What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-16 compared with 2021-02-17 · 168 added, 143 removed, 168 unchanged (65% of the section changed)

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GCE has developed significant technological solutions, infrastructure and operational processes to provide services to these institutions on a large scale.

GCE’s most significant university partner is GCU, a comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and certificates across nine colleges both online and on ground at its campus in Phoenix, Arizona.

In January 2019, GCE began providing education services to numerous university partners across the United States, through our wholly-owned subsidiary, Orbis Education, which we acquired on January 22, 2019.

See Note 3 - Acquisition to consolidated financial statements for a full description of the Acquisition.

In the healthcare field, GCE, together with Orbis Education, works in partnership with a growing number of top universities and healthcare networks across the country, offering health care related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates, who enter the workforce ready to meet the demands of the healthcare industry.

Since the Acquisition, GCE, together with Orbis Education, has continued to add additional university partners.

In the healthcare field, we work in partnership with a growing number of top universities and healthcare networks across the country, offering healthcare-related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates, who enter the workforce ready to meet the demands of the healthcare industry.

In addition, we have begun providing certain services to a university partner to assist them in expanding their online graduate programs.

As of December 31, 2021, GCE provides education services to 27 university partners across the United States.

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We may engage with both new and existing university partners to offer healthcare programs, online only or hybrid programs, or, as is the case for our most significant partner, GCU, both healthcare and other programs.

Therefore, we will refer to all university partners as “GCE partners” or “our partners” and will no longer differentiate between partners of GCE and partners of Orbis Education;

we will, however, continue to disclose significant information for GCU, such as enrollments, due to its size in comparison to our other university partners.

In addition, we have centralized a number of services that historically were provided separately to university partners of Orbis Education;

therefore, we refer to all university partners as “GCE partners” or “our partners”.

We do disclose significant information for GCU, such as enrollments, due to its size in comparison to our other university partners.

Impact of COVID-19

In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic.

This contagious outbreak, which has continued to spread, and the related adverse public health developments, including orders to shelter-in-place, travel restrictions and mandated non-essential business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally, leading to an economic downturn and increased market volatility.

Since March 2020, the world has been, and continues to be, impacted by the COVID-19 pandemic.

This contagious outbreak, which has continued to spread, and the related adverse public health developments that have occurred at various times since March 2020, including orders to shelter-in-place, travel restrictions and mandated non-essential business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally.

It has also disrupted the normal operations of many businesses, including ours, and that of our university partners.

Due to the economic disruption caused by the COVID-19 pandemic, the National Bureau of Economic Research announced in June 2020 that the United States entered into a recession in February 2020.

GCE has a long-term master services agreement with GCU (the “Master Services Agreement”) pursuant to which GCE provides education services to GCU in return for 60% of GCU’s tuition and fee revenues, which includes fee revenues from room, board, and other ancillary businesses including a student-run golf course and hotel.

GCU has three types of students:

GCU has four types of students:

traditional ground university students, who attend class on its campus in Phoenix, Arizona and of which approximately 70% have historically lived on campus in university owned residence halls;

professional studies

students, who are working adult students who attend class one night a week on the Phoenix campus;

and online students who attend class fully online.

professional studies students, who are working adult students who attend class one night a week on the Phoenix campus;

online students who attend class fully online;

and students who are studying in hybrid programs in which the ground component takes place at off-campus classroom and laboratory sites.

The COVID-19 outbreak, as well as measures taken to contain its spread, has impacted GCU’s students and its business in a number of ways.

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Summer 2020 semester classes were moved to an online environment as well and most students were given the choice of attending the Fall 2020 semester in person or completely online.

Given GCE’s historical experience delivering online education services and the fact that all of GCU’s students and faculty use the university’s online learning management system for at least some of the coursework, the transition has been seamless and thus, the university has not incurred a significant decrease in tuition revenue or significant increase in costs associated with this transition.

The following impacts from the COVID-19 pandemic, however, did serve to reduce GCU’s non-tuition revenue during its Spring, Summer and Fall 2020 semesters and, consequently, the service revenues we earned under the Master Services Agreement:

Given GCE’s historical experience delivering online education services and the fact that all of GCU’s students and faculty use the university’s online learning management system for at least some of the coursework, the transition was seamless and thus, the university did not incur a significant decrease in tuition revenue or significant increase in costs associated with this transition in March 2020.

The following impacts from the COVID-19 pandemic, however, did serve to reduce GCU’s non-tuition revenue during 2020 and reduced GCU’s revenue during 2021 and, consequently, the service revenues we earned under the Master Services Agreement:

● Traditional ground university students who elected to move off campus near the end of the Spring 2020 semester received partial refunds for dormitory and meal payments, which reduced GCU’s revenue and thus the service revenues earned by GCE in the last nine days of March 2020 and the month of April 2020;

● Ancillary businesses operated by GCU such as its hotel and merchandise shops were closed in late March 2020.

Some of these businesses remain closed while others opened with scaled back operations in mid-September, which reduced and will continue to reduce GCU’s revenues and thus the service revenues earned by GCE until these businesses are fully reopened;

● Limited residential students remained on campus during the Summer semester, which reduced GCU’s dormitory and ancillary revenues and thus the service revenues earned by GCE;

Most of these businesses re-opened with scaled back operations in mid-September 2020.

Some of these ancillary businesses have fully reopened while others still have not, which has reduced GCU’s revenues and thus the service revenues earned by GCE.

Until these businesses return to full capacity, it will continue to reduce GCU’s revenues and thus the service revenues earned by GCE;

● Limited residential students remained on campus during the Summer 2020 semester, which reduced GCU’s dormitory and ancillary revenues and thus the service revenues earned by GCE in 2020.

The number of residential students that remained on campus during the Summer 2021 semester, however, was higher than in the Summer of 2019;

● GCU’s doctoral students are required to attend two residencies on the university’s campus and at its hotel in Phoenix, Arizona as part of their dissertation.

On an annual basis approximately 3,000 learners attend the week-long residency, most of whom have historically attended in the Summer.

Most of the residencies who were scheduled for the last week of March through the end of July were cancelled.

The doctoral residencies scheduled for August through December were held at another location with lower than normal attendance resulting in lower GCU revenues including at its hotel, and thus reduced the service revenues earned by GCE;

● GCU shifted its start date for the Fall semester for its traditional ground students from August 24, 2020 to September 8, 2020, which had the effect of moving tuition revenue for all GCU traditional students, and certain ancillary revenue for residential students, from the third quarter of 2020 to the fourth quarter of 2020;

● GCU shifted its move-in date for its residential students to the week of September 21, 2020, which reduced housing revenue and certain ancillary revenue for residential students by three weeks.

On an annual basis approximately 3,000 learners attend the week-long residencies, most of whom have historically attended in the Summer.

Most of the residencies which were scheduled for the last week of March 2020 through the end of July 2020 were cancelled, and the residencies scheduled for August 2020 through December 2020 were held at another location with lower than normal attendance.

This reduced GCU’s revenues including at its hotel, and thus reduced service revenues earned by GCE until residencies returned to normal attendance.

In the first quarter of 2021, doctoral residencies returned to the university’s campus and its hotel, although at lower than normal attendance rates.

Attendance at doctoral residencies beginning in the second quarter of 2021 returned to 2019 levels;

however, the residencies were held at an off-site location during the Fall semester;

● GCU shifted its start date for the Fall 2020 semester for its traditional ground students from August 24, 2020 to September 8, 2020, which had the effect of shifting tuition revenue for all GCU traditional students and certain ancillary revenue for residential students, from the third quarter of 2020 to the fourth quarter of 2020.

This later start date for the Fall semester was retained in 2021 as the semester began on September 7, 2021;

● GCU shifted its move-in date for its residential students in the Fall 2020 semester to the week of September 21, 2020, which reduced housing revenue and certain ancillary revenue for residential students by three weeks.

In addition, approximately 4,900 of GCU’s traditional campus students elected to attend the Fall 2020 semester entirely in the online modality.

Residential enrollment for the Fall of 2020 was approximately 11,500 whereas residential bed capacity is approximately 14,500.

Residential enrollment for the Fall 2020 semester was 11,441 whereas residential bed capacity is approximately 14,500.

This reduction in residential students caused a reduction in GCU’s revenue and thus the service revenues earned by GCE.

In January 2021, GCU announced the first week of the Spring 2021 semester would be completed in an online modality to provide greater flexibility for students returning to campus after the holidays.

Face-to-face instruction for the Spring semester for its traditional ground students commenced on January 11, 2021.

Approximately 3,500 traditional ground students have elected to complete the Spring semester entirely in the online modality.

Spring semester face-to-face instruction will end April 1, 2021 for approximately 80% of classes, followed by two weeks of online instruction from April 5, 2021 through April 16, 2021 with Spring Break from April 19, 2021 to April 25, 2021.

These changes will have the effect of reducing GCU’s dormitory and ancillary revenues in the Spring of 2021 and thus the service revenues earned by GCE.

The number of residential students for the Fall semester of 2021 was 15,570, an increase of 36.1% over Fall semester of 2020;

● The first week of the Spring 2021 semester was completed in an online modality for GCU’s traditional students to provide greater flexibility for students returning to campus after the holidays.

Face-to-face instruction for the semester commenced on January 11, 2021 and ended April 1, 2021 for approximately 80% of classes, followed by two weeks of online instruction.

Approximately 3,500 traditional ground students elected to complete the Spring 2021 semester entirely in the online modality.

These changes had the effect of reducing GCU’s dormitory and ancillary revenues in the Spring of 2021 and thus the service revenues earned by GCE;

● During the second quarter of 2020, GCU’s online enrollment growth accelerated significantly into the high single digits.

The increased level of online enrollment at that time resulted from a combination of factors including an acceleration of new students starting programs, a higher-than-expected number of students returning to the university that had taken a break from their program (“re-enters”) and a lower-than-expected number of students deciding to drop out of or take a break from their program.

We believe these trends were primarily caused by the shutdowns precipitated by the COVID-19 outbreak as greater numbers of working adults decided to return to school to finish undergraduate degree programs that they had previously started or to start new graduate degree programs during this time.

These trends generally continued through the first quarter of 2021.

Beginning in the second quarter of 2021, online enrollment growth rates as compared to the prior year period began to slow as both new enrollments and re-enters were down year over year, the numbers of students dropping out of school or taking periodic breaks in their program returned to historical levels and students completing their programs increased significantly on a year over year basis.

These trends continued through the rest of 2021 and thus the year over year online growth rate continued to decline.

The decline in new enrollments as compared to the prior year beginning in the second quarter of 2021 and continuing through the end of 2021 were also the result of recruitment challenges caused by the reduced access to schools, hospitals, and businesses where our potential students work.

We believe that as the year over year comparables return to historical levels and schools, hospitals and businesses fully reopen, our online enrollment growth rate will begin to re-accelerate;

● Professional studies students have declined significantly since the onset of the COVID-19 outbreak.

Professional studies students at that time were converted to the online learning environment;

since then, most have completed their programs while no new cohorts have been started until very recently.

Now that the university has approved the recruitment of new professional studies cohorts, we anticipate that the number of these students will begin to grow.

The changes described above at GCU have impacted or will impact GCE’s service revenue under the Master Services Agreement.

In addition, due to the limited operating expenses that we incur to deliver those services, there has been or will be a direct reduction in our operating profit and operating margin.

GCE also has long-term services agreements with numerous other university partners across the United States.

The majority of these other university partners’ students are studying in the Accelerated Bachelor of Science in Nursing program which is offered in a 12-16 month format in three or four academic semesters.

The Spring, Summer and Fall 2020 semesters were completed without interruption and each university partner has started its Spring 2021 semester.

Some students who were scheduled to start their program in the Summer 2020 semester delayed their start until the Fall 2020 which resulted in lower enrollments and revenues in the Summer 2020 semester than was planned.

GCE also provides services to numerous university partners across the United States, including GCU at off-campus classroom and laboratory sites.

The majority of these university partners’ students are studying in the Accelerated Bachelor of Science in Nursing (“ABSN”) program which is offered in a 12-16-month format in three or four academic semesters.

The Spring, Summer and Fall 2020 and Spring, Summer and Fall 2021 semesters were completed without interruption and each university partner has started its Spring 2022 semester.

Some students who were scheduled to start their programs in the Summer 2020 semester delayed their start until the Fall 2020 semester, which resulted in lower enrollments and revenues in the Summer 2020 semester than was planned.

In a number of locations, the demand to start in the Fall 2020 semester was greater than initially planned but a number of our university or healthcare partners chose not to increase the Fall 2020 cohort size to compensate for the Summer 2020 start shortfall due to concerns about clinical availability.

The Fall 2020 enrollment was only slightly lower than our original expectations as the Summer 2020 new start shortfall was offset by higher retention rates and slightly higher than expected Fall 2020 new starts.

No other changes are currently anticipated related to the Spring 2021 semester that would have an impact on GCE’s service revenue, operating profit and operating margins.

However, if GCU determines that it must send its students home prior to the end of the Spring semester and elects to give partial refunds for dormitory and meal payments or if one of our other university partners closes a location prior to the end of the Spring semester, such an event would reduce the service revenues earned by GCE.

The COVID-19 outbreak also presents operational challenges to GCE as approximately 90% of our workforce is currently working remotely and is expected to continue doing so for the foreseeable future.

Beginning with the Summer 2021 semester and continuing into the Fall 2021 semester, we have experienced a decline in revenue per student from students in these programs caused primarily by some students delaying their scheduled clinical courses due to vaccine mandates at hospital partners and we are starting to see a reduction in our off-site classroom and laboratory student enrollment growth rate due primarily to delays in the opening of scheduled new sites and requests by some of our university or hospital partners or their state regulatory boards to reduce cohort sizes due to concerns over potential clinical faculty availability caused by nursing and other healthcare

employee shortages.

This is especially true with our university partner’s Occupational Therapy Assistants (“OTA”) program in which enrollment declined 45.7% between December 31, 2020 and 2021 as the university partner stopped admitting new students for most of 2021 due to clinical placement backlog.

None of our ABSN partners have stopped admitting new students but some locations that were scheduled to open in 2021 and 2022 have been pushed back and some existing partners have reduced incoming cohort sizes due to the concern that there are not enough nurses to serve as clinical faculty.

No other changes are currently anticipated with our other university partners related to the Spring 2022 semester that would have a material impact on GCE’s service revenue, operating profit and operating margins.

However, if one of our university partners were to close an off-campus classroom and laboratory site prior to the end of the Spring 2022 semester or take some other action that adversely impacted program enrollment, such an event would reduce the service revenues earned by GCE.

The COVID-19 outbreak also presents operational challenges to GCE as a large percentage of our workforce is currently working remotely and is expected to continue doing so for the foreseeable future.

This degree of remote working could increase risks in the areas of internal control, cyber security and the use of remote technology, and thereby result in interruptions or disruptions in normal operational processes.

It is not possible for us to completely predict the duration or magnitude of the adverse results of the COVID-19 pandemic and its effects on our business, results of operations or financial condition at this time, but such effects may be material in future quarters.

We estimate that the reduction in service revenue attributable to reduced tuition, fees and ancillary revenues of our university partners resulting from COVID-19 will be $4.5 million in the first quarter of 2021 with a comparable reduction in operating profit.

Critical Accounting Policies and Estimates

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Revenue recognition .

Starting July 1, 2018, GCE generates all of its revenue through services agreements with its university partners (“Services Agreements”), pursuant to which GCE provides integrated technology and academic

services, marketing and communication services, and as applicable, certain back office services to its university partners in return for a percentage of tuition and fee revenue.

GCE generates all of its revenue through services agreements with its university partners (“Services Agreements”), pursuant to which GCE provides integrated technology and academic services, marketing and communication services, and as applicable, certain back office services to its university partners in return for a percentage of tuition and fee revenue.

GCE’s Services Agreements have a single performance obligation, as the promises to provide the identified services are not distinct within the context of these agreements.

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Due to the variable nature of the consideration over the life of the service arrangement, GCE considered forming an expectation of the variable consideration to be received over the service life of this one performance obligation.

However, since the performance obligation represents a series of distinct services, GCE recognizes the variable consideration that becomes known and billable because these fees relate to the distinct service period in which the fees are earned.

GCE meets the criteria in the standard and exercises the practical expedient to not disclose the aggregate amount of the transaction price allocated to the single performance obligation that is unsatisfied as of the end of the reporting period.

However, since the performance obligation represents a series of distinct services, GCE recognizes the variable consideration that becomes

known and billable because these fees relate to the distinct service period in which the fees are earned.

GCE meets the criteria in ASC 606 Revenue from Contracts with Customers and exercises the practical expedient to not disclose the aggregate amount of the transaction price allocated to the single performance obligation that is unsatisfied as of the end of the reporting period.

GCE does not disclose the value of unsatisfied performance obligations because the directly allocable variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single performance obligation.

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In July 2019, the FASB issued Accounting Standards Update 2019-07, “Codification Updates to SEC Sections- Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10532, Disclosure Update and Simplification"

, which makes a number of changes meant to simplify certain disclosures in financial condition and results of operations, particularly by eliminating year-to-year comparisons between prior periods previously disclosed.

33-10532, Disclosure Update and Simplification” , which makes a number of changes meant to simplify certain disclosures in financial condition and results of operations, particularly by eliminating year-to-year comparisons between prior periods previously disclosed.

In complying with the relevant aspects of the rule covering the current year annual report, we now include disclosures on results of operations for fiscal year 2021 versus 2020 only.

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Our service revenue for the year ended December 31, 2021 was $896.6 million, an increase of $52.5 million, or 6.2%, as compared to service revenue of $844.1 million for the year ended December 31, 2020.

The increase year over year in service revenue was primarily due to an increase in university partner enrollments between years of 8.5% partially offset by a decrease in revenue per student year over year.

The increase year over year in service revenue was primarily due to an increase in revenue per student year over year, partially offset by a slight decrease in university partner enrollments between years of 3.0%.

The increase in revenue per student is primarily due to the service revenue impact of the higher room, board, fee and ancillary revenues at GCU in 2021 as compared to the same period in 2020 as a result of an increase in GCU residential student enrollment between periods due to the growth in traditional campus enrollment and the revenue impact of some residential students staying home and taking all of their courses online in 2020 (see - Impact of COVID-19 above).

In addition, our services agreements with our other university partners generally generate a higher revenue per student than our agreement with GCU.

This higher revenue is due to our service agreements with other partners generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students are studying in the ABSN program so these students take more credits on average per semester.

In addition, we continue to open new off-campus classroom and laboratory sites increasing the total number of these sites to 31 as of December 31, 2021.

Partner enrollments totaled 112,554 at December 31, 2021 as compared to 115,997 at December 31, 2020.

Enrollments at GCU grew to 111,624 at December 31, 2020, an increase of 8.3% over enrollments at December 31, 2019, while enrollments at our other university partners were 4,373, an increase of 16.6% over enrollments at December 31, 2019.

The decrease in revenue per student is primarily due to the service revenue impact of the lower room, board, fee and ancillary revenues at GCU caused by COVID-19 (see - Impact of COVID-19 above).

This was partially offset by the fact that our services agreements with our other university partners generally generate a higher revenue per student than our agreement with GCU.

This higher revenue is due to our service agreements with other partners generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students are studying in the Accelerated Bachelor of Science in Nursing program so these students take more credits on average per semester.

In addition, we opened seven new off-campus classroom and laboratory sites in the third quarter of 2020 bringing the total number of these sites to 30 as compared to 23 at December 31, 2019.

Last, we generated slightly more revenues in 2020 as compared to the same period in 2019 due to the timing of the Acquisition on January 22, 2019, and due to 2020 being a Leap Year and thus providing an extra day of revenue in 2020 as compared to 2019.

University partner enrollments at our off-campus classroom and laboratory sites were 4,684, an increase of 5.9% over enrollments at December 31, 2020, which includes 269 GCU students at December 31, 2021.

This growth rate has slowed over the past year primarily due to a 45.7% decline in OTA students.

Year over year ABSN student growth has slowed to 13.8% at December 31, 2021 (see – Impact of COVID-19 above).

Enrollments at GCU declined to 108,139 at December 31, 2021, a decrease of 3.1% over enrollments at December 31, 2020.

Enrollments for GCU ground traditional students were 23,629 at December 31, 2021 up from 22,185 at December 31, 2020 primarily due to a 9.9% increase in traditional ground students between years.

GCU’s ground traditional students residing on campus in GCU’s residence halls increased from 11,441 in the Fall of 2020 to 15,570 in the Fall of 2021, an increase of 36.1%, representing approximately 65.9% of GCU’s ground traditional students.

GCU had a decline in its working adult students (online and professional studies) between December 31, 2020 to December 31, 2021 (see – Impact of COVID-19 above).

Last, we generated slightly more revenues in 2020 as compared to the same period in 2021 due to 2020 being a Leap Year and thus providing an extra day of revenue in 2020 as compared to 2021.

Technology and academic services .

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This increase was primarily due to increases in employee compensation and related expenses including share-based compensation, in occupancy and depreciation including lease expenses, and in other technology and academic supply costs of $17.0 million, $3.3 million and $0.8 million, respectively.

These increases, in turn, were primarily due to increased headcount to support our 25 university partners, and their increased enrollment growth, tenure-based salary adjustments, an increase in benefit costs, the timing of the Acquisition and the increased number of off-campus classroom and laboratory sites open between years.

Our technology and academic services expenses as a percentage of net revenue increased 2.1% to 13.7% for the year ended

December 31, 2020, from 11.6% for the year ended December 31, 2019 primarily due to our services agreements with university partners that provide for off-campus classroom and laboratory sites, which necessitate a higher level of technology and academic services than does our agreement with GCU and due to the revenue impacts caused by COVID-19 as we incur limited operating expenses to deliver those services .

Additionally, for the year ended December 31, 2020 we incurred costs related to the opening of seven off-campus classroom and laboratory sites in the second half of 2020 and we are incurring costs for four more locations that will open in the first half of 2021.

GCE has 30 off-campus classroom and laboratory sites open as of December 31, 2020 as compared to the 23 sites that were open as of December 31, 2019.

These increases were partially offset by the $5.0 million reversal of the credit loss reserve as a result of the repayment by GCU for the Secured Note and capital expenditure loans in the fourth quarter of 2021.

The increases, in turn, were primarily due to increased headcount to support our 27 university partners, and their increased enrollment growth, tenure-based salary adjustments, an increase in benefit costs and the increased number of off-campus classroom and laboratory sites open between years.

Our technology and academic services expenses as a percentage of net revenue increased 1.0% to 14.7% for the year ended December 31, 2021, from 13.7% for the year ended December 31, 2020 primarily due to our services agreements with university partners that provide for off-campus classroom and laboratory sites, which necessitate a higher level of technology and academic services than does our agreement with GCU, partially offset by the service revenue impact of the higher room, board, fee and ancillary

revenues at GCU in 2021 as compared to the same period in 2020 (see - Impact of COVID-19 above).

We anticipate that technology and academic services expenses as a percentage of revenue will continue to increase in the future as we open more off-site classroom and laboratory sites.

Counseling services and support .

Our counseling services and support expenses for the year ended December 31, 2021 were $249.2 million, an increase of $14.7 million, or 6.2%, as compared to counseling services and support expenses of $234.5 million for the year ended December 31, 2020.

This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation and in depreciation, amortization and occupancy costs of $18.0 million and $1.2 million, respectively, partially offset by a decrease in other counseling services and support expenses of $8.3 million.

The increases in employee compensation and related expenses were primarily due to increased headcount to support our 25 university partners, and their increased enrollment growth, tenure-based salary adjustments, and an increase in benefit costs, while the increase in depreciation, amortization and occupancy costs were primarily due to the timing of the Acquisition and the increased number of off-campus classroom and laboratory sites open year over year.

The decrease in other counseling services and support expenses is primarily the result of decreased travel costs to service our 25 university partners.

All non-essential travel ceased when the COVID-19 national emergency was announced in mid-March and only a small amount of travel has occurred subsequent to that date.

Our counseling services and support expenses as a percentage of net revenue decreased by 0.9% to 27.8% for the year ended December 31, 2020, from 28.7% for the year ended December 31, 2019 primarily due to the decrease in travel costs and our ability to leverage our other counseling services and support expenses across an increasing revenue base, partially offset by the revenue impacts caused by COVID-19 as we incur limited operating expenses to deliver those services.

This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation, increases in other counseling services and support expenses and in depreciation, amortization and occupancy costs of $8.9 million, $5.7 million and $0.1 million, respectively.

The increases in employee compensation and related expenses were primarily due to increased headcount to support our 27 university partners, and their increased enrollment growth, tenure-based salary adjustments, and an increase in benefit costs.

The increase in other counseling services and support expenses is primarily the result of increased travel costs to service our 27 university partners as compared to the COVID-19 impacted 2020, during which all non-essential travel ceased in mid-March and only a small amount of travel occurred for the remainder of 2020.

Occupancy and depreciation costs increased slightly due to the increased number of off-campus classroom and laboratory sites open year over year, partially offset by a large percentage of our workforce continuing to work remotely.

Our counseling services and support expenses as a percentage of net revenue stayed flat at 27.8% for the years ended December 31, 2021 and 2020 primarily due to our ability to leverage our other counseling services and support expenses across an increasing revenue base, increases in service revenue from the higher room, board and ancillary revenues at GCU in 2021 (see – Impact of COVID-19 above), partially offset by increased travel costs.

We anticipate that counseling services and support expense as a percentage of revenue will increase in 2022 as we grow our employee base and their compensation to meet our university partners’ growth expectations and retain our employees.

Marketing and communication .

Our marketing and communication expenses for the year ended December 31, 2021 were $182.9 million, an increase of $18.6 million, or 11.3%, as compared to marketing and communication expenses of $164.3 million for the year ended December 31, 2020.

This increase was primarily attributable to the increased cost to market our university partners’ programs and due to the marketing of new university partners and new off-campus classroom and laboratory sites which resulted in increased advertising of $21.4 million and increased employee compensation expenses and related expenses including share-based compensation of $0.2 million, partially offset by a slight decrease in other marketing supplies of $0.2 million.

Our marketing and communication expenses as a percentage of net revenue increased by 1.1% to 19.5% for the year ended December 31, 2020, from 18.4% for the year ended December 31, 2019, primarily due to the increase in the number of new university partners and increased off-campus classroom and laboratory sites open between years and due to the revenue impacts caused by COVID-19 as we incur limited operating expenses to deliver those services.

This increase was primarily attributable to the increased cost to market our university partners’ programs and due to the marketing of new university partners and new off-campus classroom and laboratory sites which resulted in increased advertising of $16.4 million, increased employee compensation expenses and related expenses including share-based compensation of $1.2 million and increased other marketing supplies of $1.0 million.

Our marketing and communication expenses as a percentage of net revenue increased by 0.9% to 20.4% for the year ended December 31, 2021, from 19.5% for the year ended December 31, 2020, primarily due to the increase in the number of new university partners and their growth expectations and increased off-campus classroom and laboratory sites open between years, partially offset by increases in service revenue from the higher room, board and ancillary revenues at GCU in 2021 (see – Impact of COVID-19 above).

General and administrative .

Our general and administrative expenses for the year ended December 31, 2021 were $41.8 million, a decrease of $1.6 million, or 3.5%, as compared to general and administrative expenses of $43.4 million for the year ended December 31, 2020.

This decrease was primarily due to decreases in professional fees of $1.8 million and in employee compensation and related expenses including share-based compensation of $1.3 million, partially offset by an increase in contributions in lieu of state income taxes to school sponsoring organizations of $1.0 million from $4.0 million in 2019 to $5.0 million in 2020, and increases in occupancy and depreciation of $0.8 million and in other general and administrative expenses of $0.4 million.

In 2019, our professional fees were significantly higher due to a payment made to an outside provider that assisted us in obtaining a state tax refund with a favorable impact of $5.9 million in the first quarter of 2019.

This decrease was primarily due to decreases in other general and administrative expenses of $2.0 million, decreases in employee compensation and related expenses including share-based compensation of $1.8 million and a slight decrease in occupancy and depreciation of $0.1 million, partially offset by an increase in professional fees of $2.3 million.

The decrease in other general and administrative expenses is primarily due to continued decreases in travel costs over the prior year.

The decrease in employee compensation and related expenses is primarily related to lower headcount at our office in Indiana as we have transitioned a number of back office functions to Arizona.

Our increase in occupancy and depreciation are primarily related to the timing of the Acquisition and the increased lease expense for our office in Indiana.

Our general and administrative expenses as a percentage of net revenue decreased by 0.6% to 5.1% for the year ended December 31, 2020, from 5.7% for the year ended December 31, 2019 due to the lower professional fees and our ability to leverage our other general and administrative expenses across an increasing revenue

base, partially offset by the revenue impacts caused by COVID-19 as we incur limited operating expenses to deliver those services.

The increase in professional fees is primarily related to increased legal, audit and insurance costs.

Our decrease in occupancy and depreciation are primarily related to a significant portion of our workforce continuing to work remotely in 2021.

Our general and administrative expenses as a percentage of net revenue decreased by 0.4% to 4.7% for the year ended December 31, 2021, from 5.1% for the year ended December 31, 2020 due to the lower other general and administrative expenses, lower employee compensation costs, increases in service revenue from the higher room, board and ancillary revenue at GCU in 2021 (see – Impact of COVID-19 above), partially offset by increased professional fees.

Amortization of intangible assets .

Amortization of intangible assets for the year ended December 31, 2020 was $8.4 million, an increase of $0.2 million, as compared to $8.2 million for the year ended December 31, 2019.

This increase is related to the timing of the Acquisition, which occurred on January 22, 2019.

Amortization of intangible assets for the years ended December 31, 2021 and 2020 were $8.4 million for both periods.

As a result of the Acquisition, certain identifiable intangible assets were created (primarily customer relationships) that will be amortized over their expected lives.

Loss on transaction .

The loss on transaction for the year ended December 31, 2019 was $4.0 million due to transaction costs related to the Acquisition.

Interest income on Secured Note .

Interest income on the Secured Note for the year ended December 31, 2021 was $52.1 million, a decrease of $7.1 million, or 12.0%, as compared to $59.2 million for the year ended December 31, 2020.

GCE recognizes interest income on its Secured Note with GCU including borrowings made for capital expenditures, earning interest at 6%, with monthly interest payments.

The decrease over the prior year was primarily due to a decrease in the average principal balance of the Secured Note between periods due to repayments made by GCU under the Secured Note during the past 12 months.

GCE recognized interest income on its Secured Note with GCU including borrowings made for capital expenditures, at an interest rate of 6%.

The decrease over the prior year was primarily due to GCU repaying $500.0 million of the outstanding balance of the Secured Note receivable on October 29, 2021 and the remaining balance of the Secured Note receivable of $469.9 million on December 9, 2021.

As the Secured Note receivable is paid off we do not anticipate any interest income to be earned in the future.

Interest expense .

Interest expense was $3.6 million for the year ended December 31, 2021, a decrease of $0.8 million, as compared to interest expense of $4.4 million for the year ended December 31, 2020.

The decrease in interest expense is primarily due to a decline in the average credit facility outstanding balance between periods due to paydowns of the credit facility during the past 12 months and a decrease in the average borrowing rate between years of approximately 163 basis points.

The decrease in interest expense is primarily due to the repayment and termination of the credit facility in early November, partially offset by the write-off of the remaining deferred loan costs of $1.0 million in 2021 at the time of the termination of the credit facility.

Investment interest and other .

Investment interest and other for the year ended December 31, 2021 was $0.6 million, a decrease of $0.3 million, as compared to $0.9 million for the year ended December 31, 2020.

This decrease was primarily attributable to a decline in interest income on excess cash as the average investment balance declined year over year and significantly lower interest rates.

This decrease was primarily attributable to a decline in interest income on excess cash primarily due to significantly lower interest rates.

Income tax expense .

Income tax expense for the year ended December 31, 2020 was $75.9 million, an increase of $17.6 million, or 30.2%, as compared to income tax expense of $58.3 million for the year ended December 31, 2019.

This increase is the result of an increase in our taxable income between periods, and an increase in our effective tax rate.

Income tax expense for the year ended December 31, 2021 was $70.9 million, a decrease of $5.0 million, or 6.6%, as compared to income tax expense of $75.9 million for the year ended December 31, 2020.

This decrease is the result of a decrease in our effective tax rate and a slight decline in taxable income between years.

Our effective tax rate was 21.4% during the year ended December 31, 2021 as compared to 22.8% during the year ended December 31, 2020.

The 2019 effective tax rate was lower due to some large, one-time, favorable discreet items.

In 2019, an agreement was reached with the Arizona Department of Revenue regarding previously filed refund claims related to income tax obligations for prior calendar years, which resulted in a favorable tax impact of $5.9 million recorded as a discrete tax item in the first quarter of 2019.

In addition, the effective tax rate in 2019 was favorably impacted by a law change with respect to Arizona state taxes and higher excess tax benefits of $7.2 million compared to excess tax benefits of $1.4 million for the year ended December 31, 2020.

The effective tax rate in 2021 was favorably impacted by higher excess tax benefits of $4.4 million compared to excess tax benefits of $1.4 million for the year ended December 31, 2020.

The inclusion of excess tax benefits and deficiencies as a component of our income tax expense increases the volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on our stock price at the date the restricted awards vest, our stock price on the date an option is exercised, and the quantity of options exercised.

Our restricted stock vests in March each year so the favorable benefit will primarily impact the first quarter each year.

Our net income for the year months ended December 31, 2020 was $257.2 million, a decrease of $2.0 million, or 0.8% as compared to $259.2 million for the year ended December 31, 2019, due to the factors discussed above.

We anticipate our excess tax benefits in future years will be more similar to 2020 than 2021 as all stock options issued in prior years have been exercised.

Our net income for the year months ended December 31, 2021 was $260.3 million, an increase of $3.01 million, or 1.2% as compared to $257.2 million for the year ended December 31, 2020, due to the factors discussed above.

Our net revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in our university partners’ enrollment.

Our partners’ enrollment varies as a result of new

enrollments, graduations, and student attrition.

Our partners’ enrollment varies as a result of new enrollments, graduations, and student attrition.

Revenues in the summer months (May through August) are lower primarily due to the majority of GCU’s traditional ground students not attending courses during the summer months, which affects our results for our second and third fiscal quarters.

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We expect quarterly fluctuation in operating results to continue as a result of these seasonal patterns.

Liquidity, Capital Resources, and Financial Position

Our unrestricted cash and cash equivalents and investments were $256.6 million and $143.9 million at December 31, 2020 and 2019, respectively.

Our credit facility had an available line of credit of $150.0 million as of December 31, 2020.

During 2019, we financed our acquisition of Orbis Education for $361.2 million, net of cash acquired, from an increase in our credit facility of $190.1 million and the use of $171.1 million of operating cash on hand.

Concurrent with the closing of the Acquisition, we entered into an amended and restated credit agreement dated January 22, 2019 and two related amendments dated January 31, 2019 and February 1, 2019, respectively, that together provided a credit facility of $325.0 million comprised of a term loan facility of $243.8 million and a revolving credit facility of $81.3 million, both with a five-year maturity date.

The term facility is subject to quarterly amortization of principal, commencing with the fiscal quarter ended June 30, 2019, in equal installments of 5% of the principal amount of the term facility per quarter.

The proceeds of the term loan, together with $6.3 million drawn under the revolver and cash on hand, were used to pay the purchase price in the Acquisition.

Concurrent with the entry into the amended and restated credit agreement and the completion of the Acquisition, we repaid our existing term loan of $59.9 million and our cash collateral of $61.7 million was released.

GCE entered into a further amendment to the credit facility on October 31, 2019.

This amendment increased the revolving commitment by $68.8 million to $150.0 million, while reducing the term loan by the same $68.8 million to $150.6 million.

GCE elected to repay the $68.8 million revolver balance on November 1, 2019.

The amended facility is subject to quarterly amortization of principal, commencing with the fiscal quarter ended December 31, 2019, in equal quarterly payments of $8.4 million with a maturity date of January 2025.

Both the term loan and revolver have monthly interest payments currently at 30-Day LIBOR plus an applicable margin of 2%.

Based on our current level of operations and anticipated growth, we believe that our cash flow from operations and other sources of liquidity, including cash and cash equivalents and our revolving line of credit, will provide adequate funds for ongoing operations, planned capital expenditures, and working capital requirements for at least the next 24 months.

Arrangements with GCU

In conjunction with the Asset Purchase Agreement with GCU, we received a Secured Note as consideration for the transferred assets (the “Transferred Assets”).

The Secured Note contains customary commercial credit terms, including affirmative and negative covenants applicable to GCU, and provides that the Secured Note bears interest at an annual rate of 6%, has a maturity date of June 30, 2025, and is secured by all the assets of GCU.

The Secured Note provides for GCU to make interest only payments during the term, with all principal and accrued and unpaid interest due at maturity, and also provides that we may loan additional amounts to GCU to fund approved capital expenditures during the first three years of the term.

As of December 31, 2020, GCE had loaned an additional $99,815 to GCU, net of repayments.

We believe that GCU’s cash flows from operations are currently sufficient to fund all of its capital expenditures although it is possible that GCU may make requests to borrow additional amounts from us for short term cash flow needs.

Liquidity and Capital Resources

As of December 31,

(In thousands)

Cash, cash equivalents and investments

Notes payable

Unused revolving line of credit

Our liquidity position, as measured by cash and cash equivalents plus borrowing availability increased by $86.6 million during fiscal 2021, which was largely attributable to the Secured Note receivable payoff of $1.0 billion by GCU and net cash provided by operating activities of $313.1 million.

These large inflows were partially offset by the principal payments and the payoff of our credit facility as well as the termination of our unused revolving line of credit of $107.8 million and $150.0 million, respectively, and share repurchases during fiscal year 2021 of $803.8 million.

Based on our current level of operations and anticipated growth, we believe that our cash flow from operations and other sources of liquidity, including cash and cash equivalents, will provide adequate funds for ongoing operations, planned capital expenditures, and working capital requirements for at least the next 24 months.

Cash Flows from Operating Activities

Year Ended December 31,

(In thousands)

Net cash provided by operating activities

The slight increase in cash generated from operating activities between the years ended December 31, 2020 and 2021 was primarily due to an increase in net income and changes in other working capital balances.

We define working capital as the assets and liabilities, other than cash, generated through GCE’s primary operating activities.

Changes in these balances are included in the changes in assets and liabilities presented in the statement of cash flows.

Cash Flows from Investing Activities

Year Ended December 31,

(In thousands)

Net cash provided by (used in) investing activities

Investing activities provided $951.0 million of cash in fiscal 2021 primarily due to the repayment of the Secured Note receivable by GCU for $969.9 million.

Investing activities consumed $19.4 million of cash in fiscal 2020.

Funding to GCU for fiscal 2020 net of repayments totaled nil.

In 2021 and 2020 cash used in investing activities was primarily related to capital expenditures of $28.9 million and $29.4 million, respectively.

Capital expenditures for both fiscal years primarily consisted of leasehold improvements and equipment for new off-campus classroom and laboratory sites, as well as purchases of computer equipment, internal use software projects and furniture and equipment to support our increasing employee headcount.

The Company intends to continue to spend approximately $30.0 million to $35.0 million per year for capital expenditures.

Proceeds from investments, net of purchases of short-term investments was $10.5 million in fiscal 2021.

Proceeds from investments was $10.6 million in fiscal 2020.

In 2021, the Company elected to utilize its excess cash balances from both operating cash flows and the payoff of the Secured Note to repurchase its shares.

Cash Flows from Financing Activities

Year Ended December 31,

(In thousands)

Net cash used in financing activities

Financing activities consumed $908.9 million of cash in fiscal 2021 compared to $166.3 in fiscal 2020.

During 2021 and 2020, principal and revolver payments were $107.8 million and $33.1 million, respectively.

2020 payments represented quarterly term loan repayments and 2021 payments represented quarterly term loan repayments through the third quarter with the remaining balance of the credit facility paid and the credit facility terminated in October 2021, when the Secured Note receivable began to be repaid by GCU.

Proceeds received from option exercises totaled $2.7 million in fiscal 2021 and $0.9 million in fiscal 2020.

During fiscal 2021 and 2020, $797.8 million and $129.0 million, respectively, was used to purchase treasury stock in accordance with GCE’s share repurchase program.

In 2021 and 2020, $6.0 million and $5.0 million, respectively, of cash was utilized to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards.

The Company intends to continue using a portion of its cash flows from operations and the remaining proceeds from the repayment of the Secured Note receivable to repurchase its shares.

Share Repurchase Program

In July 2020, December 2020 and January 2021, our Board of Directors increased the authorization under our existing stock repurchase program by $50.0 million, $100.0 million and $100.0 million, respectively, reflecting an aggregate authorization for share repurchases since the initiation of our program of $500.0 million.

As of December 31, 2020, we had a total remaining authorization of $148.3 million (which authorization was increased to $248.3 million in January 2021).

Pursuant to this authorization, in our discretion, we can repurchase our common stock, from time to time, in open market or in privately negotiated transactions, depending on market conditions and other considerations.

The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant, and we may modify, suspend or discontinue repurchases at any time.

In January 2021, July 2021, and January 2022 our Board of Directors increased the authorization under its existing stock repurchase program by $100.0 million, $970.0 million and $175.0 million respectively, reflecting an aggregate authorization for share repurchases since the initiation of the program of $1,645.0 million.

The current expiration date on the repurchase authorization by our Board of Directors is December 31, 2022.

Repurchases occur at the Company’s discretion and the Company may modify, suspend or discontinue the repurchase authorization at any time.

Under our share repurchase authorization, we may purchase shares in the open market or in privately negotiated transactions, pursuant to the applicable SEC rules.

The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant.

On March 10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co.

LLC (“Morgan Stanley”) to repurchase up to $35.0 million of its outstanding shares of common stock as part of the Company’s share repurchase program.

Under the ASR agreement, the Company received initial delivery of approximately 275,889 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $101.49, on March 9, 2021.

The total number of shares that the Company repurchased under the ASR program was based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and was subject to potential adjustments pursuant to the terms and conditions of the ASR agreement.

The final settlement of the share repurchases under the ASR agreement was completed on May 4, 2021 with additional delivery of 45,914 shares of common stock.

The ASR agreement resulted in a total of 321,803 shares repurchased at an average cost of $108.76.

On May 14, 2021, the Company entered into an ASR agreement with Morgan Stanley to repurchase up to $50.0 million of its outstanding shares of common stock as part of the Company’s share repurchase program.

Under the ASR agreement, the Company received initial delivery on May 17, 2021 of approximately 418,279 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $95.63, on May 14, 2021.

The final settlement of the share repurchases under the ASR agreement was completed on August 13, 2021 with additional delivery of 139,270 shares of common stock.

The ASR agreement resulted in a total of 557,549 shares repurchased at an average cost of $89.68.

Since 2011, we have purchased 14.8 million shares of common stock at an aggregate cost of $1,049.6 million, which includes 9,199,449 shares of common stock at an aggregate cost of $797.8 million during the year ended December 31, 2021.

Operating Activities.

Net cash provided by operating activities for the years ended December 31, 2020 and 2019 was $308.8 million and $306.3 million, respectively.

The slight increase in cash generated from operating activities between the years ended December 31, 2019 and 2020 was primarily due to changes in other working capital balances.

We define working capital as the assets and liabilities, other than cash, generated through GCE’s primary operating activities.

Changes in these balances are included in the changes in assets and liabilities presented in the statement of cash flows.

Investing Activities .

Net cash used in investing activities was $19.4 million and $405.9 million for the years ended December 31, 2020 and 2019, respectively.

Our cash used in investing activities in 2020 was primarily related to capital expenditures of $29.4 million partially offset by proceeds from the sale of investments of $10.6 million.

Funding to GCU for the year ended December 31, 2020 net of repayments totaled nil.

Our cash used in investing activities in 2019 was primarily related to the Acquisition, the funding of capital expenditures to GCU, and the liquidation of short-term investments and capital expenditures.

We paid $361.2 million, net of cash acquired, to acquire Orbis Education on January 22, 2019.

Funding to GCU for capital expenditures during the year ended December 31, 2019 totaled $69.8 million, net of repayments made by GCU of $100.0 million in 2019.

Proceeds from investments, net of purchases of short-term investments, was $47.8 million for the year ended December 31, 2019.

Capital expenditures were $22.4 million for the year ended December 31, 2019.

During the years ended December 31, 2020 and 2019, capital expenditures primarily consisted of leasehold improvements and equipment for new off-campus classroom and laboratory sites, internally developed software, as well as purchases of computer equipment, other internal use software projects and furniture and equipment to support our increasing employee headcount.

The increase in capital expenditures year over year is due to the increase in off-campus classrooms and laboratory sites between years.

As of December 31, 2020, 30 off-campus classroom and laboratory sites were opened compared to 23 as of December 31, 2019.

Financing Activities.

Net cash used in financing activities was $166.3 million for the year ended December 31, 2020.

During 2020, $129.0 million was used to purchase treasury stock in accordance with GCE’s share repurchase program and $5.0 million was used to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards.

Principal payments on notes payable totaled $33.1 million, partially offset by proceeds from the exercise of stock options of $0.9 million.

Net cash provided by financing activities was $40.1 million for the year ended December 31, 2019.

During 2019, $243.8 million of proceeds was drawn on the term loan, and $26.3 million was drawn and repaid on the revolver in 2019, and the term loan balance of the prior credit agreement of $59.9 million was repaid along with the repayment of $101.3 million of principal and revolver payments on the new credit facility.

In addition, $2.4 million of debt issuance costs were incurred on the new credit facility and $8.1 million was used to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards and $35.8 million was used to purchase treasury stock in accordance with GCE’s share repurchase program.

Proceeds from the exercise of stock options of $3.8 million were received for the year ended December 31, 2019.

Contractual Obligations

The following table sets forth, as of December 31, 2020, the aggregate amounts of our significant contractual obligations and commitments with definitive payment terms due in each of the periods presented (in millions):

Payments Due by Period

Notes payable (1)

Lease liabilities (2)

Purchase obligations (3)

Total contractual obligations

(1) See Note 10, “Notes Payable and Other Noncurrent Liabilities,” to our consolidated financial statements, included in Item 8, Consolidated Financial Statements and Supplementary Data , for a discussion of our notes payable and other obligations.

(2) See Note 9, “Leases,” to our consolidated financial statements, included in Item 8, Consolidated Financial Statements and Supplementary Data , for a discussion of our leases.

(3) Represents unconditional purchase obligations and other obligations.

Our contractual obligations primarily consist of capital expenditures primarily for new off-campus classroom and laboratory sites opening and continued spend on computer equipment, software licenses, internal software development and furniture and equipment to support our increasing employee headcount.

See Note 9 - Leases , in Item 8, Consolidated Financial Statements and Supplementary Data.

There are no other material contractual obligations or commitments for the Company.

Off-Balance Sheet Arrangements

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We present Adjusted EBITDA, a non-GAAP financial measure, because we consider it to be an important supplemental measure of our operating performance.

We also make certain compensation decisions based, in part, on our operating performance, as measured by Adjusted EBITDA, and our credit agreement requires us to comply with covenants that include performance metrics substantially similar to Adjusted EBITDA.

We also make certain compensation decisions based, in part, on our operating performance, as measured by Adjusted EBITDA.

All of the adjustments made in our calculation of Adjusted EBITDA are adjustments to items that management does not consider to be reflective of our core operating performance.

Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period and does not consider the items for which we make adjustments (as listed above) to be reflective of our core performance.

on periods or companies of changes in effective tax rates or net operating losses), the book amortization of intangibles (affecting relative amortization expense), and other items that we do not consider reflective of underlying operating performance.

We believe Adjusted EBITDA allows us to compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by variations in capital structures (affecting relative interest expense, including the impact of write-offs of deferred financing costs when companies refinance their indebtedness), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the book amortization of intangibles (affecting relative amortization expense), and other items that we do not consider reflective of underlying operating performance.

We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors, and other interested parties as a measure of performance.

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contributions in lieu of state income taxes (a)

loss on transaction (b)

reversal of credit loss reserve (b)

share-based compensation (c)

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Such contributions are viewed by our management to be made in lieu of payments of state income taxes and are therefore excluded from evaluation of our core operating performance.

(b) Represents costs incurred related to the Acquisition, including legal and other third-party costs.

(b) Represents the reversal of the credit loss reserve on the Secured Note receivable due to repayment in full by GCU in the fourth quarter of 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis