What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-05 · 257 added, 378 removed, 643 unchanged (50% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

December 31, 2020 September 30, 2021

December 31, 2021 March 31, 2022

Current assets:

3 unchanged sentences

Income taxes receivable 313 —

Assets held for sale — 2,167

Other current assets 40,777 52,846

23 unchanged sentences

32,000,000 shares authorized;

24,418,939 and 24,600,479 shares issued and outstanding at December 31, 2020 and September 30, 2021, respectively

24,592,098 and 24,963,542 shares issued and outstanding at December 31, 2021 and March 31, 2022, respectively

Additional paid-in capital 1,529,969 1,528,328

7 unchanged sentences

(in thousands, except per share data)

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

For the three months ended March 31,

Revenues $ 290,336 $ 258,855

18 unchanged sentences

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

Net income $ 10,960 $ 3,854 $ 80,351 $ 33,407

Other comprehensive income (loss):

Foreign currency translation adjustment, net of tax — ( 28,876 ) — ( 46,864 )

Unrealized gains (losses) on marketable securities, net of tax 101 9 527 ( 60 )

Comprehensive income (loss) $ 11,061 $ ( 25,013 ) $ 80,878 $ ( 13,517 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

For the three months ended September 30, 2020

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shares Par Value

Balance at June 30, 2020 22,222,936 $ 222 $ 1,291,597 $ 192,072 $ 659 $ 1,484,550

Issuance of common stock in public offering 2,185,000 22 220,226 — — 220,248

Stock-based compensation — — 3,860 15 — 3,875

Exercise of stock options, net 243 — 21 — — 21

Issuance of restricted stock, net ( 4,815 ) — ( 42 ) — — ( 42 )

Common stock dividends ($ 0.60 per share)

— — — ( 14,655 ) — ( 14,655 )

Unrealized gains on marketable securities, net of tax — — — — 101 101

Net income — — — 10,960 — 10,960

Balance at September 30, 2020 24,403,364 $ 244 $ 1,515,662 $ 188,392 $ 760 $ 1,705,058

For the three months ended September 30, 2021

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shares Par Value

Balance at June 30, 2021 24,621,111 $ 246 $ 1,523,022 $ 179,089 $ 30,823 $ 1,733,180

Stock-based compensation — — 4,624 22 — 4,646

Issuance of restricted stock, net 18,843 1 — — — 1

Repurchase of common stock ( 39,475 ) ( 1 ) ( 2,457 ) ( 543 ) — ( 3,001 )

Common stock dividends ($ 0.60 per share)

— — — ( 14,757 ) — ( 14,757 )

Foreign currency translation adjustment, net of tax — — — — ( 28,876 ) ( 28,876 )

Unrealized gains on marketable securities, net of tax — — — — 9 9

For the three months ended March 31,

Net income $ 9,577 $ 7,029

Balance at September 30, 2021 24,600,479 $ 246 $ 1,525,189 $ 167,665 $ 1,956 $ 1,695,056

Other comprehensive income:

Foreign currency translation adjustment ( 8,712 ) 20,499

Unrealized losses on marketable securities, net of tax ( 104 ) ( 517 )

Comprehensive income $ 761 $ 27,011

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except share data)

For the nine months ended September 30, 2020

For the three months ended March 31, 2021

Common Stock Additional

4 unchanged sentences

Balance at December 31, 2020 24,418,939 $ 244 $ 1,519,549 $ 179,646 $ 48,880 $ 1,748,319

Impact of adoption of new accounting standard — — — ( 3,311 ) — ( 3,311 )

Issuance of common stock in public offering 2,185,000 22 220,226 — — 220,248

Stock-based compensation — — 3,868 32 — 3,900

1 unchanged sentence

Issuance of restricted stock, net 231,467 3 ( 2,342 ) — — ( 2,339 )

Repurchase of common stock ( 1,769 ) — ( 105 ) ( 142 ) — ( 247 )

Common stock dividends ($ 0.60 per share)

— — — ( 14,786 ) — ( 14,786 )

Unrealized gains on marketable securities, net of tax — — — — 527 527

Foreign currency translation adjustment — — — — ( 8,712 ) ( 8,712 )

Unrealized losses on marketable securities, net of tax — — — — ( 104 ) ( 104 )

Net income — — — 9,577 — 9,577

Balance at September 30, 2020 24,403,364 $ 244 $ 1,515,662 $ 188,392 $ 760 $ 1,705,058

For the nine months ended September 30, 2021

Balance at March 31, 2021 24,651,205 $ 247 $ 1,521,145 $ 174,469 $ 40,064 $ 1,735,925

For the three months ended March 31, 2022

Common Stock Additional

5 unchanged sentences

Stock-based compensation — — 5,068 — — 5,068

Exercise of stock options, net 1,632 — 113 — — 113

Issuance of restricted stock, net 437,946 5 ( 2,749 ) — — ( 2,744 )

2 unchanged sentences

— — — ( 15,051 ) — ( 15,051 )

Foreign currency translation adjustment, net of tax — — — — ( 46,864 ) ( 46,864 )

Foreign currency translation adjustment — — — — 20,499 20,499

Unrealized losses on marketable securities, net of tax — — — — ( 517 ) ( 517 )

Net income — — — 7,029 — 7,029

Balance at September 30, 2021 24,600,479 $ 246 $ 1,525,189 $ 167,665 $ 1,956 $ 1,695,056

Balance at March 31, 2022 24,963,542 $ 250 $ 1,528,328 $ 166,550 $ 29,185 $ 1,724,313

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

For the nine months ended September 30,

For the three months ended March 31,

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Loss on sale of marketable securities — 781

Gain on sale of property and equipment — ( 681 )

Amortization of deferred financing costs 138 138

14 unchanged sentences

Purchases of property and equipment ( 12,650 ) ( 9,686 )

Purchases of marketable securities ( 1,863 ) —

Proceeds from marketable securities 1,930 1,100

Proceeds from sale of property and equipment — 4,328

Other investments ( 72 ) ( 175 )

1 unchanged sentence

Cash flows from financing activities:

Net proceeds from issuance of common stock 220,248 —

Common dividends paid ( 14,778 ) ( 15,018 )

1 unchanged sentence

Repurchase of common stock — ( 3,961 )

Net cash provided by (used in) financing activities 153,918 ( 52,477 )

Net cash used in financing activities ( 17,104 ) ( 21,828 )

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 866 ) 2,097

2 unchanged sentences

Cash, cash equivalents, and restricted cash — end of period $ 252,039 $ 307,315

Noncash transactions:

Non-cash transactions:

Non-cash additions to property and equipment $ 7,526 $ 5,111

7 unchanged sentences

Strategic Education’s portfolio of companies is dedicated to closing the skills gap by placing adults on the most direct path between learning and employment.

As discussed in Note 2 and Note 3, the Company completed its acquisition of Torrens University and associated assets in Australia and New Zealand (“ANZ”) on November 3, 2020.

As discussed in Note 15, beginning in the first quarter of 2021 the Company changed the way management reports financial information relied on by the Chief Operating Decision Maker (“CODM”) to evaluate performance and allocate the resources of the Company.

The Company's revised organizational structure includes the following three operating and reportable segments:

Higher Education, which is primarily comprised of the Company's previous Strayer University and Capella University segments and is focused on providing flexible and affordable certificate and degree programs to working adults;

(2) Alternative Learning, a new segment that is primarily focused on developing and maintaining relationships with large employers to build employee education benefits programs;

and (3) Australia/New Zealand, which provides certificate and degree programs in Australia and New Zealand.

The Australia/New Zealand segment was not changed as a result of the Company's reorganization.

Financial reporting under the new structure began in the first quarter of 2021.

Prior period segment disclosures have been restated to conform to the current period presentation.

The accompanying condensed consolidated financial statements and footnotes include the results of the Company’s three reportable segments:

Higher Education (“USHE”), which is primarily comprised of Strayer University and Capella University and is focused on providing flexible and affordable certificate and degree programs to working adults;

(2) Education Technology Services, which is primarily focused on developing and maintaining relationships with employers to build employee education benefits programs;

and (3) Australia/New Zealand, which through Torrens University and associated assets, provides certificate and degree programs in Australia and New Zealand.

The Company’s reportable segments are discussed further in Note 14.

Significant Accounting Policies

2 unchanged sentences

All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

On November 3, 2020, the Company completed its acquisition of ANZ, whereby the Company was deemed the acquirer in the business combination for accounting purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Accordingly, the financial results of the Company as of and for any periods ended prior to November 3, 2020 do not include the financial results of ANZ and therefore are not directly comparable.

All information as of September 30, 2020 and 2021, and for the three and nine months ended September 30, 2020 and 2021 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows of the Company.

All information as of March 31, 2021 and 2022, and for the three months ended March 31, 2021 and 2022 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows of the Company.

The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full fiscal year.

Below is a description of the nature of the costs included in the Company’s operating expense categories.

Instructional and support costs (“I&SC”) generally contain items of expense directly attributable to activities that support students.

Instructional and support costs generally contain items of expense directly attributable to activities that support students.

This expense category includes salaries and benefits of faculty and academic administrators, as well as admissions and administrative personnel who support and serve student interests.

1 unchanged sentence

Bad debt expense incurred on delinquent student account balances is also included in instructional and support costs.

General and administration (“G&A”) expenses include salaries and benefits of management and employees engaged in finance, human resources, legal, regulatory compliance, marketing and other corporate functions.

General and administration expenses include salaries and benefits of management and employees engaged in finance, human resources, legal, regulatory compliance, marketing and other corporate functions.

Also included are the costs of advertising and production of marketing materials.

General and administration expense also includes the facilities occupancy and other related costs attributable to such functions.

Amortization of intangible assets consists of amortization and depreciation expense related to intangible assets and software assets acquired through the Company's merger with Capella Education Company (“CEC”) and the Company's acquisition of ANZ.

Merger and integration costs include integration expenses associated with the Company's merger with CEC, and transaction and integration expenses associated with the Company's acquisition of ANZ.

16 unchanged sentences

higher education institution during the academic term.

The Company had approximately $ 0.1 million and $ 1.7 million of these unpaid obligations as of December 31, 2020 and September 30, 2021, respectively.

The Company had approximately $ 0.7 million and $ 0.9 million of these unpaid obligations as of December 31, 2021 and March 31, 2022, respectively.

In Australia and New Zealand, advance tuition payments from international students are required to be restricted until that student commences his or her course.

In addition, a portion of tuition prepayments from students enrolled in a vocational education and training program are held in trust by a third party law firm to adhere to tuition protection requirements.

As of December 31, 2020 and September 30, 2021, the Company had approximately $ 13.9 million and $ 9.9 million, respectively, of restricted cash related to these requirements in Australia and New Zealand.

As of December 31, 2021 and March 31, 2022, the Company had approximately $ 9.1 million and $ 12.5 million, respectively, of restricted cash related to these requirements in Australia and New Zealand.

These balances are recorded as restricted cash and included in other current assets in the unaudited condensed consolidated balance sheets.

1 unchanged sentence

The Company holds these funds in an interest-bearing account, which is included in other assets.

The following table illustrates the reconciliation of cash, cash equivalents, and restricted cash shown in the unaudited condensed consolidated statements of cash flows as of September 30, 2020 and 2021 (in thousands):

As of September 30,

As of March 31,

Cash and cash equivalents $ 238,290 $ 293,419

3 unchanged sentences

Tuition Receivable and Allowance for Credit Losses

The Company adopted Accounting Standards Update No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASC 326") on January 1, 2020, which revised the accounting requirements related to the measurement of credit losses and requires organizations to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability.

The Company records tuition receivable and contract liabilities for its students upon the start of the academic term or program.

4 unchanged sentences

In the event that current collection trends differ from historical trends, an adjustment is made to the allowance for credit losses and bad debt expense.

The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2021 and March 31, 2022 (in thousands):

December 31, 2021 March 31, 2022

Tuition receivable $ 100,060 $ 109,690

1 unchanged sentence

Tuition receivable, net $ 51,277 $ 64,798

Approximately $ 3.6 million and $ 2.9 million of tuition receivable are included in other assets as of December 31, 2020 and September 30, 2021, respectively, because these amounts are expected to be collected after 12 months.

The following table illustrates changes in the Company’s allowance for credit losses for the three and nine months ended September 30, 2020 and 2021 (in thousands).

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

Approximately $ 2.5 million and $ 2.1 million of tuition receivable are included in other assets as of December 31, 2021 and March 31, 2022, respectively, because these amounts are expected to be collected after 12 months.

The following table illustrates changes in the Company’s allowance for credit losses for the three months ended March 31, 2021 and 2022 (in thousands).

For the three months ended March 31,

Allowance for credit losses, beginning of period $ 49,773 $ 48,783

Impact of adopting ASC 326

Additions charged to expense 10,822 7,217

1 unchanged sentence

Allowance for credit losses, end of period $ 49,179 $ 44,892

Assets Held for Sale

The Company classifies assets and liabilities as held for sale (“disposal group”) when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable to be completed within one year, and the disposal group is available for immediate sale in its present condition.

The Company also considers whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying amount or fair value less costs to sell.

Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met.

Gains are not recognized until the date of sale.

Assets are not depreciated or amortized while they are classified as held for sale.

Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group as assets held for sale and liabilities held for sale in its unaudited condensed consolidated balance sheets.

During the first six months of 2021, the Company evaluated its leased and owned campus portfolio, which resulted in the decision to downsize or exit several of its underutilized campus locations and to begin marketing the long-lived assets related to two of its owned U.S.

Higher Education campus locations for sale.

The long-lived assets marketed for sale consist of land, buildings, and building improvements.

The Company determined that it met all of the criteria to classify these assets as held for sale as of June 30, 2021.

No loss was recorded as the carrying amount of the net assets was less than the fair value less costs to sell.

Fair value was determined based upon the anticipated sales price of these assets.

During the third quarter of 2021, the Company sold the long-lived assets related to one of these U.S.

Higher Education campuses and recognized a $ 0.7 million gain on sale, which is included in Restructuring costs on the unaudited condensed consolidated statements of income.

The long-lived assets associated with the other campus for sale continued to meet all of the criteria to be classified as assets held for sale as of September 30, 2021.

On October 15, 2021, the Company completed the sale of these long-lived assets and recognized a gain on the sale at that time.

Goodwill and Intangible Assets

2 unchanged sentences

An indefinite life was assigned to the trade names because they have the continued ability to generate cash flows indefinitely.

Goodwill and the indefinite-lived intangible assets are assessed at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible asset below its carrying amount.

Goodwill and the indefinite-lived intangible assets are assessed at least annually for impairment on the first day of the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible asset below its carrying amount.

The Company identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available, and management regularly reviews the operating results of those components.

4 unchanged sentences

Authorized Stock

The Company has authorized 32,000,000 shares of common stock, par value $ 0.01 , of which 24,418,939 and 24,600,479 shares were issued and outstanding as of December 31, 2020 and September 30, 2021, respectively.

The Company has authorized 32,000,000 shares of common stock, par value $ 0.01 , of which 24,592,098 and 24,963,542 shares were issued and outstanding as of December 31, 2021 and March 31, 2022, respectively.

The Company also has authorized 8,000,000 shares of preferred stock, no ne of which is issued or outstanding.

Before any preferred stock may be issued in the future, the Board of Directors would need to establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and the terms or conditions of the redemption of the preferred stock.

In July 2021, the Company’s Board of Directors declared a regular, quarterly cash dividend of $ 0.60 per share of common stock.

The dividend was paid on September 13, 2021.

In February 2022, the Company’s Board of Directors declared a regular, quarterly cash dividend of $ 0.60 per share of common stock.

The dividend was paid on March 14, 2022.

Net Income Per Share

1 unchanged sentence

Diluted earnings per share reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options, restricted stock, and restricted stock units.

The dilutive effect of stock awards was determined using the treasury stock method.

The dilutive effect of stock awards

was determined using the treasury stock method.

Under the treasury stock method, all of the following are assumed to be used to repurchase shares of the Company’s common stock:

1 unchanged sentence

Stock options are not included in the computation of diluted earnings per share when the stock option exercise price of an individual grant exceeds the average market price for the period.

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for the three months ended March 31, 2021 and 2022 (in thousands):

For the three months ended March 31,

Weighted average shares outstanding used to compute basic earnings per share 23,974 23,948

5 unchanged sentences

Comprehensive income includes net income and all changes in the Company’s equity during a period from non-owner sources, which for the Company consists of unrealized gains and losses on available-for-sale marketable securities, net of tax, and foreign currency translation adjustments.

As of December 31, 2020 and September 30, 2021, the balance of accumulated other comprehensive income was $ 48.9 million, net of tax of $ 0.3 million, and $ 2.0 million, net of tax of $ 0.3 million, respectively.

During the nine months ended September 30, 2020, approximately $ 25,000 , net of tax of $ 10,000 , of unrealized gains on available-for-sale marketable securities was reclassified out of accumulated other comprehensive income to Other income (expense) on the unaudited condensed consolidated statements of income.

There were no reclassifications out of accumulated other comprehensive income to net income for the three and nine months ended September 30, 2021.

As of December 31, 2021 and March 31, 2022, the balance of accumulated other comprehensive income was $ 9.2 million, net of tax of $ 0.2 million, and $ 29.2 million, net of tax of $ 0.1 million, respectively.

There were no reclassifications out of accumulated other comprehensive income to net income for the three months ended March 31, 2021 and 2022.

Use of Estimates

1 unchanged sentence

The most significant management estimates include allowances for credit losses, useful lives of property and equipment and intangible assets, incremental borrowing rates, potential sublease income and vacancy periods, accrued expenses, forfeiture rates and the likelihood of achieving performance criteria for stock-based awards, value of free courses earned by students that will be redeemed in the future, valuation of goodwill and intangible assets, and the provision for income taxes.

During the nine months ended September 30, 2020 and 2021, management estimates also include potential impacts the COVID-19 pandemic will have on student enrollment, tuition pricing, and collections in future periods.

During the three months ended March 31, 2021 and 2022, management estimates also include potential impacts the COVID-19 pandemic will have on student enrollment, tuition pricing, and collections of tuition receivables in future periods.

The duration and severity of the COVID-19 pandemic and its impact on the Company’s condensed consolidated financial statements is subject to uncertainty.

2 unchanged sentences

Accounting Standards Updates recently issued by the FASB but not yet effective are not expected to have a material effect on the Company’s consolidated financial statements.

Acquisition of Torrens University and Associated Assets in Australia and New Zealand

On November 3, 2020, the Company completed its acquisition of Torrens University and associated assets in Australia and New Zealand pursuant to the sale and purchase agreement dated July 29, 2020 (the "Purchase Agreement").

The acquired operations include Torrens University Australia, Think Education, and Media Design School, which together provide diversified student curricula to approximately 19,000 students across five industry verticals, including business, hospitality, health, education, creative technology and design.

Pursuant to the Purchase Agreement, the aggregate consideration paid was approximately $ 658.4 million in cash, which reflected the original agreed upon purchase price of $ 642.7 million, plus a $ 15.7 million adjustment reflecting $ 11.0 million of net cash at close, and $ 4.7 million related to higher net working capital.

The Company applied the acquisition method of accounting to ANZ, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill.

Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result

from the acquisition.

The goodwill recorded as part of the acquisition was allocated to the Australia/New Zealand reportable segment in the amount of $ 546.3 million, and is not deductible for tax purposes.

Through September 30, 2021, the Company has incurred $ 8.1 million of acquisition-related costs which have been recognized in Merger and integration costs in the unaudited condensed consolidated statements of income.

These costs were primarily attributable to legal, financial, and accounting support services incurred by the Company in connection with the acquisition.

The preliminary opening balance sheet is subject to adjustment based on final assessment of the fair values of certain acquired assets and liabilities, primarily intangible assets and income taxes.

As the Company finalizes its assessment of the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period.

The Company reflects measurement period adjustments in the period in which the adjustments occur.

During the first quarter of 2021, the Company recorded a measurement period adjustment that reduced Property and equipment, net by $ 0.3 million and increased goodwill by $ 0.3 million.

The preliminary fair value of assets acquired and liabilities assumed as well as a reconciliation to consideration transferred is presented in the table below (in thousands):

Cash and cash equivalents $ 16,082

Tuition receivable 24,447

Other current assets 17,713

Property and equipment, net 41,508

Right-of-use lease assets 44,229

Intangible assets 103,161

Goodwill 546,315

Other assets 2,799

Total assets acquired 796,254

Accounts payable and accrued expenses ( 33,876 )

Income taxes payable ( 229 )

Contract liabilities ( 33,309 )

Lease liabilities ( 9,685 )

Deferred income taxes ( 18,712 )

Lease liabilities, non-current ( 34,544 )

Other long-term liabilities ( 7,520 )

Total liabilities assumed ( 137,875 )

Total consideration $ 658,379

The table below presents a summary of intangible assets acquired (in thousands) and the weighted average useful lives of these assets:

Fair Value Weighted Average

Useful Life in Years

Trade names $ 68,774 Indefinite

Student relationships 34,387 3

The Company determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the assets and liabilities.

The Company utilized the following assumptions, some of which include significant unobservable inputs which would qualify the valuations as Level 3 measurements, and valuation methodologies to determine fair value:

• Intangible assets

▪ Trade names - to determine the fair value of the trade names, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate.

Key assumptions used in the valuation included revenue growth rates ranging from 2.5 % to 6.3 % per year, a royalty rate of 2.5 % and a discount rate of 11 %.

▪ Student relationships - to determine the fair value of the student relationships, the Company used the excess earnings method, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, earnings before interest and taxes margins, annual attrition rate, and discount rate.

Key assumptions used in the valuation included an annual attrition rate of 60 % and a discount rate of 11 %.

• Property and equipment - Included in property and equipment is course content of $ 10.0 million.

To determine the fair value of course content, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate.

Key assumptions used in the valuation included revenue growth rates ranging from 5.6 % to 6.2 %, a royalty rate of 3 % and a discount rate of 11 %.

The course content will be amortized over 3 years.

All other property and equipment was valued at estimated cost.

• Contract liabilities - The Company estimated the fair value of contract liabilities using the cost build-up method, which represents the cost to deliver the services plus a normal profit margin.

Based on this method, fair value of contract liabilities were estimated to be 70 % of carrying value as of the acquisition date.

• Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

Revenue Recognition

3 unchanged sentences

Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the calendar year.

The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the three months ended March 31, 2021 and 2022 (in thousands):

For the three months ended March 31,

Higher Education Segment

Tuition, net of discounts, grants and scholarships $ 217,477 $ 187,355

9,076 7,767 28,923 25,611

Higher Education Segment 226,547 195,766

1 unchanged sentence

Tuition, net of discounts, grants and scholarships 50,222 47,536

— 768 — 3,531

Total Australia/New Zealand Segment 51,265 48,512

Alternative Learning Segment (2)

Education Technology Services Segment (2)

12,524 14,577

2 unchanged sentences

(1) Other revenue is primarily comprised of academic fees, sales of course materials, placement fees and other non-tuition revenue streams.

(2) Alternative Learning revenue is primarily derived from tuition revenue.

(2) Education Technology Services revenue is primarily derived from tuition revenue.

Revenues are recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods and services.

3 unchanged sentences

The Company generally determines standalone selling prices based on the prices charged to customers and observable market prices.

The standalone selling price of material rights to receive free classes in the future is estimated based on class tuition prices and likelihood of redemption based on historical student attendance and completion behavior.

The standalone selling price of material rights to receive free classes or scholarships in the future is estimated based on class tuition prices or amounts of scholarships, and likelihood of redemption based on historical student attendance and completion behavior.

At the start of each academic term or program, a contract liability is recorded for academic services to be provided, and a tuition receivable is recorded for the portion of the tuition not paid in advance.

10 unchanged sentences

To be eligible, students must meet all of Strayer University’s admission requirements and must be enrolled in a bachelor’s or master's degree program.

The Company’s employees and their dependents are not eligible for the program.

The Company’s employees and their dependents are not eligible for the Graduation Fund.

Students who have more than one consecutive term of non-attendance lose any Graduation Fund credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by Strayer University in the future.

In response to the COVID-19 pandemic, Strayer University is temporarily allowing students to miss two consecutive terms without losing their Graduation Fund credits.

In response to the COVID-19 pandemic, Strayer University temporarily allowed students to miss three consecutive terms without losing their Graduation Fund credits.

Revenue from students participating in the Graduation Fund is recorded in accordance with ASC 606.

The Company defers the value of the related performance obligation associated with the credits estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student toward earning the benefit.

The Company’s estimate of the benefits that will be redeemed in the future is based on its historical experience of student persistence toward completion of a course of study within this program and similar programs.

Each quarter, the Company assesses its methodologies and assumptions underlying these estimates, and to date, any adjustments to the estimates have not been material.

The Company’s estimate of the

benefits that will be redeemed in the future is based on its historical experience of student persistence toward completion of a course of study within this program and similar programs.

Each quarter, the Company assesses its assumptions underlying these estimates, and to date, any adjustments to the estimates have not been material.

The amount estimated to be redeemed in the next 12 months is $ 20.5 million and is included as a current contract liability in the unaudited condensed consolidated balance sheets.

1 unchanged sentence

The table below presents activity in the contract liability related to the Graduation Fund (in thousands):

For the nine months ended September 30,

For the three months ended March 31,

Balance at beginning of period $ 53,314 $ 52,024

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When control of the materials passes to the student in advance of the term of enrollment, an unbilled receivable and related revenue are recorded.

The balance of unbilled receivables related to such materials was $ 0.8 million as of September 30, 2021, and is included in tuition receivable.

Costs to Obtain a Contract

2 unchanged sentences

Restructuring and Related Charges

In 2018 and 2019, the Company incurred personnel-related restructuring charges due to cost reduction efforts and management changes.

These changes related to the integration of CEC in order to establish an efficient ongoing cost structure for the Company.

The severance and other employee separation costs incurred in connection with the integration of CEC are included in Merger and integration costs on the unaudited condensed consolidated statements of income.

In the third quarter of 2020, the Company began implementing a restructuring plan in an effort to reduce the ongoing operating costs of the Company to align with changes in enrollment following the COVID-19 pandemic.

Under this plan, the Company incurred severance and other employee separation costs related to voluntary and involuntary employee terminations.

The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities during the nine months ended September 30, 2020 and 2021 (in thousands):

In addition, the 2020 restructuring plan included an evaluation of the Company's owned and leased real estate portfolio, which resulted in the consolidation and sale of underutilized facilities.

During the three months ended March 31, 2021, the Company recorded right-of-use lease asset charges of approximately $ 14.4 million related to facilities consolidated as a result of the restructuring plan.

The Company also recorded fixed asset impairment charges of approximately $ 2.0 million and $ 0.2 million during the three months ended March 31, 2021 and 2022, respectively.

All severance and other employee separation charges and right-of-use lease asset and fixed asset impairment charges related to the 2020 restructuring plan are included in Restructuring costs on the unaudited condensed consolidated statements of income.

The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities during the three months ended March 31, 2021 and 2022 (in thousands):

Integration Plan (1)

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Payments ( 733 ) ( 2,123 ) ( 2,856 )

Adjustments — — —

Balance at September 30, 2020 $ 2,882 $ 3,990 $ 6,872

Balance at March 31, 2021 $ 1,102 $ 354 $ 1,456

Balance at December 31, 2021 (2)

2 unchanged sentences

Payments — ( 2,382 ) ( 2,382 )

Adjustments — — —

Balance at September 30, 2021 (1)

Balance at March 31, 2022 (2)

$ — $ 692 $ 692

_____________________________________

(1) Restructuring plan implemented following the Company's merger with CEC.

(2) Restructuring liabilities are included in accounts payable and accrued expenses.

In addition, the 2020 restructuring plan included an evaluation of the Company's owned and leased real estate portfolio, which resulted in the closure and sale of underutilized campus and corporate offices.

During the three and nine months ended September 30, 2021, the Company recorded right-of-use lease asset charges of approximately $ 1.9 million and $ 18.9 million, respectively, related to the campus and corporate locations closed as a result of the restructuring plan.

The Company also recorded fixed asset impairment charges of approximately $ 0.6 million and $ 2.6 million during the three and nine months ended September 30, 2021, respectively.

During the three and nine months ended September 30, 2021, the Company recorded a $ 0.7 million gain from the sale of property and equipment of an owned campus that was closed in connection with the 2020 restructuring plan.

All severance and other employee separation charges, right-of-use lease asset and fixed asset impairment charges, and gains on the sale of property and equipment related to the 2020 restructuring plan are included in Restructuring costs on the unaudited condensed consolidated statements of income.

Marketable Securities

The following is a summary of available-for-sale securities as of September 30, 2021 (in thousands):

The following is a summary of available-for-sale securities as of March 31, 2022 (in thousands):

Amortized Cost Gross Unrealized Gain Gross Unrealized (Losses) Estimated Fair Value

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Total $ 29,444 $ 434 $ — $ 29,878

The unrealized gains on the Company’s investments in corporate debt and municipal securities as of December 31, 2020 and September 30, 2021 were caused by changes in market values primarily due to interest rate changes.

As of September 30, 2021, there were no securities in an unrealized loss position for a period longer than twelve months.

The unrealized gains and losses on the Company’s investments in corporate debt and municipal securities as of December 31, 2021 and March 31, 2022 were caused by changes in market values primarily due to interest rate changes.

As of March 31, 2022, there were no securities in an unrealized loss position for a period longer than twelve months.

The Company has no allowance for credit losses related to its available-for-sale securities as all investments are in investment grade securities.

The Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell these securities prior to the recovery of their amortized cost basis, which may be at maturity.

No impairment charges were recorded during the three and nine months ended September 30, 2020 and 2021.

The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

No impairment charges were recorded during the three months ended March 31, 2021 and 2022.

The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2021 and March 31, 2022 (in thousands):

December 31, 2021 March 31, 2022

Due within one year $ 6,501 $ 6,785

1 unchanged sentence

Total $ 29,878 $ 28,062

The following table summarizes the proceeds from the maturities and sales of available-for-sale securities for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

The following table summarizes the proceeds from the maturities and sales of available-for-sale securities for the three months ended March 31, 2021 and 2022 (in thousands):

For the three months ended March 31,

Maturities of marketable securities $ 1,930 $ 1,100

1 unchanged sentence

Total $ 1,930 $ 1,100

The Company recorded approximately $ 35,000 in gross realized gains in net income during the nine months ended September 30, 2020 and approximately $ 0.8 million in gross realized losses in net income during the three and nine months ended September 30, 2021 related to the sales of marketable securities.

The Company did not record any gross realized gains or losses in net income during the three months ended March 31, 2021 and 2022.

Fair Value Measurement

Assets and liabilities measured at fair value on a recurring basis consist of the following as of September 30, 2021 (in thousands):

Assets measured at fair value on a recurring basis consist of the following as of March 31, 2022 (in thousands):

Fair Value Measurements at Reporting Date Using

September 30, 2021 Quoted Prices in

March 31, 2022 Quoted Prices in

Active Markets

8 unchanged sentences

Total assets at fair value on a recurring basis $ 33,408 $ 5,346 $ 28,062 $ —

Deferred payments $ 646 $ — $ — $ 646

Assets and liabilities measured at fair value on a recurring basis consist of the following as of December 31, 2021 (in thousands):

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The Company measures the above items on a recurring basis at fair value as follows:

• Money market funds – Classified in Level 1 is excess cash the Company holds in both taxable and tax-exempt money market funds, which are included in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets.

• Money market funds – Classified in Level 1 is excess cash the Company holds in money market funds, which are included in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets.

The Company records any net unrealized gains and losses for changes in fair value as a component of accumulated other comprehensive income in stockholders' equity.

The Company's cash and cash equivalents held at December 31, 2020 and September 30, 2021 approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.

The Company's cash and cash equivalents held at December 31, 2021 and March 31, 2022 approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.

• Marketable securities – Classified in Level 2 and valued using readily available pricing sources for comparable instruments utilizing observable inputs from active markets.

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These assumptions are subject to change as the underlying data sources evolve and the programs mature.

The short-term portion of deferred payments was $ 0.6 million as of September 30, 2021 and is included in accounts payable and accrued expense.

The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods and did not transfer assets or liabilities between levels of the fair value hierarchy during the nine months ended September 30, 2020 and 2021.

Changes in the fair value of the Company’s Level 3 liabilities during the nine months ended September 30, 2020 and 2021 are as follows (in thousands):

As of September 30,

The final payment related to the deferred payment arrangements was made in the first quarter of 2022.

Changes in the fair value of the Company’s Level 3 liabilities during the three months ended March 31, 2021 and 2022 are as follows (in thousands):

As of March 31,

Balance as of the beginning of period $ 1,658 $ 658

3 unchanged sentences

Goodwill and Intangible Assets

During the first quarter of 2021, the Company reallocated a portion of its goodwill to the Alternative Learning segment based on a relative fair value analysis performed using several probability weighted scenarios.

The following table presents changes in the carrying value of goodwill by segment for the nine months ended September 30, 2021 (in thousands):

The following table presents changes in the carrying value of goodwill by segment for the three months ended March 31, 2022 (in thousands):

Higher Education Australia /

New Zealand Alternative Learning Total

New Zealand Education Technology Services Total

Balance as of December 31, 2021 $ 632,075 $ 553,789 $ 100,000 $ 1,285,864

Reporting unit reallocation (1)

( 100,000 ) — 100,000 —

Additions — — — —

2 unchanged sentences

Adjustments to prior acquisitions — — — —

Balance as of September 30, 2021 $ 632,075 $ 548,146 $ 100,000 $ 1,280,221

_____________________________________

(1) Represents the reallocation of goodwill as a result of the Company reorganizing its segments in the first quarter of 2021.

(2) Represents a measurement period adjustment recorded in the first quarter of 2021, as discussed in Note 3.

Balance as of March 31, 2022 $ 632,075 $ 571,100 $ 100,000 $ 1,303,175

The Company assesses goodwill at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount.

No events or circumstances occurred in the three and nine months ended September 30, 2021 to indicate an impairment to goodwill at any of its segments.

There were no impairment charges related to goodwill recorded during the three and nine month periods ended September 30, 2020 and 2021.

No events or circumstances occurred in the three months ended March 31, 2022 to indicate an impairment to goodwill at any of its segments.

There were no impairment charges related to goodwill recorded during the three months ended March 31, 2021 and 2022.

Intangible Assets

The following table represents the balance of the Company’s intangible assets as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

The following table represents the balance of the Company’s intangible assets as of December 31, 2021 and March 31, 2022 (in thousands):

December 31, 2021 March 31, 2022

Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

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Straight-line amortization expense for finite-lived intangible assets reflects the pattern in which the economic benefits of the assets are consumed over their estimated useful lives.

Amortization expense related to finite-lived intangible assets was $ 41.5 million and $ 41.4 million for the nine months ended September 30, 2020 and 2021, respectively.

Amortization expense related to finite-lived intangible assets was $ 16.9 million and $ 2.9 million for the three months ended March 31, 2021 and 2022, respectively.

Indefinite-lived intangible assets not subject to amortization consist of trade names.

2 unchanged sentences

The Company assesses indefinite-lived intangible assets at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective indefinite-lived intangible asset below its carrying amount.

No events or circumstances occurred in the three and nine months ended September 30, 2021 to indicate an impairment to indefinite-lived intangible assets.

There was no impairment charge related to indefinite-lived intangible assets recorded during the three and nine months ended September 30, 2020 and 2021.

Other assets consist of the following as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

No events or circumstances occurred in the three months ended March 31, 2022 to indicate an impairment to indefinite-lived intangible assets.

There were no impairment charges related to indefinite-lived intangible assets recorded during the three months ended March 31, 2021 and 2022.

Other assets consist of the following as of December 31, 2021 and March 31, 2022 (in thousands):

December 31, 2021 March 31, 2022

Prepaid expenses, net of current portion $ 19,852 $ 20,011

7 unchanged sentences

Long-term prepaid expenses primarily relate to payments that have been made for future services to be provided after one year.

In the fourth quarter of 2020, pursuant to the terms of the perpetual license agreement associated with the Jack Welch Management Institute (“JWMI”), the Company made a final one-time cash payment of approximately $ 25.3 million for the right to continue to use the Jack Welch name and likeness.

As of September 30, 2021, $ 19.5 million of this payment is included in the prepaid expenses, net of current portion balance, as the payment is being amortized over an estimated useful life of 15 years.

In the fourth quarter of 2020, pursuant to the terms of the perpetual license agreement associated with the Jack Welch Management Institute, the Company made a final one-time cash payment of approximately $ 25.3 million for the right to continue to use the Jack Welch name and likeness.

As of December 31, 2021 and March 31, 2022, $ 19.2 million and $ 18.8 million, respectively, of this payment is included in the prepaid expenses, net of current portion balance, as the payment is being amortized over an estimated useful life of 15 years.

Equity Method Investments

2 unchanged sentences

The Company's investments range from 3 %- 5 % of any partnership’s interest and are accounted for under the equity method.

The following table illustrates changes in the Company’s limited partnership investments for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

The following table illustrates changes in the Company’s limited partnership investments for the three months ended March 31, 2021 and 2022 (in thousands):

For the three months ended March 31,

Limited partnership investments, beginning of period $ 15,795 $ 15,582

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Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Accounts payable and accrued expenses consist of the following as of December 31, 2021 and March 31, 2022 (in thousands):

December 31, 2021 March 31, 2022

Trade payables $ 45,340 $ 49,481

Accrued compensation and benefits 27,424 31,565

Accrued student obligations 4,017 9,262

Other 3,516 3,537

Accrued student obligations and other 22,754 22,888

Accounts payable and accrued expenses $ 95,518 $ 103,934

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Department of Education (the “Department” or “Department of Education”) Financial Responsibility Composite Score of not less than 1.0 for any fiscal year and not less than 1.5 for any two consecutive fiscal years.

The Company was in compliance with all the terms of the Amended Credit Facility as of September 30, 2021.

As of December 31, 2020 and September 30, 2021, the Company had approximately $ 141.8 million and $ 141.6 million, respectively, outstanding under the Revolving Credit Facility.

Approximately $ 3.8 million and $ 3.6 million was denominated in Australian dollars as of December 31, 2020 and September 30, 2021, respectively.

During the nine months ended September 30, 2020 and 2021, the Company paid $ 0.4 million and $ 2.1 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility.

The Company was in compliance with all the terms of the Amended Credit Facility as of March 31, 2022.

As of December 31, 2021 and March 31, 2022, the Company had approximately $ 141.6 million and $ 141.7 million, respectively, outstanding under the Revolving Credit Facility.

Approximately $ 3.6 million and $ 3.7 million was denominated in Australian dollars as of December 31, 2021 and March 31, 2022, respectively.

During the three months ended March 31, 2021 and 2022, the Company paid $ 0.7 million and $ 0.4 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility.

Other Long-Term Liabilities

Other long-term liabilities consist of the following as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Other long-term liabilities consist of the following as of December 31, 2021 and March 31, 2022 (in thousands):

December 31, 2021 March 31, 2022

Contract liabilities, net of current portion $ 34,704 $ 35,259

Asset retirement obligations 9,122 9,423

Deferred payments related to acquisitions 715 —

Other 3,263 3,405

5 unchanged sentences

Certain of the Company's lease agreements require the leased premises to be returned in a predetermined condition.

Deferred Payments Related to Acquisitions

In connection with previous acquisitions, the Company acquired certain assets and entered into deferred payment arrangements with the sellers.

Equity Awards

The following table sets forth the amount of stock-based compensation expense recorded in each of the expense line items for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

The following table sets forth the amount of stock-based compensation expense recorded in each of the expense line items for the three months ended March 31, 2021 and 2022 (in thousands):

For the three months ended March 31,

Instructional and support costs $ 1,225 $ 1,607

General and administration 2,675 3,461

Restructuring costs — ( 222 ) — ( 703 )

Stock-based compensation expense included in operating expense 3,900 5,068

1 unchanged sentence

Stock-based compensation expense, net of tax $ 2,900 $ 3,734

During the nine months ended September 30, 2020 and 2021, the Company recognized a $ 2.8 million windfall tax benefit and a $ 26,000 tax shortfall, respectively, related to share-based payment arrangements, which was recorded as an adjustment to the provision for income taxes.

During the nine months ended September 30, 2020 and 2021, the Company recorded income tax expense of $ 30.1 million and $ 13.7 million, reflecting an effective tax rate of 27.3 % and 29.1 %, respectively.

The Company had $ 0.3 million of unrecognized tax benefits as of December 31, 2020 and September 30, 2021.

During the three months ended March 31, 2021 and 2022, the Company recognized a $ 0.1 million windfall tax benefit and a $ 1.3 million tax shortfall, respectively, related to share-based payment arrangements, which was recorded as an adjustment to the provision for income taxes.

During the three months ended March 31, 2021 and 2022, the Company recorded income tax expense of $ 4.6 million and $ 5.2 million, reflecting an effective tax rate of 32.4 % and 42.7 %, respectively.

The Company had $ 1.0 million of unrecognized tax benefits as of December 31, 2021 and March 31, 2022.

Interest and penalties, including those related to uncertain tax positions, are included in the provision for income taxes in the unaudited condensed consolidated statements of income.

The Company paid $ 32.4 million and $ 21.8 million in income taxes during the nine months ended September 30, 2020 and 2021, respectively.

The tax years since 2017 remain open for Federal tax examination and the tax years since 2016 remain open to examination by state and local taxing jurisdictions in which the Company is subject to taxation.

The Company paid $ 0.4 million and $ 0.5 million in income taxes during the three months ended March 31, 2021 and 2022, respectively.

The tax years since 2018 remain open for federal, state, and local taxing jurisdictions in which the Company is subject to taxation.

Segment Reporting

1 unchanged sentence

Strategic Education’s portfolio of companies is dedicated to closing the skills gap by placing adults on the most direct path between learning and employment.

In the first quarter of 2021, the Company changed the way management reports financial information relied on by the Chief Operating Decision Maker (“CODM”) to evaluate performance and allocate the resources of the Company.

The Company’s revised organizational structure includes three operating and reportable segments:

Higher Education (“USHE”), which is primarily comprised of the Company's previous Strayer University and Capella University segments, Alternative Learning, and Australia/New Zealand.

Financial reporting under the new organizational structure began in the first quarter of 2021.

Prior period segment disclosures have been recast to conform to the current period presentation.

The Company’s organizational structure includes three operating and reportable segments:

Higher Education, Education Technology Services, and Australia/New Zealand.

The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Strayer University and Capella University, including the Jack Welch Management Institute MBA, which is a unit of Strayer University.

USHE also operates non-degree web and mobile application development courses through Hackbright Academy and Devmountain, which are units of Strayer University.

The Alternative Learning segment is primarily focused on developing and maintaining relationships with large employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs.

The employer relationships developed by the Alternative Learning division are an important source of student enrollment for Capella University and Strayer University, and the majority of the revenue attributed to the Alternative Learning division is driven by the volume of enrollment derived from these employer relationships.

Alternative Learning also generates revenue through Workforce Edge, a platform which provides employers a full-service education benefits administration solution.

Lastly, Alternative Learning generates revenue through Sophia Learning, a provider of low-cost online general education courses recommended by the American Council on Education for transfer credit to other colleges and universities, and Digital Enablement Partnerships, which provide online course delivery and support capabilities related to online course delivery to other higher education institutions.

The Education Technology Services segment is primarily focused on developing and maintaining relationships with employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs.

The employer relationships developed by the Education Technology Services division are an important source of student enrollment for Strayer University and Capella University, and the majority of the revenue attributed to the Education Technology Services division is driven by the volume of enrollment derived from these employer relationships.

Education Technology Services also supports employer partners through Workforce Edge, a platform which provides employers a full-service education benefits administration solution, and Sophia Learning, which enables lower cost education benefits programs through the use of low-cost online general education courses recommended by the American Council on Education for credit at other colleges and universities.

The Australia/New Zealand segment is comprised of Torrens University, Think Education and Media Design School in Australia and New Zealand, which collectively offer certificate and degree programs in business, design, education, hospitality, healthcare, and technology through campuses in Australia, New Zealand, and online.

1 unchanged sentence

Inter-segment revenues are not presented separately, as these amounts are immaterial.

The Company’s CODM does not evaluate operating segments using asset information.

A summary of financial information by reportable segment for the three and nine months ended September 30, 2020 and 2021 is presented in the following table (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

The Company’s Chief Operating Decision Maker does not evaluate operating segments using asset information.

A summary of financial information by reportable segment for the three months ended March 31, 2021 and 2022 is presented in the following table (in thousands):

For the three months ended March 31,

Higher Education $ 226,547 $ 195,766

Australia/New Zealand 51,265 48,512

Alternative Learning 8,715 12,961 26,985 38,391

Education Technology Services 12,524 14,577

Consolidated revenues $ 290,336 $ 258,855

Income from operations

Income (loss) from operations

Higher Education $ 47,754 $ 15,483

Australia/New Zealand ( 2,949 ) ( 749 )

Alternative Learning 4,111 5,181 14,729 16,242

Education Technology Services 5,881 4,713

Amortization of intangible assets ( 19,407 ) ( 3,738 )

7 unchanged sentences

The Company accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that it will incur these costs in the future and the costs are reasonably estimable.

The Company currently believes that the ultimate outcome of such matters will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.

The Company currently believes that the ultimate outcome of such

matters will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.

However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect future results of operations in a particular period.

On April 20, 2021, Capella University received a letter from the Department of Education referencing the Wright matter (described below), and indicating that the Department will require a fact-finding process pursuant to the borrower defense to repayment regulations to determine the validity of more than 1,000 borrower defense applications that have been submitted regarding Capella.

According to the Department, some of the applications allege similar claims as in the Wright matter concerning alleged misrepresentations of the length of time to complete doctoral programs.

Capella has since received approximately 500 applications for borrower defense to repayment and is cooperating with the Department’s fact-finding process.

Capella University has since received approximately 500 applications for borrower defense to repayment and is cooperating with the Department’s fact-finding process.

At this time, the Company is unable to predict the outcome of the Department's fact-finding process or the resolution of the borrower defense applications.

1 unchanged sentence

Capella Education Co., et al.

was filed several years ago in the United States District Court for the District of Minnesota.

(now captioned Ornelas, et al.

Capella, et al.) was filed several years ago in the United States District Court for the District of Minnesota.

After the court granted Capella’s motion to dismiss in relation to all but one plaintiff, the plaintiff filed a motion for leave to file a second amended complaint on October 5, 2020, seeking to add six named plaintiffs as well as additional sub-classes and causes of action to the lawsuit.

On April 2, 2021, the magistrate judge issued an order granting plaintiff’s motion to amend the complaint in part, allowing for the addition of six new plaintiffs as well as additional subclasses and causes of action.

On September 22, 2021, the court affirmed the magistrate’s order, and plaintiffs have since filed their second amended complaint.

The Company is currently unable to predict the ultimate timing or outcome of this litigation or reasonably estimate the range of possible losses due to various reasons, including, among other, the early stage of litigation and that there are significant factual and legal issues to be resolved.

Capella intends to vigorously defend this case, including any request for class certification.

On September 22, 2021, the court affirmed a magistrate’s order granting plaintiff’s motion to amend, and plaintiffs subsequently filed their second amended complaint.

The parties entered into a confidential settlement which became effective on April 20, 2022, and on April 25, 2022 the parties filed a joint stipulation of dismissal with prejudice.

United States Regulation

2 unchanged sentences

Similar to previous stimulus packages, this legislation provided additional funding for the Higher Education Emergency Relief Fund.

A small portion of the $39.6 billion allocated for institutions of higher education has been made available for student emergency aid for students at for-profit institutions.

A small portion of the $39.6 billion allocated for institutions of higher education was made available for student emergency aid for students at for-profit institutions.

Capella University disbursed $ 184,323 to students of the highest need in June 2021, and Strayer University disbursed $ 2,554,682 to students of the highest need in July 2021.

The legislation also amends the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation.

The legislation also amended the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation.

Business – Regulation – U.S.

Regulatory Environment – The 90/10 Rule” of the Company’s Annual Report on Form 10-K for a description of the 90/10 Rule.

The legislation requires the Department to conduct a negotiated rulemaking process to modify related Department regulations, which the Department has announced its intent to convene beginning no earlier than January 2022.

This rulemaking process may result in a definition of “federal education assistance” that will include tuition assistance programs offered by the U.S.

Under the legislation, these revisions to the 90/10 Rule would apply to institutional fiscal years beginning on or after January 1, 2023.

The legislation required the Department to conduct a negotiated rulemaking process to modify related Department regulations, which the Department began in January 2022.

In March 2022, the Institutional and Programmatic Eligibility negotiated rulemaking committee reached consensus on changes to the 90/10 Rule, which may result in a definition of “federal education assistance” that will include tuition assistance programs offered by the U.S.

Department of Defense and U.S.

Department of Veterans Affairs, in addition to the Title IV programs already covered by the 90/10 Rule.

Under the legislation, these revisions to the 90/10 Rule would apply to institutional fiscal years beginning on or after January 1, 2023.

Further legislation has been introduced in both chambers of Congress that seeks to modify the 90/10 Rule further, including proposals to change the ratio requirement to 85/15 (federal to nonfederal revenue).

We cannot predict whether Congress will pass any of these legislative proposals .

Other legislation has been introduced in both chambers of Congress that seeks to modify the 90/10 Rule further, including proposals to change the ratio requirement to 85/15 (federal to nonfederal revenue), or to eliminate the 90/10 Rule.

We cannot predict whether or how legislative or regulatory changes will affect the 90/10 Rule.

Consolidated Appropriations Act, 2021

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act of 2021.

On December 27, 2020, former President Trump signed into law the Consolidated Appropriations Act of 2021.

Among other things, this package funded the government through September 2021, provided additional COVID-related relief, and made a number of U.S.

2 unchanged sentences

The legislation also extends until January 1, 2026 expanded employer-provided educational assistance permitting employers to pay up to $5,250 toward an employee’s federal student loans as a tax-free benefit.

The legislation also includes a number of higher education-related provisions, including:

eliminating the “expected family contribution” from the Free Application for Federal Student Aid (“FAFSA”) and replacing it with a “Student Aid Index;” expanding eligibility for Pell Grants;

In addition, the legislation includes a number of higher education-related provisions, including:

eliminating the “expected family contribution” from the Free Application for Federal Student Aid (“FAFSA”) and replacing it with a “Student Aid Index;”

expanding eligibility for Pell Grants;

restoring Pell Grant eligibility for incarcerated students attending non-profit institutions;

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The Department is expected to provide, but has not yet provided, institutions with guidance on the higher education provisions included in the Consolidated Appropriations Act of 2021, which take effect on July 1, 2023.

Additionally, the bill provides $22.7 billion for higher education institutions and students impacted by COVID-19, including $680.9 million (3 percent of the total) for student emergency aid for students at for-profit institutions.

The bill also provided $22.7 billion for higher education institutions and students impacted by COVID-19, including $680.9 million (3 percent of the total) for student emergency aid for students at for-profit institutions.

In January 2021, the Department released a table of institutional allocation of funds, which indicated that Capella University was eligible for $ 328,602 and Strayer University was eligible for $ 5,831,606 , all of which was disbursed to students with the highest need in the form of direct grants in spring 2021.

Veterans Health Care and Benefits Improvement Act of 2020

On January 5, 2021, President Trump signed into law the Veterans Health Care and Benefits Improvement Act of 2020, which expands student veterans’ protections.

On January 5, 2021, former President Trump signed into law the Veterans Health Care and Benefits Improvement Act of 2020, which expanded student veterans’ protections.

Among other things, the legislation requires a risk-based review of schools if an institution is operating under Heightened Cash Monitoring 2 or provisional approval status by the Department of Education, is subject to any punitive action by a federal or state entity, faces the loss or risk of loss of accreditation, or has converted from for-profit to non-profit status.

The legislation also restores veterans benefits to students whose school closed, as long as the student transferred fewer than 12 credits from the closed school or program;

protects students from debt collection by the Department of Veterans Affairs (“VA”) for overpaid tuition benefits;

protects students from debt collection by the U.S.

Department of Veterans Affairs (“VA”) for overpaid tuition benefits;

and establishes a number of institutional requirements, including:

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and prohibiting more than three unsolicited recruiting contacts during any 1-month period.

The legislation will require guidance from the VA, and most provisions are effective August 1, 2021.

Most provisions became effective August 1, 2021.

Institutions were permitted to seek waivers for certain sections of the new law if they were not able to satisfy compliance requirements by August 1, 2021, but neither Strayer University nor Capella University sought a waiver.

The legislation requires further guidance from the VA.

On June 8, 2021, President Biden signed into law the Training in High-Demand Roles to Improve Veteran Employment Act (the “THRIVE Act”), which amended provisions of the Veterans Health Care and Benefits Improvement Act and the American Rescue Plan Act.

The law requires the Department of Labor and VA to collaborate on a list of high-demand occupations for a rapid retraining assistance program.

The law requires the U.S.

Department of Labor and VA to collaborate on a list of high-demand occupations for a rapid retraining assistance program.

Additionally, the law requires the Government Accountability Office to report on the outcomes and effectiveness of retraining programs.

The THRIVE Act amends the Veterans Health Care and Benefits Improvement Act by clarifying that programs pursued solely through distance education on a half-time basis or less are not eligible for the housing stipend that is generally available for retraining programs.

The THRIVE Act amended the Veterans Health Care and Benefits Improvement Act by clarifying that programs pursued solely through distance education on a half-time basis or less are not eligible for the housing stipend that is generally available for retraining programs.

As noted above, the Veterans Health Care and Benefits Improvement Act prohibits certain high-pressure recruiting tactics.

The THRIVE Act requires the VA to take disciplinary action if a person with whom an institution has a recruiting or educational services agreement violates the VA’s incentive compensation bans.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

On December 21, 2021, President Biden signed into law the Responsible Education Mitigating Options and Technical Extensions (“REMOTE”) Act, which amended provisions of the Veterans Health Care and Benefits Improvement Act, the American Rescue Plan Act, and the THRIVE Act.

The law includes changes to help institutions satisfy the Veterans Health Care and Benefits Improvement Act’s requirements by using the College Financing Plan template, in addition to extending some COVID-related flexibilities previously granted amid the pandemic.

The law also extends remote learning waivers, simplifies the VA verification process for tuition reimbursement, and fixes a technical error to ensure U.S.

institutions of higher education can continue to recruit foreign students without losing GI bill funding for their students.

On March 27, 2020, Congress passed and former President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Among other things, the $2.2 trillion bill established some flexibilities related to the processing of federal student financial aid, established a higher education emergency fund, and created relief for some federal student loan borrowers.

Through the CARES

Act, Congress provided institutions of higher education relief from conducting a return to Title IV (R2T4) calculation in cases where the student withdrew because of COVID-19, including removing the requirement that the institution return unearned funds to the Department of Education and providing loan cancellation for the portion of the Direct Loan associated with a payment period that the student did not complete due to COVID-19.

Through the CARES Act, Congress provided institutions of higher education relief from conducting a return to Title IV (R2T4) calculation in cases where the student withdrew because of COVID-19, including removing the requirement that the institution return unearned funds to the Department of Education and providing loan cancellation for the portion of the Direct

Loan associated with a payment period that the student did not complete due to COVID-19.

The CARES Act also allows institutions to exclude from satisfactory academic progress calculations any attempted credits that the student did not complete due to COVID-19, without requiring an appeal from the student.

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Institutions may continue to make Federal Work Study payments to student employees who are unable to meet their employment obligations due to COVID-19.

The CARES Act also suspended payments and interest accrual on federal student loans until September 30, 2020, in addition to suspending involuntary collections such as wage garnishment, tax refund reductions, and reductions of federal benefits like Social Security benefits during the same timeframe.

Through a series of administrative actions, the Secretary of Education extended CARES Act student loan relief through January 31, 2022.

The Department of Education noted in an August 6, 2021 announcement that this would be the final extension of the student loan payment pause.

On March 30, 2021, the Secretary of Education also extended student loan relief to Federal Family Education Loans (“FFEL”) that are in default.

The extension for FFEL also expires on January 31, 2022.

The Department issued sub-regulatory guidance to institutions regarding implementation of the provisions included in the CARES Act.

On March 30, 2021, the Secretary of Education also extended student loan relief to all Federal Family Education Loans (“FFEL”) not previously covered.

Through a series of administrative actions, student loan relief has been extended through August 31, 2022.

Finally, the CARES Act allocated $14 billion to higher education through the creation of the Education Stabilization Fund.

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Instead, Strayer University provided a $ 500 tuition grant for all students who had enrolled in on-ground classes for the Spring term, prior to the classes being converted to online.

Because Capella University’s students are exclusively online, Capella was ineligible for Education Stabilization funding.

Congressional Spending Bills

Congress has introduced several large spending bills that include provisions relevant to higher education institutions.

Since the Consolidated Appropriations Act, 2021 funded the federal government only through September 2021, Congress has continued to debate appropriations for fiscal year 2022 (October 1, 2021 through September 30, 2022).

In order to continue funding the federal government while the full budget is still under negotiation, Congress passed a Continuing Resolution providing funding for the federal government until December 3, 2021.

This Continuing Resolution prevented a federal government shutdown.

Additionally, Congress temporarily increased the debt ceiling in October 2021, which allows the federal government to avoid default until at least December 2021.

In addition to the appropriations bill that sets the annual budget, Congress is also examining a social spending bill and an infrastructure bill.

One provision of the social spending bill proposes to increase the maximum amount of an individual student’s Pell Grant by $550, resulting in a new maximum award of $7,045.

However, the additional $550 would only apply for students attending non-profit institutions.

Because Capella University’s students are exclusively online, Capella University was ineligible for Education Stabilization funding.

Consolidated Appropriations Act, 2022

On March 15, 2022 President Biden signed into law the Consolidated Appropriations Act of 2022.

The bill allocated $76.4 billion to the Department of Education and its programs, including a $400 increase to the maximum Pell Grant award, bringing the total to $6,895 for the 2022-23 award year.

In addition, campus-based aid programs were increased, with $895 million allocated for the Federal Supplemental Educational Opportunity Grant (FSEOG) program, an increase of $15 million above the FY 2021 enacted level, and $1.21 billion allocated for Federal Work-Study (FWS), an increase of $20 million above the FY 2021 enacted level.

In addition to the increases in federal student aid funding, the bill provides $2.1 billion for career, technical, and adult education, $61 million above the FY 2021 enacted level, and an additional $3 billion for higher education programs, $452 million more than the FY 2021 enacted level.

The bill also dictates the Department requirements related to federal loan servicing, including appropriations for just over $2 billion for expenses related to the administration of the federal loan program, and makes a number of changes to the FAFSA Simplification Act.

Gainful Employment

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The Department of Education published final regulations related to gainful employment that went into effect on July 1, 2015, with the additional disclosure requirements that became effective January 1, 2017 and July 1, 2019 (the “2015 Regulations”).

On July 1, 2019, the Department of Education released final gainful employment regulations, which contained a full repeal of the 2015 Regulations and became effective on July 1, 2020.

Both Capella University and Strayer University implemented the July 2019 regulations early, by means permitted by the Secretary, and accordingly were not required to report gainful employment data

for the 2018-2019 award year.

For the period between July 2019 and July 1, 2020, Capella University and Strayer University were not required to comply with gainful employment disclosure and template publication requirements and were not required to comply with the regulation’s certification requirements with respect to programmatic accreditation and program satisfaction of prerequisites for professional licensure/state certification.

On May 26, 2021, the Department announced its intention to establish negotiated rulemaking committees to prepare proposed regulations for gainful employment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965, as amended, but has not yet convened a committee on gainful employment regulations.

On July 1, 2019, the Department of Education released final gainful employment regulations, which contained a full repeal of the 2015 Regulations and became effective on July 1, 2020 (the “2019 Regulations”).

Both Strayer University and Capella University implemented the 2019 Regulations early, by means permitted by the Secretary of the Department of Education, and accordingly were not required to report gainful employment data for the 2018-2019 award year.

For the period between July 2019 and July 1, 2020, Strayer University and Capella University were not required to comply with gainful employment disclosure and template

publication requirements and were not required to comply with the regulation’s certification requirements with respect to programmatic accreditation and program satisfaction of prerequisites for professional licensure/state certification.

On December 8, 2021, the Department announced its intention to establish negotiated rulemaking committees to develop proposed regulations for gainful employment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965.

Negotiated rulemaking committee sessions occurred January-March 2022, and the Institutional and Programmatic Eligibility committee failed to reach consensus on the Gainful Employment topic.

See “Current Negotiated Rulemaking” below.

We cannot predict the outcome of the negotiated rulemaking process.

We cannot predict what a future gainful employment regulation may include.

Borrower Defenses to Repayment

On September 23, 2019, the Department published final Borrower Defense to Repayment regulations (the “2019 BDTR Rule”), which governs borrower defense to repayment claims in connection with loans first disbursed on or after July 1, 2020, the date the 2019 BDTR Rule became effective.

The 2019 BDTR Rule supplants the 2016 Borrower Defense to Repayment rule.

Under the 2019 BDTR Rule, an individual borrower can assert a defense to repayment and be eligible for relief if she or he establishes, by a preponderance of the evidence, that (1) the institution at which the borrower enrolled made a misrepresentation of material fact upon which the borrower reasonably relied in deciding to obtain a Direct Loan or a loan repaid by a Direct Consolidation Loan;

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On March 11, 2020, the 116th Congress passed a joint resolution providing for Congressional disapproval of the 2019 BDTR Rule.

President Trump vetoed the joint resolution on May 29, 2020, and the House subsequently failed to override the veto during a vote on June 26, 2020.

Former President Trump vetoed the joint resolution on May 29, 2020, and the House subsequently failed to override the veto during a vote on June 26, 2020.

On March 18, 2021, the Department revised its BDTR review process and repealed the previous administration’s partial relief formula.

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These borrowers will no longer be required to provide proof of insufficient income for the relief program for the three years after discharge of their loans.

On August 10, 2021, the Department announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations for borrower defenses to repayment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965, as amended, and solicited negotiator nominations.

Negotiated rulemaking for the Affordability and

Student Loans Committee began October 4, 2021 and is scheduled to conclude December 10, 2021.

On August 10, 2021, the Department announced its intention to establish a negotiated rulemaking committee to develop proposed regulations for borrower defenses to repayment and other topics related to programs authorized under Title IV of the HEA.

Negotiated rulemaking for the Affordability and Student Loans Committee began October 4, 2021 and concluded December 10, 2021, with the committee failing to reach consensus on Borrower Defense to Repayment.

On April 22, 2022, the draft BDTR rule

arrived at the Office of Information and Regulatory Affairs;

the Department has indicated it intends to release the draft rule for public comment in May, 2022.

See “Current Negotiated Rulemaking” below.

We cannot predict the outcome of the negotiated rulemaking process.

We cannot predict what a future BDTR regulation may include.

Accrediting Agencies and State Authorization

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HLC did not appeal the Secretary's decision.

Both HLC and Middle States Commission on Higher Education (“Middle States”), the institutional accreditor for Strayer University, have applied for renewal of their recognition by the Department.

NACIQI is scheduled to consider their applications in winter 2023.

Distance Education and Innovation

On August 24, 2020, the Department of Education published final rules related to distance education and innovation to amend the sections of the institutional eligibility regulations issued under the HEA regarding establishing eligibility, maintaining eligibility, and losing eligibility.

Among other changes, the final rules establish an updated definition of distance education;

amend the existing definition of the credit hour;

create a definition of academic engagement;

and update eligibility and program design, for programs offered through the direct assessment of learning.

The final rules also make operational changes to several financial aid awarding, disbursing and refunding rules, including how aid can be delivered to students enrolled in subscription period programs, such as Capella’s FlexPath offerings.

Among other changes, the final rules established an updated definition of distance education;

amended the existing definition of the credit hour;

created a definition of academic engagement;

and updated eligibility and program design, for programs offered through the direct assessment of learning.

The final rules also made operational changes to several financial aid awarding, disbursing and refunding rules, including how aid can be delivered to students enrolled in subscription period programs, such as Capella University’s FlexPath offerings.

The final rule became effective July 1, 2021.

On May 6, 2020, the Department of Education published final rules related to implementation of Title IX of the Education Amendments of 1972 (“Title IX”), which prohibits discrimination on the basis of sex in education programs that receive funding from the federal government.

The final rules define what constitutes sexual harassment for purposes of Title IX in the administrative enforcement context, describe what actions trigger an institution’s obligation to respond to incidents of alleged sexual harassment, and specify how an institution must respond to allegations of sexual harassment.

Among other things, the new rules include a requirement for live hearings on Title IX sexual harassment claims, which includes direct and cross-examination of parties, university-provided advisors (in the event a student or party does not provide an advisor), rulings on questions of relevance by decision-makers, and the creation and maintenance of a record of the live hearing proceedings.

The final rules defined what constitutes sexual harassment for purposes of Title IX in the administrative enforcement context, described what actions trigger an institution’s obligation to respond to incidents of alleged sexual harassment, and specified how an institution must respond to allegations of sexual harassment.

Among other things, the rules include a requirement for live hearings on Title IX sexual harassment claims, which includes direct and cross-examination of parties, university-provided advisors (in the event a student or party does not obtain its own advisor), rulings on questions of relevance by decision-makers, and the creation and maintenance of a record of the live hearing proceedings.

The final rule became effective August 14, 2020.

On March 8, 2021, President Biden signed an executive order that requires the Secretary of Education and the Attorney General to review the previous administration’s rulemakings and guidance documents related to Title IX.

In June 2021, the Department of Education held virtual public hearings to gather information for providing enforcement of Title IX, as part of the Office for Civil Rights’ (“OCR”) comprehensive review of the regulation.

After the public hearings, the Department of Education indicated that it plans to introduce proposed rule changes for Title IX in May 2022.

On June 16, 2021, the OCR issued a notice of interpretation clarifying that the Department interprets Title IX and its enforcement authority under the regulation to include the prohibition of

sex discrimination based on sexual orientation and gender identity.

In June 2021, the Department of Education held virtual public hearings to gather information for providing enforcement of Title IX, as part of the Office for Civil

Rights’ (“OCR”) comprehensive review of the regulation.

On June 16, 2021, the OCR issued a notice of interpretation clarifying that the Department interprets Title IX and its enforcement authority under the regulation to include the prohibition of sex discrimination based on sexual orientation and gender identity.

On July 20, 2021, the Department of Education released a Questions and Answers document outlining the OCR's interpretation of the Title IX regulations related to sexual harassment.

On August 24, 2021, OCR, in alignment with recent federal court decisions, issued guidance indicating it would cease enforcement of Title IX’s current prohibition against consideration of statements made by individuals failing to submit to cross-examination.

The Department of Education has indicated that it plans to publish proposed rule changes for Title IX in May 2022.

Current Negotiated Rulemaking

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At the virtual public hearings and via written comments, members of the public discussed proposed changes for all of the issues noted above, as well as comments addressing data transparency, including disclosures of outcomes for veteran students.

The Department has indicated its intention to convene multiple committees, including the Affordability and Student Loans Committee.

See “Affordability and Student Loans Committee” below.

On October 4, 2021 the Department announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations affecting institutional and programmatic eligibility, including the 90/10 rule.

As part of the notice, the Department announced public hearings on October 26 and October 27, with negotiations scheduled to begin no earlier than January 2022.

We cannot predict the outcome of the negotiated rulemaking process.

The Department indicated its intention to convene multiple committees, including the Affordability and Student Loans committee and the Institutional and Programmatic Eligibility committee.

See “Affordability and Student Loans Committee” and “Institutional and Programmatic Eligibility Committee” below.

Following completion of a negotiated rulemaking process, the Department of Education issues proposed rules for public comment.

If the negotiated rulemaking committee reached consensus on a topic, the Department of Education is bound to propose a rule consistent with the consensus.

Following public comment, the Department issues final regulations, which, if published by November 1, would take effect July 1 of the following year.

Affordability and Student Loans Committee

On August 10, 2021, the Department announced its intention to establish the Affordability and Student Loans committee, to prepare proposed regulations to address the following topics:

borrower defense to repayment, closed school discharges, discharges for borrowers with a total and permanent disability, discharges for false certification of student eligibility, loan repayment plans, interest capitalization, mandatory pre-dispute arbitration and prohibition of class action lawsuits provisions in institutions’ enrollment agreements and associated counseling about such arrangements, Pell Grant eligibility or prison education programs, and the Public Service Loan Forgiveness program.

borrower defense to repayment, closed school discharges, discharges for borrowers with a total and permanent disability, discharges for false certification of student eligibility, loan repayment plans, interest capitalization, mandatory pre-dispute arbitration and prohibition of class action lawsuits provisions in institutions’ enrollment agreements and associated counseling about such arrangements, Pell Grant eligibility for prison education programs, and the Public Service Loan Forgiveness program.

The Department also announced the formation of a Prison Education Program Subcommittee.

The Department selected negotiators in September 2021, with the first session of negotiated rulemaking occurring October 4-8, 2021.

Negotiations were also held November 1-5 and will continue December 6-10, 2021.

Issue papers provided by the Department prior to the first negotiated rulemaking session indicate the Department is considering changes to borrower to defense to repayment regulations that include eliminating a limitations period on claims, making the group claims process the default process for loan relief, establishing the borrower defense application as a form of evidence, and adding aggressive recruitment and adjudications as additional categories of acts that could lead to a borrower defense claim.

See “Current Negotiated Rulemaking” above.

The Department selected negotiators in September 2021, with negotiations occurring October-December 2021.

In December 2021, the Affordability and Student Loans committee reached consensus on four of twelve topics:

discharges for false certification of student eligibility, Pell Grant eligibility for prison education programs, discharges for borrowers with total and permanent disability, and interest capitalization.

It did not reach consensus on borrower defenses to repayment and other topics.

We cannot predict the outcome of the negotiated rulemaking process.

Institutional and Programmatic Eligibility Committee

On December 8, 2021, the Department announced its intention to establish the Institutional and Programmatic Eligibility committee, to prepare proposed regulations to address the following topics:

90/10, ability to benefit, certification procedures for participating in Title IV programs, change of ownership and change in control of institutions of higher education, financial responsibility for participating institutions of higher education, gainful employment, and standards of administrative capability.

Committee meetings occurred January-March 2022.

In March 2022, the committee reached consensus on two of seven topics:

ability to benefit and changes to the 90/10 rule.

The consensus language on 90/10 includes changes to requirements impacting non-Title IV program revenue, and the treatment of “Federal funds” within the calculation.

The consensus language indicates that the Secretary of Education will identify via Federal Register notice, the federal agencies and educational assistance funds provided by that agency that will count toward the “90” portion of the 90/10 calculation.

Such agencies may include the U.S.

Department of Defense and the VA.

During the negotiated rulemaking process, the Department also proposed a number of changes to financial responsibility regulations, but did not reach consensus on the language.

The proposal included new mandatory and discretionary triggers that would require the posting of financial protections.

Among other things, the Department proposed a discretionary trigger in the event of significant fluctuations in Title IV aid;

a discretionary trigger for pending borrower defense claims;

and a discretionary trigger for when institutions close most or all on-ground locations but maintain an online presence.

The Department also proposed as part of the negotiated rulemaking process the reestablishment of gainful employment regulations, which would apply to all programs (including non-degree programs) at proprietary institutions and non-degree programs at public and private nonprofit institutions.

Among other items, the Department proposed to use the first four digits of the CIP (Classification of Instructional Program) code to identify gainful employment programs;

to remove the “zone” concept pertaining to debt-to-earnings rates;

and to establish that a program would fail the debt-to-earnings rate measure if, among other measures, its debt-to-earnings rate is greater than 8 percent and its discretionary earnings rate is greater than 20 percent.

The Department also proposed including Parent PLUS loans when determining student debt load, and included a new “earnings threshold” measure comparing the median annual earnings for students who completed the program to the median earnings for a working adult aged 25-34 with only a high school diploma in the state in which the institution is located (or nationally based on the percentage of students located in the same state as the institution).

The Department’s proposal would deem a program ineligible for Title IV funding if the program failed either metric (debt-to-earnings or earnings threshold) two out of three consecutive years.

Among other topics, the Department proposed a number of additional changes to regulations regarding administrative capability, change of control and certification issues, none of which reached consensus.

We cannot predict the outcome of the negotiated rulemaking process.

Public Service Loan Forgiveness Program

On October 6, 2021, the Department of Education announced new changes and initiatives related to the Public Service Loan Forgiveness (“PSLF”) program.

This announcement aimed to make discharge of federal student loans easier for those that participate in the PSLF.

One such way the Department of Education is streamlining the PSLF process is by implementing a time-limited waiver, which gives borrowers flexibility in counting prior payments towards PSLF, even if the previous payments were for different loan programs such as FFEL or if the payments were partial payments.

Borrowers with Direct Loans will be able to seek this waiver prior to October 31, 2022.

This announcement aimed to make discharge of federal student loans easier for those who participate in the PSLF.

One way the Department of Education is streamlining the PSLF process is by implementing a time-limited waiver, which gives borrowers flexibility in counting prior payments towards PSLF, even if the previous payments were for different loan programs such as FFEL or if the payments were partial payments.

Borrowers with Direct Loans will be able to seek this waiver until October 31, 2022.

The Department of Education announced that the waiver will help over 550,000 borrowers progress towards loan relief under PSLF.

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Under the agreement, the institution agrees to follow the Department’s rules and regulations governing Title IV programs.

On October 11, 2017, the Department and Strayer University executed a new Program Participation Agreement, approving Strayer University’s continued participation in Title IV programs with full certification through June 30, 2021.

Strayer University applied for recertification by March 31, 2021, as required by the Department, and is awaiting a new Program Participation Agreement.

Per the Department’s guidance, if a school submits a materially complete application no later than 90 calendar days prior to the expiration of the Program Participation Agreement, the agreement remains valid and the institution continues to be eligible to participate in Federal Student Aid programs, even if the Department has not completed its evaluation of the application before the expiration date.

On December 13, 2021, the Department and Strayer University executed a new Program Participation Agreement, approving Strayer University’s continued participation in Title IV programs with full certification through September 30, 2025.

As a result of the August 1, 2018 merger, Capella University experienced a change of ownership, with the Company as its new owner.

On January 18, 2019, consistent with standard procedure upon a Title IV institution’s change of ownership, the Department and Capella University executed a new Provisional Program Participation Agreement, approving Capella’s continued participation in Title IV programs with provisional certification through December 31, 2022.

As is typical, the Provisional Program Participation Agreement subjects Capella University to certain requirements during the period of provisional certification, including that Capella must apply for and receive approval from the Department in connection with new locations or the addition of new Title IV-eligible educational programs.

Capella will be required to apply for recertification by September 30, 2022.

As is typical, the Provisional Program Participation Agreement subjects Capella University to certain requirements during the period of provisional certification, including that Capella University must apply for and receive approval from the Department in connection with new locations or the addition of new Title IV-eligible educational programs.

Capella University will be required to apply for recertification by September 30, 2022.

Office of Enforcement

On October 8, 2021, the Department of Education announced establishment of an Office of Enforcement within the Department's Office of Federal Student Aid, designed to strengthen oversight over and enforcement against postsecondary schools that participate in federal student loan, grant, and work-study programs.

The Office of Enforcement restores an office first established by the Department in 2016.

The Office of Enforcement will be comprised of four existing divisions:

Administrative Actions and Appeals Services Group, Borrower Defense Group, Investigations Group, and Resolution and Referral Management Group.

The Department intends the Office of Enforcement to coordinate with other state and federal partners, including the Department of Justice, Consumer Financial Protection Bureau, Federal Trade Commission, and state attorneys general.

Federal Trade Commission

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The notice included a list of acts and practices that the FTC has determined are unfair or deceptive, including but not limited to acts relating to misrepresentation of employment opportunities and other benefits, together with citation to various prior determinations from cases previously litigated by the FTC.

Strayer and Capella University received the FTC’s notice on October 7, 2021.

The FTC made clear that receipt of the notice itself does not reflect any assessment as to whether Capella or Strayer has engaged in deceptive or unfair conduct.

Office of Enforcement

On October 8, 2021, the Department of Education announced establishment of an Office of Enforcement within Federal Student Aid, designed to strengthen oversight over and enforcement against postsecondary schools that participate in federal student loan, grant, and work-study programs.

The Office of Enforcement restores an office first established by the Department in 2016.

Office of Enforcement will be comprised of four existing divisions:

Administrative Actions and Appeals Services Group, Borrower Defense Group, Investigations Group, and Resolution and Referral Management Group.

Strayer University and Capella University received the FTC’s notice on October 7, 2021.

The FTC made clear that receipt of the notice itself does not reflect any assessment as to whether Strayer University or Capella University has engaged in deceptive or unfair conduct.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (“CFPB”) is a U.S.

government agency established to protect the interests of consumers in their dealings with banks, lenders and other financial institutions.

On April 4, 2022, the Company received correspondence from the CFPB, in which the CFPB took the position that it has supervisory authority over the Company as a covered person that offers or provides private education loans pursuant to 12 U.S.C.

5514(a)(1)(D) and further indicated the CFPB is considering whether to cite violations based on preliminary findings that the Company may have violated the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C.

5301 et seq., due to alleged student loan servicing and collections practices or policies.

Specifically, the CFPB referred to Capella University and Strayer University’s historical practice of withholding official transcripts from students who were delinquent in paying amounts due, a practice which both universities discontinued prior to receipt of the correspondence.

While the Company disagrees with CFPB’s position as to its supervisory authority and disputes any alleged legal or regulatory violations, SEI is cooperating with CFPB’s inquiry and responded to CFPB as requested on April 25, 2022.

The CFPB has further informed the Company that it intends to conduct an announced education loan exam in June 2022.

Australian Regulation

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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-Q

Item 1. Financial Statements