What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-05-10 · 149 added, 97 removed, 203 unchanged (55% of the section changed)

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In accordance with the Safe Harbor provisions of the Reform Act, the Company has identified important factors that could cause the actual results to differ materially from those expressed in or implied by such statements.

The assumptions, risks and uncertainties include the pace of student enrollment, our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as other federal laws and regulations, institutional accreditation standards and state regulatory requirements, rulemaking by the Department and increased focus by the U.S.

Congress on for-profit education institutions, competitive factors, risks associated with the further spread of COVID-19, including the ultimate impact of COVID-19 on people and economies, the impact of regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, risks associated with the opening of new campuses, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing educational institutions including our acquisition of Torrens University and associated assets in Australia and New Zealand, the risk that the benefits of our acquisition of Torrens University and associated assets in Australia and New Zealand may not be fully realized or may take longer to realize than expected, the risk that our acquisition of Torrens University and associated assets in Australia and New Zealand may not advance our business strategy and growth strategy, risks related to the timing of regulatory approvals, our ability to implement our growth strategy, the risk that the combined company may experience difficulty integrating employees or operations, risks associated with the ability of our students to finance their education in a timely manner, and general economic and market conditions.

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Our operations emphasize relationships through our Education Technology Services segment with employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs.

Company Response to COVID-19

The ongoing COVID-19 pandemic has caused significant volatility and disruption to the United States and international economies.

SEI took early action to protect the health and well-being of our students and employees in accordance with government mandates and informed by guidance from the Centers for Disease Control and Prevention.

Specifically, we instituted a work-from-home policy for the vast majority of our workforce, closed physical campus locations, moved our on-ground courses at Strayer University online, postponed large events such as graduation ceremonies, and prohibited non-essential employee travel.

As guidance has evolved, we have begun to reopen campus and office locations and permit business travel, after instituting a mandatory vaccination policy for all employees who may be required to be on-site at a Company facility or at a Company-sponsored event, subject to medical and religious accommodations (any employee receiving an accommodation is required to test at least weekly before being on-site).

We have taken measures to provide financial relief to our students and employer partners negatively affected by the COVID-19 crisis, including payment flexibility, scholarship opportunities, and other pricing relief.

We expect that these measures will enable more students to continue pursuing their education during and after the COVID-19 pandemic.

In the third quarter of 2020, we began implementing a restructuring plan that included both voluntary and involuntary employee terminations in an effort to reduce ongoing operating costs to align with changes in enrollment.

Our restructuring efforts have also included the consolidation of underutilized facilities in response to changes in enrollment trends and as a result of our work-from-home policies.

As the pandemic has continued, we have seen sustained weakness in demand, especially in the United States, where total enrollment in our U.S.

Higher Education segment declined 13% in the first quarter of 2022, compared to the same period in 2021.

Enrollment in ANZ also has been impacted by the pandemic and the related closure of international borders in Australia and New Zealand.

We believe our current financial position and expected operating results, and ability to further control costs, are sufficient to support the ongoing operation of SEI in a manner that protects the health and well-being of our employees, students, and partners.

Company Overview

As of March 31, 2022, we had the following reportable segments:

As of June 30, 2022, we had the following reportable segments:

Higher Education Segment

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The USHE segment provides academic offerings both online and in physical classrooms, helping working adult students develop specific competencies they can apply in their workplace.

• In the first quarter of 2022, USHE enrollment decreased 13% to 78,172 compared to 89,482 for the same period in 2021.

• Trailing 4-quarter student persistence within USHE was 86.8% in the fourth quarter of 2021 compared to 86.7% for the same period in 2020.

• In the second quarter of 2022, USHE enrollment decreased 9% to 76,728 compared to 83,923 for the same period in 2021.

• Trailing 4-quarter student persistence within USHE was 87.1% in the first quarter of 2022 compared to 86.5% for the same period in 2021.

Student persistence is calculated as the rate of students continuing from one quarter to the next, adjusted for graduates, on a trailing 4-quarter basis.

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• Our 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.

Enrollments attributed to the Education Technology Services segment are determined based on a student’s employment status and the existence of a corporate partnership arrangement with SEI.

All enrollments attributed to the Education Technology Services division continue to be attributed to the division until the student graduates or withdraws, even if his or her employment status changes or if the partnership contract expires.

• In the first quarter of 2022, employer affiliated enrollment as a percentage of USHE enrollment was 23.0% compared to 20.7% for the same period in 2021.

• 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.

• In the second quarter of 2022, employer affiliated enrollment as a percentage of USHE enrollment was 24.6% compared to 20.5% for the same period in 2021.

• 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 education benefits programs through the use of low-cost online general education-level courses recommended by the American Council on Education for credit at other colleges and universities.

Australia/New Zealand Segment

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• Media Design School is a private tertiary institution for creative and technology qualifications in New Zealand.

Media Design School offers industry-endorsed courses in 3D animation and visual effects, game art, game programming, graphic and motion design, digital media artificial intelligence, and creative advertising.

Media Design School offers industry-endorsed courses in 3D animation and visual effects, game art, game programming,

graphic and motion design, digital media artificial intelligence, and creative advertising.

Media Design School is accredited in New Zealand by the New Zealand Qualifications Authority, the organization responsible for the quality assurance of non-university tertiary training providers.

• In the first quarter of 2022, Australia/New Zealand enrollment decreased 4% to 20,575 compared to 21,469 for the same period in 2021.

• In the second quarter of 2022, Australia/New Zealand enrollment was 18,834 compared to 18,800 for the same period in 2021.

We believe we have the right operating strategies in place to provide the most direct path between learning and employment for our students.

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Management believes that the following critical accounting policies are its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue recognition — Like many traditional institutions, Strayer University and Capella University offer educational programs primarily on a quarter system having four academic terms, which generally coincide with our quarterly financial reporting periods.

Revenue recognition — Strayer University and Capella University offer educational programs primarily on a quarter system having four academic terms, which generally coincide with our quarterly financial reporting periods.

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.

Approximately 96% of our revenues during the three months ended March 31, 2022 consisted of tuition revenue.

Approximately 96% of our revenues during the six months ended June 30, 2022 consisted of tuition revenue.

Capella University offers monthly start options for new students, who then transition to a quarterly schedule.

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In Australia, domestic students attending an ANZ institution finance their education themselves or by taking a loan through the government’s Higher Education Loan Program or Vocational Student Loan Program.

In New Zealand, domestic students may utilize government loans to fund tuition, and in addition may be eligible for a period of “fees free” study funded by the government.

International students attending an ANZ institution are not eligible for funding from the Australian or New Zealand government.

In New Zealand, domestic students may utilize government loans to fund tuition and may be eligible for a period of “fees free” study funded by the government.

International students attending an ANZ institution are not eligible for funding from the Australian or New Zealand governments.

A typical class is offered in weekly increments over a six- to twelve-week period, depending on the university and course type, and is followed by an exam.

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For international students attending an ANZ institution, refunds are provided to students that withdraw prior to the course commencement date.

In limited circumstances refunds to student attending an ANZ institution may be granted after these cut-offs subject to an application for special consideration by the student and approval of that application by the institution.

In limited circumstances, refunds to students attending an ANZ institution may be granted after these cut-offs subject to an application for special consideration by the student and approval of that application by the institution.

Refunds reduce the tuition revenue that otherwise would have been recognized for that student.

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In Australia and New Zealand, government funding for eligible students is provided directly to the institution on an estimated basis annually.

amount of government funding provided is based on a course-by-course forecast of enrollments that the institution submits for the upcoming calendar year.

The amount of government funding provided is based on a course-by-course forecast of enrollments that the institution submits for the upcoming calendar year.

Using the enrollment forecast provided as well as the requesting institution's historical enrollment trends, the government approves a fixed amount, which is then funded to the institution evenly on a monthly basis.

Periodic reconciliation and true-ups are undertaken between the relevant government authority and the institution based on actual eligible enrollments, which may result in a net amount being due to or from the government.

Students at Strayer University registering in credit-bearing courses in any undergraduate program beginning in the summer 2013 term or graduate program beginning in the summer 2020 term (fiscal third quarter), and subsequent terms qualify for the Graduation Fund, whereby qualifying students earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program.

Students at Strayer University registering in credit-bearing courses in any undergraduate or graduate program qualify for the Graduation Fund, whereby qualifying students earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program.

Students must meet all of Strayer University’s admission requirements and not be eligible for any previously offered scholarship program.

Our employees and their dependents are not eligible for the program.

To maintain eligibility, students must be enrolled in a bachelor’s or master's degree program.

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 temporarily allowed students to miss three consecutive terms without losing their Graduation Fund credits.

In their final academic year, qualifying students will receive one free course for every three courses that the student successfully completed in prior years.

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Estimated redemption rates of eligible students vary based on their term of enrollment.

As of March 31, 2022, we had deferred $51.2 million for estimated redemptions earned under the Graduation Fund, as compared to $52.0 million at December 31, 2021.

As of June 30, 2022, we had deferred $50.1 million for estimated redemptions earned under the Graduation Fund, as compared to $52.0 million at December 31, 2021.

Each quarter, we assess our assumptions underlying our estimates for persistence and estimated redemptions based on actual experience.

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We periodically assess our methodologies for estimating credit losses in consideration of actual experience.

If the financial condition of our students were to deteriorate based on current or expected future events resulting in evidence of impairment of their ability to make required payments for tuition payable to us, additional allowances or write-offs may be required.

For the first quarter of 2022, our bad debt expense was 2.8% of revenue, compared to 3.7% for the same period in 2021.

A change in our allowance for credit losses of 1% of gross tuition receivable as of March 31, 2022 would have changed our income from operations by approximately $1.1 million.

If the financial condition of our students were to deteriorate based on current or expected future events resulting in evidence of impairment of

their ability to make required payments for tuition payable to us, additional allowances or write-offs may be required.

For the second quarter of 2022, our bad debt expense was 3.2% of revenue, compared to 3.3% for the same period in 2021.

A change in our allowance for credit losses of 1% of gross tuition receivable as of June 30, 2022 would have changed our income from operations by approximately $1.2 million.

Goodwill and intangible assets — Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed.

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Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment.

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

Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three month period ended March 31, 2022.

No events or circumstances occurred in the three and six months ended June 30, 2022 to indicate an impairment to goodwill or indefinite-lived intangible assets.

Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three and six month periods ended June 30, 2022.

Finite-lived intangible assets that are acquired in business combinations are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the asset.

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If such assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the assets exceeds the fair value of the assets.

No impairment charges related to finite-lived intangible assets were recorded during the three month period ended March 31, 2022.

No impairment charges related to finite-lived intangible assets were recorded during the three and six month periods ended June 30, 2022.

Other estimates — We record estimates for certain of our accrued expenses and for income tax liabilities.

We estimate the useful lives of our property and equipment and intangible assets and periodically review our assumed forfeiture rates and ability to

achieve performance targets for stock-based awards and adjust them as necessary.

We estimate the useful lives of our property and equipment and intangible assets and periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary.

Should actual results differ from our estimates, revisions to our accrued expenses, carrying amount of goodwill and intangible assets, stock-based compensation expense, and income tax liabilities may be required.

Results of Operations

In the first quarter of 2022, we generated $258.9 million in revenue compared to $290.3 million in 2021.

Our income from operations was $13.4 million for the first quarter of 2022 compared to $12.0 million in 2021, primarily due to lower restructuring costs and amortization expense of intangible assets, partially offset by lower earnings in the USHE segment.

Net income in the first quarter of 2022 was $7.0 million compared to $9.6 million for the same period in 2021.

In the second quarter of 2022, we generated $273.6 million in revenue compared to $299.2 million in 2021.

Our income from operations was $21.9 million for the second quarter of 2022 compared to $26.7 million in 2021, principally due to lower earnings in the USHE segment, partially offset by lower amortization expense of intangible assets and merger and integration costs.

Net income in the second quarter of 2022 was $15.2 million compared to $20.0 million for the same period in 2021.

Diluted earnings per share was $0.63 compared to $0.83 for the same period in 2021.

For the six months ended June 30, 2022, we generated $532.4 million in revenue, compared to $589.5 million for the same period in 2021.

Our income from operations was $35.3 million for the six months ended June 30, 2022 compared to $38.7 million for the same period in 2021, principally due to lower earnings in the USHE segment, partially offset by lower restructuring costs and amortization expense of intangible assets.

Net income was $22.2 million for the six months ended June 30, 2022 compared to $29.6 million for the same period in 2021, and diluted earnings per share was $0.92 in the six months ended June 30, 2022 compared to $1.22 for the same period in 2021.

In the accompanying analysis of financial information for 2022 and 2021, we use certain financial measures including Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share that are not required by or prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

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• purchase accounting adjustments to record acquired contract liabilities at fair value as a result of our acquisition of Torrens University and associated assets in Australia and New Zealand and to record amortization and depreciation expense related to intangible assets and software assets acquired through our merger with Capella Education Company and our acquisition of Torrens University and associated assets in Australia and New Zealand;

• transaction and integration expenses associated with our merger with Capella Education Company and our acquisition of Torrens University and associated assets in Australia and New Zealand;

• integration expenses associated with our merger with Capella Education Company and our acquisition of Torrens University and associated assets in Australia and New Zealand;

• severance costs and right-of-use lease asset impairment charges associated with our restructuring;

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• discrete tax adjustments related to stock-based compensation and other adjustments;

To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three months ended March 31, 2022 are also presented on a constant currency basis utilizing an exchange rate of 0.7728 Australian Dollars to U.S.

Dollars, which was the average exchange rate for the same period in 2021.

To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three and six months ended June 30, 2022 are also presented on a constant currency basis.

When considered together with GAAP financial results, we believe these measures provide management and investors with an additional understanding of our business and operating results, including underlying trends associated with our ongoing operations.

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A reconciliation of these measures to the most directly comparable GAAP measures is provided below.

Adjusted results for 2021 exclude foreign currency exchange impacts and are therefore not directly comparable to adjusted results previously reported for the three months ended March 31, 2021.

Adjusted income from operations was $19.4 million in the first quarter of 2022 compared to $52.9 million in 2021.

Adjusted net income was $13.1 million in the first quarter of 2022 compared to $37.0 million in 2021, and adjusted diluted earnings per share was $0.54 in the first quarter of 2022 compared to $1.53 in 2021.

Adjusted results for 2021 exclude an adjustment for foreign currency exchange impacts and are therefore not directly comparable to adjusted results previously reported for the three and six months ended June 30, 2021.

Adjusted income from operations was $29.5 million in the second quarter of 2022 compared to $54.3 million in 2021.

Adjusted net income was $20.5 million in the second quarter of 2022 compared to $37.8 million in 2021, and adjusted diluted earnings per share was $0.85 in the second quarter of 2022 compared to $1.57 in 2021.

Adjusted income from operations was $48.9 million for the six months ended June 30, 2022 compared to $107.2 million for the same period in 2021.

Adjusted net income was $33.5 million for the six months ended June 30, 2022 compared to $74.8 million for the same period in 2021, and adjusted diluted earnings per share was $1.39 for the six months ended June 30, 2022 compared to $3.10 for the same period in 2021.

The tables below reconcile our reported results of operations to adjusted results (amounts in thousands, except per share data):

Re c onciliation of Reported to Adjusted Results of Operations for the three months ended March 31, 2021

Reconciliation of Reported to Adjusted Results of Operations for the three months ended June 30, 2022

Non-GAAP Adjustments

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Weighted average diluted shares outstanding 24,063 24,063

Reconciliation of Reported to Adjusted Results of Operations for the three months ended March 31, 2022

Re c onciliation of Reported to Adjusted Results of Operations for the three months ended June 30, 2021

Non-GAAP Adjustments

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Restructuring costs (3)

Loss from other investments (4)

Income from other investments (4)

adjustments (5)

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Weighted average diluted shares outstanding 24,126 24,126

Reconciliation of Reported to Adjusted Results of Operations for the six months ended June 30, 2022

Non-GAAP Adjustments

(GAAP) Purchase accounting adjustments (1)

Merger and integration costs (2)

Restructuring costs (3)

Income from other investments (4)

adjustments (5)

Revenues $ 532,419 $ — $ — $ — $ — $ — $ 532,419

Total costs and expenses $ 497,113 $ (7,432) $ (664) $ (5,519) $ — $ — $ 483,498

Income from operations $ 35,306 $ 7,432 $ 664 $ 5,519 $ — $ — $ 48,921

Operating margin 6.6% 9.2%

Income before income taxes $ 34,435 $ 7,432 $ 664 $ 5,519 $ (139) $ — $ 47,911

Net income $ 22,249 $ 7,432 $ 664 $ 5,519 $ (139) $ (2,187) $ 33,538

Diluted earnings per share $ 0.92 $ 1.39

Weighted average diluted shares outstanding 24,089 24,089

Re c onciliation of Reported to Adjusted Results of Operations for the six months ended June 30, 2021

Non-GAAP Adjustments

(GAAP) Purchase accounting adjustments (1)

Merger and integration costs (2)

Restructuring costs (3)

Income from other investments (4)

adjustments (5)

Revenues $ 589,509 $ 3,646 $ — $ — $ — $ — $ 593,155

Total costs and expenses $ 550,809 $ (38,799) $ (2,949) $ (23,078) $ — $ — $ 485,983

Income from operations $ 38,700 $ 42,445 $ 2,949 $ 23,078 $ — $ — $ 107,172

Operating margin 6.6% 18.1%

Income before income taxes $ 41,624 $ 42,445 $ 2,949 $ 23,078 $ (4,181) $ — $ 105,915

Net income $ 29,553 $ 42,445 $ 2,949 $ 23,078 $ (4,181) $ (19,000) $ 74,844

Diluted earnings per share $ 1.22 $ 3.10

Weighted average diluted shares outstanding 24,139 24,139

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(1) Reflects a purchase accounting adjustment to record acquired contract liabilities at fair value as a result of the Company's acquisition of Torrens University and associated assets in Australia and New Zealand, and amortization and depreciation expense of intangible assets and software assets acquired through the Company’s merger with Capella Education Company and the Company's acquisition of Torrens University and associated assets in Australia and New Zealand.

(2) Reflects transaction and integration expenses associated with the Company's merger with Capella Education Company, including premerger litigation settlement, and the Company's acquisition of Torrens University and associated assets in Australia and New Zealand.

(2) Reflects integration expenses associated with the Company's merger with Capella Education Company, including premerger litigation settlement, and the Company's acquisition of Torrens University and associated assets in Australia and New Zealand.

(3) Reflects severance costs and right-of-use lease asset impairment charges associated with the Company's restructuring.

(4) Reflects income/loss recognized from the Company's investments in partnership interests and other investments.

(5) Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing an adjusted effective tax rate of 30.0% and 29.2% for the three months ended March 31, 2022 and 2021, respectively.

The table below presents our adjusted results of operations on a constant currency basis for the three months ended March 31, 2022 (amounts in thousands, except per share data):

(5) Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing an adjusted effective tax rate of 30.0% for the three and six months ended June 30, 2022, and an adjusted effective tax rate of 29.5% and 29.3% for the three and six months ended June 30, 2021, respectively.

The table below presents our adjusted results of operations on a constant currency basis for the three and six months ended June 30, 2022 (amounts in thousands, except per share data):

For the three months ended June 30, 2022 For the six months ended June 30, 2022

(Non-GAAP) Constant currency adjustment (1)

As Adjusted with Constant Currency

(Non-GAAP) As Adjusted

(Non-GAAP) Constant currency adjustment (1)

As Adjusted with Constant Currency

Revenues $ 273,564 $ 4,839 $ 278,403 $ 532,419 $ 7,725 $ 540,144

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(1) Reflects an adjustment to translate foreign currency results for the three months ended March 31, 2022 at a constant exchange rate of 0.7728 Australian Dollars to U.S.

Dollars, which was the average exchange rate for the same period in 2021.

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

Consolidated revenue decreased to $258.9 million, compared to $290.3 million in the same period in the prior year, primarily due to declines in enrollment.

In the USHE segment for the three months ended March 31, 2022, total enrollment decreased 13% to 78,172 from 89,482 for the same period in 2021.

(1) Reflects an adjustment to translate foreign currency results for the three and six months ended June 30, 2022 at a constant exchange rate of 0.77 Australian Dollars to U.S.

Dollars, which was the average exchange rate for the same periods in 2021.

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

Consolidated revenue decreased to $273.6 million in the second quarter of 2022, compared to $299.2 million in the same period in the prior year, primarily due to declines in enrollment.

In the USHE segment for the three months ended June 30, 2022, total enrollment decreased 9% to 76,728 from 83,923 for the same period in 2021.

USHE segment revenue decreased 10.5% to $190.0 million compared to $212.2 million in 2021 primarily as a result of declines in enrollment.

Near term revenue in the USHE segment is expected to continue to be impacted negatively by the ongoing COVID-19 pandemic with weaker demand for enrollments.

In the Australia/New Zealand segment for the three months ended March 31, 2022, total enrollment decreased 4% to 20,575 from 21,469 for the same period in 2021.

Australia/New Zealand segment revenue decreased 5.4% to $48.5 million compared to $51.3 million in 2021 as a result of declines in enrollment and revenue-per-student.

In the Education Technology Services segment, revenue for the three months ended March 31, 2022 increased 16.4% to $14.6 million compared to $12.5 million in 2021 as a result of growth in Sophia Learning and higher employer affiliated enrollment.

In the Australia/New Zealand segment for the three months ended June 30, 2022, total enrollment was 18,834, compared to 18,800 for the same period in 2021.

Australia/New Zealand segment revenue decreased 8.8% to $67.5 million compared to $74.1 million in 2021, primarily due to foreign exchange impacts and lower revenue-per-student.

In the Education Technology Services segment, revenue for the three months ended June 30, 2022 increased 23.9% to $16.0 million compared to $12.9 million in 2021 as a result of growth in Sophia Learning and higher employer affiliated enrollment.

Instructional and support costs.

Consolidated instructional and support costs decreased to $144.6 million, compared to $152.8 million in the same period in the prior year, principally due to lower facility costs and bad debt expense.

Consolidated instructional and support costs as a percentage of revenues increased to 55.9% in the first quarter of 2022 from 52.6% in the first quarter of 2021.

Consolidated instructional and support costs decreased to $147.4 million, compared to $152.9 million in the same period in the prior year, principally due to lower facility costs.

Consolidated instructional and support costs as a percentage of revenues increased to 53.9% in the second quarter of 2022 from 51.1% in the second quarter of 2021.

General and administration expenses .

Consolidated general and administration expenses increased to $94.8 million in the first quarter of 2022 compared to $86.8 million in the prior year, principally due to increased investments in branding initiatives and partnerships with brand ambassadors.

Consolidated general and administration expenses as a percentage of revenues increased to 36.6% in the first quarter of 2022 from 29.9% in the first quarter of 2021.

Consolidated general and administration expenses increased to $96.7 million in the second quarter of 2022 compared to $93.4 million in the prior year, principally due to increased investments in branding initiatives and partnerships with brand ambassadors.

Consolidated general and administration expenses as a percentage of revenues increased to 35.4% in the second quarter of 2022 from 31.2% in the second quarter of 2021.

Amortization of intangible assets .

Amortization of intangible assets decreased to $3.7 million in the first quarter of 2022 compared to $19.4 million in 2021, due to the finite-lived intangible assets acquired through the merger with Capella Education Company being fully amortized as of the third quarter of 2021.

Amortization of intangible assets decreased to $3.7 million in the second quarter of 2022 compared to $19.4 million in 2021, due to the finite-lived intangible assets acquired through the merger with Capella Education Company being fully amortized as of the third quarter of 2021.

Merger and integration costs.

Merger and integration costs decreased to $0.4 million in the first quarter of 2022 compared to $1.0 million for the same period in 2021, as a result of lower integration expenses associated with the acquisition of ANZ.

Merger and integration costs decreased to $0.3 million in the second quarter of 2022 compared to $1.9 million for the same period in 2021, as a result of lower integration expenses associated with the acquisition of ANZ.

Restructuring costs .

Restructuring costs decreased to $1.9 million in the first quarter of 2022 compared to $18.3 million in 2021, primarily due to $16.4 million of right-of-use lease asset and fixed asset impairment charges associated with vacating leased space in the first quarter of 2021.

Restructuring costs decreased to $3.7 million in the second quarter of 2022 compared to $4.8 million in 2021, primarily due to lower severance and other personnel-related expenses from employee terminations in connection with the Company's restructuring plan, offset by higher right-of-use lease asset and fixed asset impairment charges associated with vacating leased space in the second quarter of 2022.

Income from operations .

Consolidated income from operations increased to $13.4 million in the first quarter of 2022 compared to $12.0 million in the first quarter of 2021, principally due to lower restructuring costs and amortization expense of intangible assets, partially offset by lower earnings in the USHE segment.

USHE segment income from operations decreased 67.6% to $15.5 million in the first quarter of 2022, compared to $47.8 million in the first quarter of 2021, primarily due to lower enrollments and increased investments in marketing initiatives.

In the Australia/New Zealand segment, loss from operations was $0.7 million in the first quarter of 2022, compared to a $2.9 million loss in the first quarter of 2021, primarily driven by a $2.2 million purchase

accounting reduction in 2021 related to contract liabilities acquired in the acquisition.

In the Education Technology Services segment, income from operations for the three months ended March 31, 2022 decreased 19.9% to $4.7 million compared to $5.9 million in 2021 as a result of increased investment in outreach to corporate partners, partially offset by growth in Sophia Learning and an increase in employer affiliated enrollment.

Other income (expense) .

Other income (expense) decreased to $1.2 million of expense in the first quarter of 2022 compared to $2.2 million of income in the first quarter of 2021, as a result of a decrease in investment income from our limited partnership investments.

We incurred $0.9 million of interest expense in the three months ended March 31, 2022 and 2021.

Consolidated income from operations decreased to $21.9 million in the second quarter of 2022 compared to $26.7 million in the second quarter of 2021, principally due to lower earnings in the USHE segment, partially offset by lower amortization expense of intangible assets and merger and integration costs.

USHE segment income from operations decreased 63.0% to $11.9 million in the second quarter of 2022, compared to $32.1 million in the second quarter of 2021, primarily due to lower enrollments and increased investments in marketing initiatives.

In the Australia/New Zealand segment, income from

operations was $12.3 million in the second quarter of 2022, compared to $15.6 million in the second quarter of 2021, primarily driven by lower revenue.

In the Education Technology Services segment, income from operations for the three months ended June 30, 2022 increased 2.4% to $5.3 million compared to $5.2 million in 2021 as a result of growth in Sophia Learning and an increase in employer affiliated enrollment, partially offset by increased investment in outreach to corporate partners.

Other income .

Other income decreased to $0.3 million in the second quarter of 2022 compared to $0.8 million in the second quarter of 2021, as a result of a decrease in investment income from our limited partnership investments and an increase in interest expense.

We incurred $1.1 million of interest expense in the three months ended June 30, 2022 compared to $0.9 million in the three months ended June 30, 2021.

Provision for income taxes.

Income tax expense was $5.2 million in the first quarter of 2022, compared to $4.6 million in the first quarter of 2021.

Income tax expense was $6.9 million in the second quarter of 2022, compared to $7.5 million in the second quarter of 2021.

Our effective tax rate for the quarter was 31.3%, compared to 27.2% for the same period in 2021.

increase in the effective tax rate in 2022 was primarily due to a $1.3 million tax shortfall recognized through share-based payment arrangements.

Net income decreased to $7.0 million in the first quarter of 2022 compared to $9.6 million in the first quarter of 2021 due to the factors discussed above.

Net income decreased to $15.2 million in the second quarter of 2022 compared to $20.0 million in the second quarter of 2021 due to the factors discussed above.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Consolidated revenue decreased to $532.4 million in the six months ended June 30, 2022, compared to $589.5 million in the same period in the prior year, primarily due to declines in enrollment.

USHE segment revenue decreased 12.1% to $385.8 million compared to $438.8 million in 2021 primarily as a result of declines in enrollment.

Australia/New Zealand segment revenue decreased 7.4% to $116.1 million compared to $125.3 million in 2021 as a result of foreign exchange impacts and declines in enrollment.

In the Education Technology Services segment, revenue for the six months ended June 30, 2022 increased 20.2% to $30.6 million compared to $25.4 million in 2021 as a result of growth in Sophia Learning and higher employer affiliated enrollment.

Instructional and support costs.

Consolidated instructional and support costs decreased to $292.0 million in the six months ended June 30, 2022 from $305.7 million in the six months ended June 30, 2021, principally due to lower facility costs and bad debt expense.

Consolidated instructional and support costs as a percentage of revenues increased to 54.8% in the six months ended June 30, 2022 from 51.9% in the six months ended June 30, 2021.

General and administration expenses .

Consolidated general and administration expenses increased to $191.5 million in the six months ended June 30, 2022 from $180.2 million in the six months ended June 30, 2021, principally due to increased investments in branding initiatives and partnerships with brand ambassadors.

Consolidated general and administration expenses as a percentage of revenues increased to 36.0% in the six months ended June 30, 2022 from 30.6% in the six months ended June 30, 2021.

Amortization of intangible assets .

Amortization of intangible assets decreased to $7.4 million in the six months ended June 30, 2022 from $38.8 million in the six months ended June 30, 2021, due to the finite-lived intangible assets acquired through the merger with Capella Education Company being fully amortized as of the third quarter of 2021.

Merger and integration costs.

Merger and integration costs decreased to $0.7 million in the six months ended June 30, 2022 from $2.9 million in the six months ended June 30, 2021, as a result of lower integration expenses associated with the acquisition of ANZ.

Restructuring costs .

Restructuring costs decreased to $5.5 million in the six months ended June 30, 2022 from $23.1 million in the six months ended June 30, 2021, primarily due to $3.5 million of right-of-use lease asset and fixed asset impairment charges associated with vacating leased space in the first six months of 2022, compared to $19.0 million in the comparable period in 2021, as well as higher severance and other personnel-related expenses from employee terminations in the first six months of 2021.

Income from operations .

Consolidated income from operations decreased to $35.3 million in the six months ended June 30, 2022 from $38.7 million in the six months ended June 30, 2021, principally due to lower earnings in the USHE segment, partially offset by lower restructuring costs and amortization expense of intangible assets.

USHE segment income from operations decreased 65.8% to $27.3 million in the six months ended June 30, 2022 from $79.8 million in the six months ended June 30, 2021, primarily due to lower enrollments and increased investments in marketing initiatives.

Australia/New Zealand segment income from operations was $11.6 million in the six months ended June 30, 2022, compared to $12.7 million of income from operations in the six months ended June 30, 2021, primarily due to lower revenue, partially offset by a $3.6 million purchase accounting reduction in 2021 related to contract liabilities acquired in the acquisition.

Education Technology Services segment income from operations decreased 9.5% to $10.0 million for the six months ended June 30, 2022 from $11.1 million in the six months ended

June 30, 2021 as a result of increased investment in outreach to corporate partners, partially offset by growth in Sophia Learning and an increase in employer affiliated enrollment.

Other income (expense) .

Other income (expense) decreased to $0.9 million of expense in the six months ended June 30, 2022 from $2.9 million of income in the six months ended June 30, 2021, primarily due to a decrease in investment income from our limited partnership investments and an increase in interest expense.

We incurred $2.0 million of interest expense in the six months ended June 30, 2022 compared to $1.8 million in six months ended June 30, 2021.

Provision for income taxes.

Income tax expense was $12.2 million in the six months ended June 30, 2022, compared to $12.1 million in the six months ended June 30, 2021.

Our effective tax rate for the six months ended June 30, 2022 was 35.4%, compared to 29.0% for the six months ended June 30, 2021.

The increase in the effective tax rate in 2022 was primarily due to a $1.4 million tax shortfall recognized through share-based payment arrangements.

Net income decreased to $22.2 million in the six months ended June 30, 2022 compared to $29.6 million in the six months ended June 30, 2021 due to the factors discussed above.

Liquidity and Capital Resources

At March 31, 2022, we had cash, cash equivalents, and marketable securities of $321.5 million compared to $298.8 million at December 31, 2021 and $274.0 million at March 31, 2021.

At March 31, 2022, most of our cash was held in demand deposit accounts at high credit quality financial institutions.

At June 30, 2022, we had cash, cash equivalents, and marketable securities of $289.7 million compared to $298.8 million at December 31, 2021 and $293.7 million at June 30, 2021.

At June 30, 2022, most of our cash was held in demand deposit accounts at high credit quality financial institutions.

We are party to a credit facility (the “Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $350 million.

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An unused commitment fee ranging from 0.20% to 0.30% per annum, depending on our leverage ratio, accrues on unused amounts.

We were in compliance with all applicable covenants related to the Amended Credit Facility as of March 31, 2022.

As of March 31, 2022 and 2021, we had $141.7 million and $141.8 million, respectively, outstanding under our Revolving Credit Facility.

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

Our net cash provided by operating activities for the three months ended March 31, 2022 was $56.6 million, compared to $78.8 million for the same period in 2021.

We were in compliance with all applicable covenants related to the Amended Credit Facility as of June 30, 2022.

As of June 30, 2022 and 2021, we had $141.4 million and $141.7 million, respectively, outstanding under our Revolving Credit Facility.

During the six months ended June 30, 2022 and 2021, we paid $1.2 million and $1.4 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.

Our net cash provided by operating activities for the six months ended June 30, 2022 was $80.7 million, compared to $125.8 million for the same period in 2021.

The decrease in net cash from operating activities was primarily driven by lower earnings in the USHE segment, partially offset by favorable timing of payments of working capital.

Capital expenditures decreased to $9.7 million for the three months ended March 31, 2022, compared to $12.7 million for the same period in 2021, due to the timing of capital projects.

The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock in February 2022.

During the three months ended March 31, 2022, we paid a total of $15.0 million in cash dividends on our common stock.

During the three months ended March 31, 2022, we paid $4.0 million to repurchase common shares in the open market under our repurchase program.

As of March 31, 2022, we had $246.0 million of share repurchase authorization remaining to use through December 31, 2022.

For the first quarter of 2022 and 2021, bad debt expense as a percentage of revenue was 2.8% and 3.7%, respectively.

Capital expenditures decreased to $22.7 million for the six months ended June 30, 2022, compared to $23.1 million for the same period in 2021, due to the timing of capital projects.

The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock for each of the first two quarters of 2022.

During the six months ended June 30, 2022, we paid a total of $29.9 million in cash dividends on our common stock.

During the six months ended June 30, 2022, we paid $25.0 million to repurchase common shares in the open market under our repurchase program.

As of June 30, 2022, we had $225.0 million of share repurchase authorization remaining to use through December 31, 2022.

For the second quarter of 2022 and 2021, bad debt expense as a percentage of revenue was 3.2% and 3.3%, respectively.

We believe that existing cash and cash equivalents, cash generated from operating activities, and if necessary, cash borrowed under our Amended Credit Facility will be sufficient to meet our requirements for at least the next 12 months.

Currently, we maintain our cash primarily in demand deposit bank accounts and money market funds, which are included in cash and cash equivalents at March 31, 2022 and 2021.

Currently, we maintain our cash primarily in demand deposit bank accounts and money market funds, which are included in cash and cash equivalents at June 30, 2022 and 2021.

We also hold marketable securities, which primarily include tax-exempt municipal

securities and corporate debt securities.

During the three months ended March 31, 2022 and 2021, we earned interest income of $0.2 million and $0.3 million, respectively.

During the six months ended June 30, 2022 and 2021, we earned interest income of $0.8 million and $0.6 million, respectively.

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 2. Management’s Discussion and Analysis