due to the expected 22.9% year-over-year drop in student enrollments at its American InterContinental University System (AIUS) that resulted from short-term operational changes undertaken and adjustments made to its processes for generating prospective student inquiries during 2023 in order to comply with new regulations, Q1 revenue declined 14.0% to $168.3 million. But this was still $5.0 million ahead of Barrington Research’s forecast as enrollments at the company’s Colorado Technical University were up 28.5% and it continued to enjoy strong student retention and engagement at its two academic institutions. Thanks to reduced admissions and marketing costs and increased interest income on its hefty and growing cash balance, adjusted earnings actually rose 3.4% to 60 cents per share and exceeded the 53-cent profit Barrington was projecting by an even bigger margin.

This solid operating performance also drove the production of a whopping $53.3 million in free cash flow during the quarter, which allowed PRDO to shell out $7.2 million for its recently initiated dividend and repurchase $6.8 million worth of its shares while still increasing its already massive cash hoard by another $38.3 million to $642.4 million (which now translates into $9.61 of net cash per share and still represents about 40% of the stock’s current price even after its 30% post-earnings pop).

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The company’s full-year guidance points to more free-cash generation ahead. With the high levels of student retention and engagement over the past few quarters expected to persist and drive substantial enrollment growth—including a double-digit rebound in enrollments at AIUS—PRDO raised its earnings outlook for the year to $2.11-$2.27 per share from $2.04-$2.26. At the midpoint, this implies earnings of $1.59 per share over the remainder of the year, which is in line with Barrington’s projection and suggests an acceleration in bottom-line growth to over 4% from here. But if history is any guide, PRDO’s actual growth, along with the cash flow derived from it, will probably be even better. Thus, while the surge in its stock since the release could invite some profit-taking, I think the recent momentum will endure.