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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

 

 

The following unaudited pro forma condensed combined financial information presents the pro forma effects of the acquisition of the University of St. Augustine Health Sciences (“USAHS”) by Perdoceo Education Corporation (“Perdoceo”).

On December 2, 2024, Perdoceo completed the acquisition of USAHS and pursuant to the terms of the purchase agreement, USAHS become a wholly owned subsidiary of Perdoceo. The preliminary purchase price of $136.9 million was funded with cash from operations and short-term available for sale investment balances.

 

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2023

(dollars and weighted average shares outstanding in thousands, except per share amounts)

 

 

 

Historical

 

Reclassification Adjustments

 

Transaction Accounting Adjustments

 

Pro Forma Combined

 

 

PEC

 

USAHS

 

 

 

 

 

 

 

 

For the Year Ended 12/31/2023

 

Note 2

 

Note 3

 

For the Year Ended 12/31/2023

REVENUE

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$710,004

 

$170,451

 

 

 

 

 

$880,455

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

Educational services and facilities

 

130,324

 

-

 

52,786

 2(a)

120

3(a)

202,531

 

 

 

 

 

 

7,184

 2(b)

 

 

 

 

 

 

 

 

 

9,718

 2(c)

 

 

 

 

 

 

 

 

 

316

 2(d)

 

 

 

 

 

 

 

 

 

2,083

 2(e)

 

 

 

General and administrative

 

398,084

 

-

 

17,832

 2(a)

 

 

443,164

 

 

 

 

 

 

10,824

 2(b)

 

 

 

 

 

 

 

 

 

2,935

 2(c)

 

 

 

 

 

 

 

 

 

11,405

 2(d)

 

 

 

 

 

 

 

 

 

2,084

 2(e)

 

 

 

Wages and benefits

 

-

 

70,618

 

(70,618)

 2(a)

 

 

-

Professional, contracted & subscription services

 

-

 

18,008

 

(18,008)

 2(b)

 

 

-

Facilities, maintenance and insurance

 

-

 

12,653

 

(12,653)

 2(c)

 

 

-

Advertising and marketing

 

-

 

11,721

 

(11,721)

 2(d)

 

 

-

Other operating expenses

 

-

 

4,167

 

(4,167)

 2(e)

 

 

-

Depreciation and amortization

 

16,887

 

18,580

 

 

 

10,255

3(b)

45,722

Asset impairment

 

14,263

 

-

 

 

 

 

 

14,263

Total operating expenses

 

559,558

 

135,747

 

 

 

 

 

705,680

Operating income

 

150,446

 

34,704

 

 

 

 

 

174,775

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

 

 

 

 

 

Interest income

 

19,980

 

5,755

 

 

 

(6,720)

3(c)

19,015

Interest expense

 

(404)

 

-

 

 

 

 

 

(404)

Interest on debt obligations

 

-

 

(16,627)

 

 

 

16,627

3(d)

-

Interest on finance lease obligations

 

-

 

(3,552)

 

 

 

(502)

3(e)

(4,054)

Miscellaneous income

 

22,099

 

-

 

 

 

 

 

22,099

Total other income

 

41,675

 

(14,424)

 

 

 

 

 

36,656

PRETAX INCOME

 

192,121

 

20,280

 

 

 

 

 

211,431

Provision for income taxes

 

44,469

 

5,233

 

 

 

(243)

3(f)

49,459

NET INCOME

 

$147,652

 

$15,047

 

 

 

 

 

$161,972

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE - BASIC

 

$2.22

 

 

 

 

 

 

 

$2.44

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE - DILUTED

 

$2.18

 

 

 

 

 

 

 

$2.39

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

Basic

 

66,468

 

 

 

 

 

 

 

66,468

Diluted

 

67,826

 

 

 

 

 

 

 

67,826

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024

(dollars and weighted average shares outstanding in thousands, except per share amounts)

 

 

 

Historical

 

Reclassification Adjustments

 

Transaction Accounting Adjustments

 

Pro Forma Combined

 

 

PEC

 

USAHS

 

 

 

 

 

 

 

 

For the Nine Months Ended 09/30/2024

 

Note 2

 

Note 3

 

For the Nine Months Ended 09/30/2024

REVENUE

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$504,832

 

$113,761

 

 

 

 

 

$618,593

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

Educational services and facilities

 

85,661

 

-

 

39,370

 2(a)

79

3(a)

139,844

 

 

 

 

 

 

5,646

 2(b)

 

 

 

 

 

 

 

 

 

7,505

 2(c)

 

 

 

 

 

 

 

 

 

231

 2(d)

 

 

 

 

 

 

 

 

 

1,352

 2(e)

 

 

 

General and administrative

 

270,487

 

-

 

16,556

 2(a)

 

 

305,230

 

 

 

 

 

 

6,778

 2(b)

 

 

 

 

 

 

 

 

 

2,455

 2(c)

 

 

 

 

 

 

 

 

 

7,914

 2(d)

 

 

 

 

 

 

 

 

 

1,040

 2(e)

 

 

 

Wages and benefits

 

-

 

55,926

 

(55,926)

 2(a)

 

 

-

Professional, contracted & subscription services

 

-

 

12,424

 

(12,424)

 2(b)

 

 

-

Facilities, maintenance and insurance

 

-

 

9,960

 

(9,960)

 2(c)

 

 

-

Advertising and marketing

 

-

 

8,145

 

(8,145)

 2(d)

 

 

-

Other operating expenses

 

-

 

2,392

 

(2,392)

 2(e)

 

 

-

Depreciation and amortization

 

9,138

 

14,408

 

 

 

7,320

3(b)

30,866

Asset impairment

 

2,468

 

-

 

241,612

 2(f)

(241,612)

3(g)

2,468

Total operating expenses

 

367,754

 

103,255

 

 

 

 

 

478,408

Operating income

 

137,078

 

10,506

 

 

 

 

 

140,185

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

 

 

 

 

 

Interest income

 

21,685

 

4,755

 

 

 

(5,591)

3(c)

20,849

Interest expense

 

(529)

 

-

 

 

 

 

 

(529)

Interest on debt obligations

 

-

 

(14,025)

 

 

 

14,025

3(d)

-

Interest on finance lease obligations

 

-

 

(2,650)

 

 

 

(320)

3(e)

(2,970)

Loss on impairment of intangible assets

 

 

 

(241,612)

 

241,612

 2(f)

 

 

-

Miscellaneous income (expense)

 

(7)

 

-

 

 

 

 

 

(7)

Total other income (loss)

 

21,149

 

(253,532)

 

 

 

 

 

17,343

PRETAX INCOME (LOSS)

 

158,227

 

(243,026)

 

 

 

 

 

157,528

Provision for (benefit from) income taxes

 

42,101

 

(63,295)

 

 

 

60,582

3(f)

39,388

NET INCOME (LOSS)

 

$116,126

 

$(179,731)

 

 

 

 

 

$118,140

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE - BASIC

 

$1.77

 

 

 

 

 

 

 

$1.80

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE - DILUTED

 

$1.73

 

 

 

 

 

 

 

$1.76

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

Basic

 

65,622

 

 

 

 

 

 

 

65,622

Diluted

 

67,110

 

 

 

 

 

 

 

67,110

 

 

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. Basis of Presentation

 

The unaudited pro forma condensed combined financial information is prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The historical information of Perdoceo and USAHS is presented in accordance with accounting principles generally accepted in the United States of America.

 

Reference should be made to the consolidated balance sheet and footnote 3 “Business Acquisition” in our Annual Report on Form 10-K for the year ended December 31, 2024 for combined balance sheet information and further discussion of the USAHS acquisition.

 

The unaudited pro forma condensed combined consolidated statement of income for the year ended December 31, 2023 and the nine months ended September 30, 2024 give effect to (i) the acquisition as if it had been completed on January 1, 2023, the beginning of Perdoceo’s most recently completed fiscal year and (ii) the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined consolidated statement of income for the year ended December 31, 2023 is prepared using Perdoceo’s audited consolidated statement of income for the year ended December 31, 2023 and USAHS’ audited consolidated statement of operations for the year ended December 31, 2023. The unaudited pro forma condensed combined consolidated statement of income for the nine months ended September 30, 2024 is prepared using Perdoceo’s unaudited condensed consolidated statement of income for the nine months ended September 30, 2024 and USAHS’ unaudited condensed consolidated statement of operations for the nine months ended September 30, 2024.

 

The unaudited pro forma condensed combined financial information is prepared using the acquisition method of accounting in accordance with the business combination accounting guidance as provided in Accounting Standards Codification 805, Business Combinations, with Perdoceo treated as the accounting acquirer for the acquisition.

 

The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisition had been completed as of the dates set forth above, nor is it indicative of the future results of Perdoceo following the acquisition. The unaudited pro forma condensed combined financial information does not give effect to the potential impact of any anticipated synergies, operating efficiencies or cost savings that may result from the acquisition or of any integration costs. The unaudited pro forma condensed combined financial information does not purport to project the future operating results of Perdoceo following the acquisition.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with:

 

•
the accompanying notes to the unaudited pro forma condensed combined financial information;

 

•
the separate historical audited consolidated financial statements of Perdoceo as of and for the year ended December 31, 2023, included in Perdoceo’s Annual Report on Form 10-K filed with the SEC on February 21, 2024;

 

•
the separate historical unaudited consolidated financial statements of Perdoceo as of and for the nine months ended September 30, 2024, included in Perdoceo’s Form 10-Q filed with the SEC on November 12, 2024;

 

•
the separate historical audited consolidated financial statements of USAHS as of and for the year ended December 31, 2023, included as of this 8/K-A;

 

•
the separate historical unaudited consolidated financial statements of USAHS as of and for the nine months ended September 30, 2024, included as .2 of this 8/K-A;

 

 

2. Reclassification Adjustments to Unaudited Pro Forma Condensed Combined Statements of Income

 

Certain reclassifications are reflected in the pro forma adjustments to conform USAHS’ presentation to Perdoceo’s in the unaudited pro forma condensed combined statements of income. These reclassifications have no effect on previously reported total assets, total liabilities and shareholders’ equity, or net income of Perdoceo or USAHS.

 

 

The following reclassification adjustments were made to conform USAHS’ presentation to Perdoceo’s presentation:

(a)
Represents the reclassification of Wages and Benefits expense to the functional expense classifications of Educational Services & Facilities expense and General & Administrative expense.

(b)
Represents the reclassification of Professional, Contract & Subscription Services expense to the functional expense classifications of Educational Services & Facilities expense and General & Administrative expense.

(c)
Represents the reclassification of Facilities, Maintenance & Insurance expense to the functional expense classifications of Educational Services & Facilities expense and General & Administrative expense.

(d)
Represents the reclassification of Advertising & Marketing expense to the functional expense classifications of Educational Services & Facilities expense and General & Administrative expense.

 

(e)
Represents the reclassification of Other Operating expense to the functional expense classifications of Educational Services & Facilities expense and General & Administrative expense.

 

(f)
Represents the reclassification of Loss on Impairment of Intangible Assets from non-operating to operating expense.

 

 

3. Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statements of Income

 

(a)
Represents the adjustment to lease expense for remeasured operating leases.

 

(b)
Represents the adjustment to record elimination of historical depreciation and amortization expense and recognition of new depreciation and amortization expense related to property & equipment, remeasured finance leases and identifiable intangible assets based on the estimated fair value as of the Acquisition Date. Amortization expense was calculated based on the estimated fair value of each of the identifiable intangible assets and the periods in which the associated economic benefits are expected to be derived. The depreciation of property, plant and equipment is calculated based on the estimated fair value of each asset and the associated remaining useful lives.

 

The adjustment for the depreciation and amortization expense is as follows (dollars in thousands):

 

 

 

For the Year Ended December 31, 2023

 

 

For the Nine Months Ended September 30, 2024

 

 

 

 

 

 

 

 

Reversal of USAHS’ historical amortization expense-intangible assets

 

$

(2,031

)

 

$

(1,896

)

Amortization of acquired identifiable intangible assets

 

 

12,958

 

 

 

9,719

 

Reversal of USAHS’ historical amortization expense-finance leases

 

 

(5,132

)

 

 

(3,849

)

Amortization of remeasured finance leases

 

 

4,761

 

 

 

3,571

 

Reversal of USAHS’ historical depreciation expense

 

 

(11,417

)

 

 

(8,663

)

Depreciation of acquired property, plant and equipment

 

 

11,116

 

 

 

8,438

 

Total depreciation and amortization expense adjustment

 

$

10,255

 

 

$

7,320

 

(c)
Represents the reduction of interest income for Perdoceo related to the portion of cash and available for sale short-term investments used for the purchase of USAHS.
(d)
Represents the reversal of USAHS’ historical interest expense on debt obligations.
(e)
Represents the adjustment to interest expense for remeasured finance leases.
(f)
Represents the income tax adjustment resulting from the aggregate change in expenses due to the transaction accounting adjustments and financing adjustments described herein. The tax effect of adjustments was calculated by multiplying the pre-tax adjustments with a tax rate of 25.0%. This tax rate is intended to reflect federal and state taxable jurisdictions as well as the nature of the adjustments and are not necessarily indicative of the effective tax rate of Perdoceo following the acquisition, which could be significantly different depending on post-acquisition activities.

 

(g)
Represents the removal of USAHS’s historical loss on impairment of intangible assets.