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," "may," "should," "will," "continue to," "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, 2022 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:

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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;

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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;

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the success of our initiatives to improve student experiences, retention and academic outcomes;

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our continued eligibility to participate in educational assistance programs for veterans and other military personnel;

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increased competition;

•

the impact of management changes; and

•

changes in the overall U.S. economy.

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 accredited academic institutions offer a quality postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. The Company's academic institutions - Colorado Technical University ("CTU") and the American InterContinental University System ("AIUS" or "AIU System") - provide degree programs from the associate through doctoral level as well as non-degree seeking and professional development programs. Our academic institutions offer students industry-relevant and career-focused academic programs that are designed to meet the educational needs of today's busy adults. CTU and AIUS continue to show innovation in higher education, advancing personalized learning technologies like their intellipath® learning platform and using data analytics and technology to serve and educate students while enhancing overall learning and academic experiences. 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.



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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 AIUS.

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 all scrutinized the for-profit postsecondary education sector. Congressional hearings and roundtable discussions were held regarding various aspects of the education industry, including issues surrounding student debt as well as publicly reported student outcomes that may be used as part of an institution's recruiting and admissions practices, 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 Department, DoD and the VA and its state approving agencies to take action to limit or terminate the participation of institutions such as ours in existing tuition assistance programs. In addition, targeted loan relief to student borrowers is a stated priority for the Department, and consumer advocacy groups and others are focusing their lobbying and other efforts relating to student debt forgiveness on for-profit colleges and universities, encouraging loan discharge applications and complaints by former students.

The current administration, as well as Congress, are pursuing significant legislative, regulatory and administrative 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 in our 2023 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. We believe the items we are adjusting for are not normal operating expenses necessary to run our business. 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.

2023 First Quarter Overview

During the quarter ended March 31, 2023 ("current quarter"), we remained focused on serving and educating our students. We continued to see improvements in student retention at both CTU and AIUS. This improvement, in part, has been supported by various prospective student enrollment and student outreach changes implemented in the last two years that focus on enrolling learners who we believe will be more successful at one of our academic institutions.

Total student enrollments increased 0.8% at March 31, 2023 as compared to March 31, 2022, primarily driven by an increase at AIUS of 2.1% while total student enrollments remained flat at CTU. Excluding the comparability impact due to the academic calendar, we believe total student enrollments would have been higher at CTU and lower at AIUS as compared to the prior year quarter end.



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During the current quarter we continued to experience growth in our corporate partnership programs, as our teams continue to support corporations around the country in educating and training their employees. The benefits and success of these programs, particularly at CTU, is something we are working to replicate and extend to our recent acquisitions and we will continue to invest in these programs, including technology upgrades aimed to further streamline the overall operating processes related to these partnership programs. In general, these partnerships take time to develop, and students are awarded higher tuition grants from the university to offset their tuition costs, resulting in lower revenue per student in any given period. However, we believe students participating in these programs typically experience higher retention over the course of their program, have better academic outcomes, graduate with no debt and ultimately may lead to a higher life-time value per student.

We believe investments in technology positively impact student experiences and academic outcomes and we remain committed to investing in and upgrading technology to further enhance academic experiences for our students. Over the past two years we have committed various investments in this area and we will continue to execute against those commitments into 2023.

During the current quarter we continued to experience improvements in student retention, in part, due to student loan relief initiatives implemented by the current administration. Additionally, we expect full year revenue to be modestly higher as compared to 2022, resulting from recent acquisitions, the academic calendar redesign at CTU and underlying organic improvements in student retention and engagement. However, total student enrollments at the end of 2023 are expected to be lower as compared to year end 2022, primarily due to the academic calendar redesign at CTU as well as operational changes at AIUS.

Financial Highlights

Revenue for the quarter ended March 31, 2023 increased by 6.9% or $12.6 million as compared to the prior year quarter, resulting from an increase in revenue at both CTU and AIUS. The increase in revenue for the current quarter was driven by the acquisitions completed in 2022 that were not part of the comparative prior year quarter. Excluding these acquisitions, revenue would have been relatively flat as compared to the prior year quarter.

Operating income for the current quarter decreased by 0.8% to $43.3 million as compared to operating income of $43.7 million in the prior year quarter. The decrease in operating income for the current quarter was primarily due to increased legal fees, including legal fees associated with the responses to the Department of Education relating to loan forgiveness applications by former students.

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 was $53.1 million for the current quarter as compared to $50.9 million for the prior year quarter.



Adjusted operating income and adjusted earnings per diluted share for the
quarters ended March 31, 2023 and 2022 is presented below (dollars in thousands,
unless otherwise noted):


                                                         For the Quarter Ended March 31,
Adjusted Operating Income                                  2023                  2022

Operating income                                      $        43,336       $        43,693
Depreciation and amortization (1)                               5,155                 4,882
Legal fee expense related to certain matters (2)                4,619                 2,347
Adjusted Operating Income                             $        53,110       $        50,922

                                                         For the Quarter Ended March 31,
Adjusted Earnings Per Diluted Share                        2023                  2022

Reported Earnings Per Diluted Share                   $          0.50       $          0.46

Pre-tax adjustments included in operating expenses: Amortization for acquired intangible assets (1)

                  0.04                  0.02
Legal fee expense related to certain matters (2)                 0.07                  0.03
Total pre-tax adjustments                             $          0.11       $          0.05
Tax effect of adjustments (3)                                   (0.03 )               (0.01 )
Total adjustments after tax                                      0.08                  0.04
Adjusted Earnings Per Diluted Share                   $          0.58       $          0.50

(1)

Amortization relates to definite-lived intangible assets associated with acquisitions.



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(2)

Legal fee expense associated with (i) responses to the Department of Education (the "Department") relating to borrower defense to repayment applications from former students, and (ii) acquisition efforts.

(3)

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.

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