What changed in this filing

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Item 1. Financial Statements

2024-04-25 compared with 2023-11-02 · 287 added, 343 removed, 477 unchanged (57% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

December 31, 2022 September 30, 2023

December 31, 2023 March 31, 2024

Current assets:

2 unchanged sentences

Tuition receivable, net 76,102 83,082

Income taxes receivable — 7,850

Other current assets 44,758 53,801

23 unchanged sentences

32,000,000 shares authorized;

24,402,891 and 24,419,092 shares issued and outstanding at December 31, 2022 and September 30, 2023, respectively

24,406,816 and 24,607,939 shares issued and outstanding at December 31, 2023 and March 31, 2024, respectively

Additional paid-in capital 1,517,650 1,519,291

5 unchanged sentences

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except per share data)

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

2022 2023 2022 2023

For the three months ended March 31,

Revenues $ 256,606 $ 290,250

6 unchanged sentences

Total costs and expenses 257,955 248,894

Income from operations 7,807 25,629 43,113 41,097

Other income (expense) ( 262 ) 842 ( 1,133 ) 4,411

Income before income taxes 7,545 26,471 41,980 45,508

Income (loss) from operations ( 1,349 ) 41,356

Other income 398 1,794

Income (loss) before income taxes ( 951 ) 43,150

Provision for income taxes 1,077 13,448

Net income $ 6,092 $ 18,459 $ 28,341 $ 30,662

Earnings per share:

Net income (loss) $ ( 2,028 ) $ 29,702

Earnings (loss) per share:

Basic $ ( 0.09 ) $ 1.27

6 unchanged sentences

(in thousands)

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

2022 2023 2022 2023

Net income $ 6,092 $ 18,459 $ 28,341 $ 30,662

For the three months ended March 31,

Net income (loss) $ ( 2,028 ) $ 29,702

Other comprehensive income (loss):

Foreign currency translation adjustment ( 9,340 ) ( 26,650 )

Unrealized gains (losses) on marketable securities, net of tax ( 189 ) 97 ( 895 ) 243

Comprehensive income (loss) $ ( 32,268 ) $ 6,665 $ ( 47,231 ) $ 2,852

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, 2022

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Shares Par Value

Balance at June 30, 2022 24,637,268 $ 246 $ 1,513,509 $ 166,175 $ ( 28,009 ) $ 1,651,921

Stock-based compensation — — 5,605 7 — 5,612

Issuance of restricted stock, net ( 4,138 ) 1 ( 91 ) — — ( 90 )

Repurchase of common stock ( 178,753 ) ( 2 ) ( 11,121 ) ( 821 ) — ( 11,944 )

Common stock dividends ($ 0.60 per share)

— — — ( 14,749 ) — ( 14,749 )

Foreign currency translation adjustment — — — — ( 38,171 ) ( 38,171 )

Unrealized losses on marketable securities, net of tax — — — — ( 189 ) ( 189 )

Net income — — — 6,092 — 6,092

Balance at September 30, 2022 24,454,377 $ 245 $ 1,507,902 $ 156,704 $ ( 66,369 ) $ 1,598,482

For the three months ended September 30, 2023

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Shares Par Value

Balance at June 30, 2023 24,465,671 $ 245 $ 1,509,077 $ 140,368 $ ( 51,084 ) $ 1,598,606

Stock-based compensation — — 3,905 172 — 4,077

Exercise of stock options, net 1,382 — 71 — — 71

Issuance of restricted stock, net ( 47,961 ) ( 1 ) ( 30 ) — — ( 31 )

Common stock dividends ($ 0.60 per share)

— — — ( 14,634 ) — ( 14,634 )

Foreign currency translation adjustment — — — — ( 11,891 ) ( 11,891 )

Unrealized gains on marketable securities, net of tax 108 143

Net income — — — 18,459 — 18,459

Balance at September 30, 2023 24,419,092 $ 244 $ 1,513,023 $ 144,365 $ ( 62,878 ) $ 1,594,754

Comprehensive income (loss) $ ( 11,260 ) $ 3,195

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, 2022

For the three months ended March 31, 2023

Common Stock Additional

6 unchanged sentences

Stock-based compensation — — 5,632 — — 5,632

Exercise of stock options 1,322 — 55 — — 55

Issuance of restricted stock, net 187,162 2 ( 5,021 ) — — ( 5,019 )

Repurchase of common stock ( 571,789 ) ( 6 ) ( 35,396 ) ( 1,514 ) — ( 36,916 )

Common stock dividends ($ 0.60 per share)

1 unchanged sentence

Foreign currency translation adjustment — — — — ( 9,340 ) ( 9,340 )

Unrealized losses on marketable securities, net of tax — — — — ( 895 ) ( 895 )

Net income — — — 28,341 — 28,341

Balance at September 30, 2022 24,454,377 $ 245 $ 1,507,902 $ 156,704 $ ( 66,369 ) $ 1,598,482

For the nine months ended September 30, 2023

Unrealized gains on marketable securities, net of tax — — — — 108 108

Net loss — — — ( 2,028 ) — ( 2,028 )

Balance at March 31, 2023 24,591,375 $ 246 $ 1,511,590 $ 142,893 $ ( 44,300 ) $ 1,610,429

For the three months ended March 31, 2024

Common Stock Additional

6 unchanged sentences

Stock-based compensation — — 5,329 — — 5,329

Exercise of stock options, net 2,704 — 126 — — 126

Exercise of stock options 2,236 — 145 — — 145

Issuance of restricted stock, net 198,887 2 ( 3,833 ) — — ( 3,831 )

Repurchase of common stock ( 129,073 ) ( 1 ) ( 8,006 ) ( 2,006 ) — ( 10,013 )

Common stock dividends ($ 0.60 per share)

3 unchanged sentences

Net income — — — 29,702 — 29,702

Balance at September 30, 2023 24,419,092 $ 244 $ 1,513,023 $ 144,365 $ ( 62,878 ) $ 1,594,754

Balance at March 31, 2024 24,607,939 $ 246 $ 1,519,291 $ 183,800 $ ( 60,754 ) $ 1,642,583

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:

Net income $ 28,341 $ 30,662

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

Gain on sale of property and equipment — ( 2,136 )

Net income (loss) $ ( 2,028 ) $ 29,702

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Gain on early termination of operating leases — ( 6,166 )

Amortization of deferred financing costs 138 140

16 unchanged sentences

Proceeds from marketable securities 1,960 8,220

Proceeds from sale of property and equipment — 5,890

Proceeds from other investments 457 —

4 unchanged sentences

Common dividends paid ( 14,755 ) ( 14,734 )

Payments on long-term debt — ( 40,000 )

Net payments for stock awards ( 4,964 ) ( 3,686 )

Repurchase of common stock ( 36,916 ) ( 9,999 )

Net cash used in financing activities ( 19,719 ) ( 18,420 )

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 887 ) ( 2,305 )

Net decrease in cash, cash equivalents, and restricted cash ( 810 ) ( 46,009 )

Net increase (decrease) in cash, cash equivalents, and restricted cash ( 8,649 ) 55,903

Cash, cash equivalents, and restricted cash — beginning of period 227,454 181,925

11 unchanged sentences

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;

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

(2) Education Technology Services, which primarily develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs;

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

4 unchanged sentences

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

All information as of September 30, 2022 and 2023, and for the three and nine months ended September 30, 2022 and 2023 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, and for the three months ended, March 31, 2023 and 2024 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, 2023 has been derived from the audited consolidated financial statements at that date.

Certain year-to-date amounts have been reclassified to conform to the current period’s presentation.

Certain amounts in the prior period have been reclassified to conform to the current period’s presentation.

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, 2023.

The results of operations for the three and nine months ended September 30, 2023 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, 2024 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.

18 unchanged sentences

Equity accounts are translated at historical exchange rates.

The effects of these translation adjustments are reported as a component of accumulated other comprehensive income (loss) within shareholders’ equity.

For any transaction that is in a currency different from the entity’s functional currency, the Company records a net gain or loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement date (or rate at period end, if unsettled), in the unaudited condensed consolidated statements of income.

The effects of these translation adjustments are reported as a component of accumulated other comprehensive income (loss) within stockholders’ equity.

For any transaction that is in a currency different from the entity’s functional currency, the Company records a net gain or loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement date (or rate at period end, if unsettled) in the unaudited condensed consolidated statements of income (loss).

Restricted Cash

3 unchanged sentences

higher education institution during the academic term.

The Company had approximately $ 1.4 million and $ 2.1 million of these unpaid obligations as of December 31, 2022 and September 30, 2023, respectively.

The Company had approximately $ 1.8 million of these unpaid obligations as of December 31, 2023 and March 31, 2024.

In Australia and New Zealand, advance tuition payments from international students are required to be restricted until a 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, 2022 and September 30, 2023, the Company had approximately $ 11.9 million and $ 11.2 million, respectively, of restricted cash related to these requirements in Australia and New Zealand.

As of December 31, 2023 and March 31, 2024, the Company had approximately $ 11.1 million and $ 13.4 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.

As part of conducting operations in Pennsylvania, the Company is required to maintain a “minimum protective endowment” of at least $ 0.5 million in an interest-bearing account as long as the Company operates its campuses in the state.

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, 2022 and 2023 (in thousands):

As of September 30,

The Company holds these funds in an interest-bearing account, which is included in other assets in the unaudited condensed consolidated balance sheets.

As of March 31,

Cash and cash equivalents $ 202,824 $ 222,116

6 unchanged sentences

Investments in marketable securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale.

Management determines the appropriate designation of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date.

Management determines the appropriate designation of marketable securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

All of the Company’s marketable securities are designated as either held-to-maturity or available-for-sale.

The Company’s available-for-sale marketable securities consist of tax-exempt municipal securities and corporate debt securities, which are carried at fair value as determined by quoted market prices or other inputs either directly or indirectly observable in the marketplace for identical or similar assets, with unrealized gains and losses, net of tax, recognized as a component of accumulated

other comprehensive income (loss) within shareholders’ equity.

other comprehensive income (loss) within stockholders’ equity.

Management reviews the fair value of the portfolio at least quarterly, and evaluates individual securities with fair value below amortized cost at the balance sheet date for impairment.

2 unchanged sentences

The amount of an impairment related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings.

The amount of an impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities as a component of accumulated other comprehensive income (loss) within shareholders’ equity.

The cost of securities sold is based on the specific identification method.

10 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, 2022 and September 30, 2023 (in thousands):

December 31, 2022 September 30, 2023

The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2023 and March 31, 2024 (in thousands):

December 31, 2023 March 31, 2024

Tuition receivable $ 123,357 $ 129,999

1 unchanged sentence

Tuition receivable, net $ 76,102 $ 83,082

Approximately $ 2.7 million and $ 2.6 million of tuition receivable, net, are included in other assets as of December 31, 2022 and September 30, 2023, 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, 2022 and 2023 (in thousands).

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

2022 2023 2022 2023

Approximately $ 2.5 million of tuition receivable, net, are included in other assets as of December 31, 2023 and March 31, 2024 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, 2023 and 2024 (in thousands).

For the three months ended March 31,

Allowance for credit losses, beginning of period $ 47,113 $ 47,255

2 unchanged sentences

Allowance for credit losses, end of period $ 45,286 $ 46,917

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.

Over the last several years, the Company has been evaluating its owned and leased real estate portfolio to identify underutilized facilities to either downsize or exit.

One facility identified to be marketed for sale was an owned U.S.

Higher Education campus consisting 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 March 31, 2023.

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 second quarter of 2023, the Company sold the long-lived assets related to the owned U.S.

Higher Education campus noted above and recognized a $ 2.1 million gain on sale, which is included in Restructuring costs on the unaudited condensed consolidated statements of income.

Goodwill and Intangible Assets

9 unchanged sentences

Authorized Stock

The Company has authorized 32,000,000 shares of common stock, par value $ 0.01 , of which 24,402,891 and 24,419,092 shares were issued and outstanding as of December 31, 2022 and September 30, 2023, respectively.

The Company has authorized 32,000,000 shares of common stock, par value $ 0.01 , of which 24,406,816 and 24,607,939 shares were issued and outstanding as of December 31, 2023 and March 31, 2024, respectively.

The Company also has authorized 8,000,000 shares of preferred stock, none 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 2023, 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 11, 2023.

Net Income Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods.

Before any preferred stock may be issued, the Board of Directors must 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 February 2024, 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 18, 2024.

Net Income (Loss) Per Share

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods.

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 (“stock awards”).

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:

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

(1) the proceeds received from the exercise of stock options, and (2) the amount of compensation cost associated with the stock awards for future service not yet recognized by the Company.

Stock awards are excluded from the computation of diluted earnings per share when their effect would be anti-dilutive.

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, 2022 and 2023 (in thousands):

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

2022 2023 2022 2023

Weighted average shares outstanding used to compute basic earnings per share 23,550 23,365 23,765 23,415

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings (loss) per share for the three months ended March 31, 2023 and 2024 (in thousands):

For the three months ended March 31,

Weighted average shares outstanding used to compute basic earnings (loss) per share 23,430 23,391

Incremental shares issuable upon the assumed exercise of stock options — 6

Unvested restricted stock and restricted stock units — 663

Shares used to compute diluted earnings per share 23,902 23,870 24,026 23,952

Anti-dilutive shares excluded from the diluted earnings per share calculation 11 276 149 219

Shares used to compute diluted earnings (loss) per share 23,430 24,060

Anti-dilutive shares excluded from the diluted earnings (loss) per share calculation 593 —

Comprehensive Income (Loss)

Comprehensive income (loss) 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, 2022 and September 30, 2023, the balance of accumulated other comprehensive loss was $ 35.1 million, net of tax of $ 0.1 million, and $ 62.9 million, net of tax of $ 0.1 million, respectively.

There were no reclassifications out of accumulated other comprehensive income (loss) to net income for the three and nine months ended September 30, 2022 and 2023.

Comprehensive income (loss) includes net income (loss) 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, 2023 and March 31, 2024, the balance of accumulated other comprehensive loss was $ 34.2 million, net of tax of $ 0.1 million, and $ 60.8 million, net of tax of $ 0.1 million, respectively.

There were no reclassifications out of accumulated other comprehensive income (loss) to net income (loss) for the three months ended March 31, 2023 and 2024.

Use of Estimates

3 unchanged sentences

Recently Issued Accounting Standards Not Yet Adopted

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.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss.

The standard also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources.

Additionally, ASU 2023-07 requires all segment disclosures to be provided on an annual and interim basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted and the amendments must be applied retrospectively.

We are currently evaluating the impact that the standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires disclosure of specific categories in the effective tax rate reconciliation.

Further, the standard requires certain disclosures of state versus federal income tax expense and taxes paid.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted and the amendments should be applied on a prospective basis although retrospective application is permitted.

We are currently evaluating the impact that the standard will have on our financial statement disclosures.

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

Revenue Recognition

1 unchanged sentence

Tuition revenue is deferred and recognized ratably over the period of instruction, which varies depending on the course format and chosen program of study.

Strayer University’s educational programs and Capella University’s GuidedPath classes typically are offered on a quarterly basis, and such periods coincide with the Company’s quarterly financial reporting periods, while Capella University’s FlexPath courses are delivered over a twelve-week subscription period.

Capella University’s GuidedPath classes and Strayer University’s educational programs typically are offered on a quarterly basis, and such periods coincide with the Company’s quarterly financial reporting periods, while Capella University’s FlexPath courses are delivered over a twelve-week subscription period.

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, 2022 and 2023 (in thousands):

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

2022 2023 2022 2023

The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the three months ended March 31, 2023 and 2024 (in thousands):

For the three months ended March 31,

Higher Education Segment

Tuition, net of discounts, grants and scholarships $ 188,513 $ 209,731

7,821 8,978 24,884 25,677

Higher Education Segment 196,895 219,236

1 unchanged sentence

Tuition, net of discounts, grants and scholarships 40,422 45,634

939 1,597 3,611 4,384

Total Australia/New Zealand Segment 41,503 47,375

6 unchanged sentences

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.

The Company applies the five-step revenue model under ASC 606 to determine when revenue is earned and recognized.

The Company applies the five-step revenue model under Accounting Standards Codification (“ASC”) 606, Revenue Recognition (“ASC 606”) to determine when revenue is earned and recognized.

Arrangements with students may have multiple performance obligations.

5 unchanged sentences

Some students may be eligible for scholarship awards, the estimated value of which will be realized in the future and is deducted from revenue when earned, based on historical student attendance and completion behavior.

Contract liabilities are recorded as a current or long-term liability in the unaudited condensed consolidated balance sheets based on when the benefit is expected to be realized.

Contract liabilities are recorded as a current or long-term liability in the unaudited condensed consolidated balance sheets based on when the benefits are expected to be realized.

Course materials are available to enable students to access electronically all required materials for courses in which they enroll during the quarter.

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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 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 $ 19.0 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 $ 46,842 $ 44,480

2 unchanged sentences

Balance at end of period $ 45,920 $ 42,087

Contract Liabilities – Tuition Cap

Students in certain programs at Capella University and Strayer University may be eligible for tuition cap pricing, wherein their tuition is waived once the student has reached the designated dollar cap threshold for their program.

The Company defers the value of the related performance obligation associated with this tuition benefit estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student towards reaching the tuition cap.

Each quarter, the Company assesses its assumptions underlying these estimates.

As of December 31, 2023 and March 31, 2024, the Company had $ 11.8 million and $ 13.5 million, respectively, of contract liabilities in the unaudited condensed consolidated balance sheets related to tuition cap benefits that are estimated to be redeemed in the future.

The amount estimated to be redeemed in the next 12 months is $ 5.3 million and is included as a current contract liability in the unaudited condensed consolidated balance sheets.

Unbilled Receivables – Student Tuition

6 unchanged sentences

Restructuring and Related Charges

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 related to the 2020 restructuring plan during the nine months ended September 30, 2022 (in thousands):

Restructuring Plan

The Company incurs severance and other employee separation costs related to voluntary and involuntary employee terminations that are not tied to a formal restructuring plan.

During the three months ended March 31, 2023 and 2024, the Company incurred $ 2.3 million and $ 0.3 million, respectively, of severance and other employee separation charges related to the elimination of certain positions.

These severance and other employee separation charges are included in Restructuring costs on the unaudited condensed consolidated statements of income (loss).

The following details the changes in the Company's severance and other employee separation costs restructuring liabilities during the three months ended March 31, 2023 and 2024 (in thousands):

Severance Restructuring Liability

Balance at December 31, 2022 $ —

1 unchanged sentence

Payments ( 1,944 )

Balance at September 30, 2022 $ —

The final severance payments under the 2020 restructuring plan were made in the third quarter of 2022.

The Company also incurs severance and other employee separation costs related to voluntary and involuntary employee terminations that are not tied to a formal restructuring plan.

During the three and nine months ended September 30, 2023, the Company incurred $ 2.9 million and $ 11.3 million of severance and other employee separation charges related to the elimination of certain positions.

These severance and other employee separation charges 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 nine months ended September 30, 2023 (in thousands):

Severance Restructuring Liability

Balance at March 31, 2023 $ 371

Balance at December 31, 2023 (1)

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Payments ( 937 )

Balance at September 30, 2023 (1)

Balance at March 31, 2024 (1)

____________________________________

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

The Company has also been evaluating its owned and leased real estate portfolio, which has resulted in the consolidation and sale of underutilized facilities.

The Company recorded approximately $ 0.1 million and $ 1.2 million of right-of-use lease asset charges during the three and nine months ended September 30, 2022, respectively, and approximately $ 5.1 million during the nine months ended September 30, 2023, related to facilities that were consolidated during the period.

The Company also recorded fixed asset impairment charges of approximately $ 0.1 million and $ 2.5 million during the three and nine months ended September 30, 2022, respectively, and approximately $ 0.1 million and $ 0.4 million during the three and nine months ended September 30, 2023, respectively.

During the nine months ended September 30, 2023, the Company recorded a $ 2.1 million gain from the sale of property and equipment of an owned campus that was previously closed.

These right-of-use lease asset and fixed asset impairment charges and gains on the sale of property and equipment are included in Restructuring costs on the unaudited condensed consolidated statements of income.

(1) Restructuring liabilities are included in accounts payable and accrued expenses in the unaudited condensed consolidated balance sheets.

The Company evaluates its owned and leased real estate portfolio on an ongoing basis, which has resulted in the consolidation and sale of underutilized facilities.

The Company recorded approximately $ 3.6 million of right-of-use lease asset charges during the three months ended March 31, 2023 related to facilities that were consolidated during the period.

There were no right-of-use lease asset charges during the three months ended March 31, 2024.

The Company recorded a net benefit related to the early termination and related extinguishment of lease liabilities of approximately $ 6.2 million during the three months ended March 31, 2024.

These right-of-use lease asset charges and net benefits from early lease terminations are included in Restructuring costs on the unaudited condensed consolidated statements of income (loss).

Marketable Securities

The following is a summary of available-for-sale and held-to-maturity securities as of September 30, 2023 (in thousands):

The following is a summary of available-for-sale and held-to-maturity securities as of March 31, 2024 (in thousands):

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

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Corporate debt securities 3,202 — ( 79 ) 3,123

Total $ 22,992 $ 2 $ ( 715 ) $ 22,279

The Company had no held-to-maturity securities as of December 31, 2022.

The unrealized gains and losses on the Company’s investments in corporate debt and municipal securities as of December 31, 2022 and September 30, 2023 were caused by changes in market values primarily due to interest rate changes.

As of September 30, 2023, the fair value of the Company’s securities which were in an unrealized loss position for a period longer than twelve months was $ 13.5 million.

Total available-for sale securities $ 13,257 $ 2 $ ( 223 ) $ 13,036

Held-to-maturity securities:

Term deposits $ 27,175 $ — $ — $ 27,175

The unrealized gains and losses on the Company’s investments in corporate debt and municipal securities as of December 31, 2023 and March 31, 2024 were caused by changes in market values primarily due to interest rate changes.

As of March 31, 2024, the fair value of the Company’s securities which were in an unrealized loss position for a period longer than twelve months was $ 12.1 million.

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.

As such, no impairment charges were recorded during the three and nine months ended September 30, 2022 and 2023.

As such, no impairment charges were recorded during the three months ended March 31, 2023 and 2024.

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

The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2022 and September 30, 2023 (in thousands):

December 31, 2022 September 30, 2023

The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2023 and March 31, 2024 (in thousands):

December 31, 2023 March 31, 2024

Available-for-sale securities Held-to-maturity securities Available-for-sale securities Held-to-maturity securities

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Total $ 13,036 $ 27,175 $ 13,144 $ 18,304

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, 2022 and 2023 (in thousands):

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

2022 2023 2022 2023

The following table summarizes the proceeds from the maturities and sales of marketable securities for the three months ended March 31, 2023 and 2024 (in thousands):

For the three months ended March 31,

Maturities of marketable securities $ 1,960 $ 8,220

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Total $ 1,960 $ 8,220

The Company did not record any gross realized gains or losses in net income during the three and nine months ended September 30, 2022 and September 30, 2023.

The Company did not record any gross realized gains or losses in net income (loss) during the three months ended March 31, 2023 and March 31, 2024.

Fair Value Measurement

Assets measured at fair value on a recurring basis consist of the following as of September 30, 2023 (in thousands):

Assets measured at fair value on a recurring basis consist of the following as of March 31, 2024 (in thousands):

Fair Value Measurements at Reporting Date Using

September 30, 2023 Quoted Prices in

March 31, 2024 Quoted Prices in

Active Markets

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Total assets at fair value on a recurring basis $ 128,234 $ 115,090 $ 13,144 $ —

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

Assets measured at fair value on a recurring basis consist of the following as of December 31, 2023 (in thousands):

Fair Value Measurements at Reporting Date Using

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Money market funds $ 92,231 $ 92,231 $ — $ —

treasury bills 5,000 5,000 — —

Available-for-sale securities :

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treasury bills – Classified in Level 1 is excess cash the Company holds in money market funds and U.S.

treasury bills, which are included in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets.

treasury bills with original maturities of three months or less, 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 (loss) in stockholders’ equity.

The Company’s cash and cash equivalents and held-to-maturity securities held at December 31, 2022 and September 30, 2023 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 and held-to-maturity securities held at December 31, 2023 and March 31, 2024 approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.

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

The Company does not hold securities in inactive markets.

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, 2022 and 2023.

The Company acquired certain assets and entered into deferred payment arrangements with the sellers in transactions that occurred in 2011.

The deferred payments were classified within Level 3 as there was no liquid market for similarly priced instruments and were valued using discounted cash flow models that encompassed significant unobservable inputs.

The assumptions used to prepare the discounted cash flows included estimates for interest rates, enrollment growth, retention rates, and pricing strategies.

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 nine months ended September 30, 2022 are as follows (in thousands):

As of September 30, 2022

Balance as of the beginning of period $ 658

Amounts paid ( 658 )

Other adjustments to fair value —

Balance at end of period $ —

Goodwill and Intangible Assets

The following table presents changes in the carrying value of goodwill by segment for the nine months ended September 30, 2023 (in thousands):

The following table presents changes in the carrying value of goodwill by segment for the three months ended March 31, 2024 (in thousands):

Higher Education Australia /

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Adjustments to prior acquisitions — — — —

Balance as of September 30, 2023 $ 632,075 $ 496,356 $ 100,000 $ 1,228,431

Balance as of March 31, 2024 $ 632,075 $ 497,807 $ 100,000 $ 1,229,882

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, 2023 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 months ended September 30, 2022 and 2023.

No events or circumstances occurred in the three months ended March 31, 2024 to indicate an impairment to goodwill at any of the Company’s segments.

There were no impairment charges related to goodwill recorded during the three months ended March 31, 2023 and 2024.

Intangible Assets

The following table represents the balance of the Company’s intangible assets as of December 31, 2022 and September 30, 2023 (in thousands):

December 31, 2022 September 30, 2023

The following table represents the balance of the Company’s intangible assets as of December 31, 2023 and March 31, 2024 (in thousands):

December 31, 2023 March 31, 2024

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

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Total $ 451,625 $ ( 200,002 ) $ 251,623 $ 448,857 $ ( 200,002 ) $ 248,855

The Company’s finite-lived intangible assets are comprised of student relationships, which are being amortized on a straight-line basis over a three-year useful life.

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 $ 8.5 million and $ 8.0 million for the nine months ended September 30, 2022 and 2023, respectively.

The Company’s finite-lived intangible assets were comprised of student relationships, which were amortized on a straight-line basis over a three-year useful life.

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

Amortization expense related to finite-lived intangible assets was $ 2.7 million for the three months ended March 31, 2023.

All finite-lived intangible assets were fully amortized by the end of 2023.

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

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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, 2023 to indicate an impairment to indefinite-lived intangible assets.

There were no impairment charges related to indefinite-lived intangible assets recorded during the three and nine months ended September 30, 2022 and 2023.

No events or circumstances occurred in the three months ended March 31, 2024 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, 2023 and 2024.

Other Current Assets

Other current assets consist of the following as of December 31, 2022 and September 30, 2023 (in thousands):

December 31, 2022 September 30, 2023

Other current assets consist of the following as of December 31, 2023 and March 31, 2024 (in thousands):

December 31, 2023 March 31, 2024

Prepaid expenses $ 20,028 $ 26,634

3 unchanged sentences

Other current assets $ 44,758 $ 53,801

Other assets consist of the following as of December 31, 2022 and September 30, 2023 (in thousands):

December 31, 2022 September 30, 2023

Other assets consist of the following as of December 31, 2023 and March 31, 2024 (in thousands):

December 31, 2023 March 31, 2024

Prepaid expenses, net of current portion $ 16,679 $ 16,439

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In 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, 2022 and September 30, 2023, $ 17.7 million and $ 16.5 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.

As of December 31, 2023 and March 31, 2024, $ 16.2 million and $ 15.8 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

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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, 2022 and 2023 (in thousands):

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

2022 2023 2022 2023

The following table illustrates changes in the Company’s limited partnership investments for the three months ended March 31, 2023 and 2024 (in thousands):

For the three months ended March 31,

Limited partnership investments, beginning of period $ 13,879 $ 16,068

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Non-current tuition receivable, net, represents tuition that the Company expects to collect, but not within the next 12 months.

Other is comprised primarily of deferred financing costs associated with the Company’s credit facility, deferred contract costs related to commissions paid in the Australia/New Zealand segment to third party international agents, and refundable security deposits associated with the Company’s leased campus and office space.

Other is comprised primarily of deferred financing costs associated with the Company’s credit facility, deferred contract costs related to commissions paid in the Australia/New Zealand segment to third party international recruitment agents, and refundable security deposits associated with the Company’s leased campus and office space.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of December 31, 2022 and September 30, 2023 (in thousands):

December 31, 2022 September 30, 2023

Accounts payable and accrued expenses consist of the following as of December 31, 2023 and March 31, 2024 (in thousands):

December 31, 2023 March 31, 2024

Trade payables $ 49,247 $ 56,835

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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, 2023.

In September 2023, the Company repaid $ 40.0 million of the outstanding balance under the Revolving Credit Facility.

As of December 31, 2022 and September 30, 2023, the Company had approximately $ 101.4 million and $ 61.2 million, respectively, outstanding under the Revolving Credit Facility.

Approximately $ 3.4 million and $ 3.2 million was denominated in Australian dollars as of December 31, 2022 and September 30, 2023, respectively.

During the nine months ended September 30, 2022 and 2023, the Company paid $ 3.0 million and $ 5.4 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, 2024.

As of December 31, 2023 and March 31, 2024, the Company had approximately $ 61.4 million and $ 61.3 million, respectively, outstanding under the Revolving Credit Facility.

Approximately $ 3.4 million and $ 3.3 million was denominated in Australian dollars as of December 31, 2023 and March 31, 2024, respectively.

During the three months ended March 31, 2023 and 2024, the Company paid $ 2.4 million and $ 1.2 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, 2022 and September 30, 2023 (in thousands):

December 31, 2022 September 30, 2023

Other long-term liabilities consist of the following as of December 31, 2023 and March 31, 2024 (in thousands):

December 31, 2023 March 31, 2024

Contract liabilities, net of current portion $ 37,188 $ 35,303

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Contract Liabilities

As discussed in Note 3, in connection with its student tuition contracts, the Company has an obligation to provide free classes in the future should certain eligibility conditions be maintained (the Graduation Fund).

In connection with its student tuition contracts, the Company has an obligation to provide free classes in the future should certain eligibility conditions be maintained.

Long-term contract liabilities represent the amount of revenue under these arrangements that the Company expects will be realized after one year.

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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, 2022 and 2023 (in thousands):

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

2022 2023 2022 2023

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, 2023 and 2024 (in thousands):

For the three months ended March 31,

Instructional and support costs $ 1,866 $ 1,233

4 unchanged sentences

Stock-based compensation expense, net of tax $ 4,153 $ 3,904

During the nine months ended September 30, 2022 and 2023, the Company recognized shortfall tax impacts of approximately $ 1.4 million related to share-based payment arrangements, which were adjustments to the provision for income taxes.

During the nine months ended September 30, 2022 and 2023, the Company recorded income tax expense of $ 13.6 million and $ 14.8 million, reflecting an effective tax rate of 32.5 % and 32.6 %, respectively.

Income tax expense for the nine months ended September 30, 2022 and 2023 include shortfall tax impacts of approximately $ 1.4 million related to share-based payment arrangements.

The Company had $ 0.9 million of unrecognized tax benefits as of December 31, 2022 and September 30, 2023.

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 $ 20.2 million and $ 35.6 million in income taxes during the nine months ended September 30, 2022 and 2023, respectively.

During the three months ended March 31, 2023 and 2024, the Company recognized shortfall tax impacts of approximately $ 1.4 million and $ 1.3 million, respectively, related to share-based payment arrangements, which were adjustments to the provision for income taxes.

During the three months ended March 31, 2023 and 2024, the Company recorded income tax expense of $ 1.1 million and $ 13.4 million, respectively.

Income tax expense for the three months ended March 31, 2023 and 2024 include shortfall tax impacts of approximately $ 1.4 million and $ 1.3 million, respectively, related to share-based payment arrangements.

The Company had $ 0.9 million of unrecognized tax benefits as of December 31, 2023 and March 31, 2024.

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 (loss).

The Company paid $ 3.8 million and $ 2.4 million in income taxes during the three months ended March 31, 2023 and 2024, respectively.

The tax years since 2020 remain open for federal tax examination, the tax years since 2019 remain open to examination by certain states, and the tax years since 2018 remain open to examination by foreign taxing jurisdictions in which the Company is subject to taxation.

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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.

The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Capella University and Strayer 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 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.

The Education Technology Services segment develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs.

The employer relationships developed by the Education Technology Services segment are an important source of student

enrollment for Capella University and Strayer University, and the majority of the revenue attributed to the Education Technology Services segment 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 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.

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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 and nine months ended September 30, 2022 and 2023 is presented in the following table (in thousands):

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

2022 2023 2022 2023

A summary of financial information by reportable segment for the three months ended March 31, 2023 and 2024 is presented in the following table (in thousands):

For the three months ended March 31,

Higher Education $ 196,895 $ 219,236

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Restructuring costs ( 5,595 ) 5,510

Consolidated income from operations $ 7,807 $ 25,629 $ 43,113 $ 41,097

Consolidated income (loss) from operations $ ( 1,349 ) $ 41,356

The Company is involved in litigation and other legal proceedings arising out of the ordinary course of its business.

Certain of these matters are discussed below.

From time to time, certain matters may arise that are other than ordinary and routine.

The outcome of such matters is uncertain, and the Company may incur costs in the future to defend, settle, or otherwise resolve them.

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.

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 Wright, et al.

Capella Education Co., et al.

(subsequently captioned Ornelas, et al.

Capella, et al.) , United States District Court for the District of Minnesota, Case No.

18-cv-1062, and indicating that the Department would 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 University.

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 University subsequently received approximately 500 applications for borrower defense to repayment.

Capella University contested each claim for defense to repayment in individualized responses with supporting evidence, the last of which was sent to the Department in August 2021.

Since that time, Capella University has not received any communication from the Department related to the set of

borrower defense claims received in 2021, nor has Capella University received indication that any of these claims has been evaluated on the facts presented and adjudicated on the merits.

On June 22, 2022, in litigation in which Capella University is not a party, Sweet, et al.

Miguel Cardona and the United States Department of Education , United States District Court for the Northern District of California, Case No.

3:19-cv-03674-WHA, the Department joined a proposed class settlement agreement that would result in a blanket grant of automatic, presumptive relief for all borrower defense to repayment applications filed by students at any of approximately 150 different listed institutions, including Capella University, through June 22, 2022.

The class settlement agreement would also provide certain expedited review of borrower defense claims related to schools excluded from the automatic relief list, as well as for borrowers who applied during the period after execution of the settlement and before final approval.

The court granted final approval of the settlement on November 16, 2022.

Intervenors, including multiple intervening higher education institutions and companies, appealed the court’s order and moved to stay the court’s final judgment approving the settlement pending resolution of the appeal.

Intervenors’ attempts to stay the judgment pending full consideration of appeal have been denied, including by the U.S.

Supreme Court on April 13, 2023.

In a July 25, 2022 filing in the same litigation, the Department stated that providing automatic relief to such borrowers “does not constitute the granting or adjudication of a borrower defense pursuant to the Borrower Defense Regulations, and therefore provides no basis to the Department for initiating a borrower defense recoupment proceeding against any institution identified” on the list.

It is unclear whether the Department would attempt to seek recovery from Capella University for the amounts of discharged loans.

The Department has indicated that any recoupment against institutions “could be imposed only after the Department initiated a separate, future proceeding, in accordance with regulations that require the Department to prove a sufficient basis for liability and provide schools with notice and an opportunity to be heard.” If the Department were to seek recovery for the amounts of discharged loans, Capella University would dispute and defend against such efforts.

At this time, the Company is unable to predict the ultimate outcome of Capella-related borrower defense applications.

Except as described below, there have been no material developments in the litigation and other legal proceedings that are described in our Annual Report on Form 10-K for the year ended December 31, 2023.

On January 25, 2024, Capella University received notice that the Department received approximately 6,700 borrower defense to repayment applications with claims for forgiveness of loans taken out at the University and filed between June 23, 2022 and November 15, 2022.

On February 1, 2024, Strayer University received notice that the Department received approximately 1,900 borrower defense to repayment applications with claims for forgiveness of loans taken out at the University and filed between June 23, 2022 and November 15, 2022.

In the notices received, the Department indicated that:

(1) the notification was occurring prior to any substantive review of the application as well as its adjudication;

(2) it would send the applications to Capella University and Strayer University in batches of 500 per week;

(3) it is optional for institutions to respond to the applications;

and (4) not responding will result in no negative inference by the Department.

The Department has also explained that it will separately decide whether to seek recoupment on any approved claim and that any recoupment actions the Department chooses to initiate will have their own notification and response processes, which include providing additional evidence to the institution.

The Department has indicated that an institution will learn of the Department’s determination only if it approves a BDTR application and the Department seeks recoupment.

In relation to the separate 2021 notice received by Capella University, the Department indicated there were more than 1,000 applications pending, but the Company only ever received approximately 500 actual claims, and after an exhaustive review and response process the Company believes that none properly stated a claim for loan forgiveness.

To date, Capella University has received approximately 6,000 applications, and Strayer University has received approximately 1,850 applications.

Each university is providing a response to the applications it receives.

At this time, the Company is unable to predict whether the Department will grant BDTR relief for the claims noticed on January 25 and February

1, or if so, whether it will seek recoupment from Capella University or Strayer University.

If the Department were to seek recoupment, Capella University and Strayer University would dispute and defend against such efforts.

However, if the Department were to successfully seek recovery for the amounts of discharged loans from Strayer University and Capella University in future proceedings, any such recovery could have a material adverse effect on our business.

Our higher education institutions are subject to uncertain and varying laws and regulations, and any changes to these laws or regulations or their application to us may materially adversely affect our business, financial condition, and results of operations.

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United States Regulation

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

Among other things, the CARES Act 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.

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

In June 2023, the Department of Education announced that student loan interest would begin to accrue on September 1, 2023, and student loan repayment resumed in October 2023.

American Rescue Plan Act of 2021

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021.

Among other things, the legislation 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 the year ended December 31, 2022 for a description of the 90/10 Rule.

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.

On October 27, 2022, the Department of Education released final 90/10 regulations, which are largely consistent with the consensus language.

However, within the preamble of the regulation the Department indicated that non-Title IV eligible programs offered via distance education are not eligible to be counted in the “10” side of the ratio calculation.

The final regulations also provided for an expanded definition of “federal education assistance” that will be periodically defined by the Secretary of Education.

On December 20, 2022, the Department published guidance further indicating that non-Title IV eligible programs offered in part or in whole via distance education are not eligible to be counted in the “10” side of the ratio calculation, and has continued to issue guidance related to implementation of the new rule.

On December 21, 2022, the Department released a non-exhaustive list of federal agencies and federal education assistance programs that must be included as federal revenue in the 90/10

Such agencies include the U.S.

Department of Defense (military tuition assistance) and the Department of Veterans Affairs (veterans education benefits), in addition to the Title IV programs already covered by the 90/10 Rule.

The new 90/10 regulations are effective for fiscal years beginning on or after January 1, 2023.

Current Negotiated Rulemaking

Improving Institutional Quality and Accountability Committee

In January 2023, the Department indicated its intention to establish one or more rulemaking committees in 2023 to propose new regulations on distance education, improving the use of deferments and forbearances, third-party servicers and related issues, cash management, return of federal funds, state authorization, accreditation and related issues, and TRIO programs.

The Department invited interested parties to comment on the topics suggested by the Department at public hearings held on April 11 and 12, 2023.

The Department also accepted written comments through April 24, 2023.

Section 432(a) Committee

In June 2023, the Department indicated its intention to establish a rulemaking committee related to the modification, waiver or compromise of federal student loans, as permitted in HEA Section 432(a).

The Department held a public hearing on July 18, and accepted written comments through July 20, 2023.

In September 2023, the Department announced its selection of non-federal negotiators and the first round of rulemaking meetings were held on October 10 and 11, 2023.

The rulemaking committee is also scheduled to meet in November and December 2023.

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

If the negotiated rulemaking committee reaches 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 generally take effect July 1 of the following year.

Financial Value Transparency and Gainful Employment, Financial Responsibility, Administrative Capability, Certification Procedures, and Ability to Benefit

Gainful Employment

Under the Higher Education Act, a proprietary institution offering programs of study other than a baccalaureate degree in liberal arts (for which there is a limited statutory exception) must prepare students for gainful employment in a recognized occupation.

On October 31, 2014, the Department of Education published final regulations related to gainful employment.

The regulation went into effect on July 1, 2015 (“2015 Regulations”), with the exception of new disclosure requirements, which generally went into effect January 1, 2017, although some portions of those requirements were delayed until July 1, 2019.

The 2015 Regulations included two debt-to-earnings measures, consisting of an annual income rate and a discretionary income rate.

The annual income rate measured student debt in relation to earnings, and the discretionary income rate measured student debt in relation to discretionary income.

A program passed if the program’s graduates:

• have an annual income rate ratio that does not exceed 8%;

• have a discretionary income rate that does not exceed 20%.

In addition, a program that did not pass either of the debt-to-earnings metrics and had an annual income rate between 8% and 12% or a discretionary income rate between 20% and 30% was considered to be in a warning zone.

A program failed if the program’s graduates had an annual income rate of 12% or greater and a discretionary income rate of 30% or greater.

A program became Title IV-ineligible for three years if it failed both metrics for two out of three consecutive years or failed to pass at least one metric for four consecutive award years.

On January 8, 2017, Capella University and Strayer University received their final 2015 debt-to-earnings measures.

None of their programs failed the debt-to-earnings metrics.

One active Capella University program, the Masters of Science in Marriage and Family Counseling/Therapy, was “in the zone” and two active Strayer University programs, the Associate in Arts in Accounting and Associate in Arts in Business Administration, were “in the zone.” Each of those three programs remained fully eligible.

The Department has not released any subsequent debt-to-earnings measures under the 2015 Regulations.

On July 1, 2019, the Department of Education released final gainful employment regulations, which contain a full repeal of the 2015 Regulations, including all debt measures, reporting, disclosure, and certification requirements, effective July 1, 2020.

On December 8, 2021, the Department of Education announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations for, among other topics, gainful employment, via the Institutional and Programmatic Eligibility rulemaking.

Meetings of the negotiated rulemaking committee occurred in spring 2022 with the committee failing to reach consensus.

On May 17, 2023, the Department released proposed rules on financial value transparency and gainful employment, financial responsibility, administrative capability, certification procedures, and ability to benefit.

3 unchanged sentences

The two metrics are 1) a debt-to-earnings ratio that compares the median earnings of graduates who received federal financial aid to the median annual payments on loan debt borrowed for the program, which must be less than or equal to 8% of annual earnings or 20% of discretionary earnings, and 2) an earnings premium test that measures whether the typical graduates from a program that received federal financial aid earn more than a typical high school graduate in their state (or, in some cases, nationally) and within a certain age range in the labor force.

A program that fails in two out of three consecutive years, or is voluntarily discontinued by the institution, would not be eligible to have Title IV reinstated for the program or launch and receive Title IV for a “substantially similar program” (generally defined as a program with the same four-digit CIP code) for a minimum of three years.

A program that fails in two out of three consecutive years, or is voluntarily discontinued by the institution, would not be eligible to have Title IV reinstated for the

program or launch and receive Title IV for a “substantially similar program” (generally defined as a program with the same four-digit CIP code) for a minimum of three years.

The final rule describes that the Department will now measure earnings six years after graduation (instead of the proposed rule’s three years after graduation) for certain qualifying graduate programs such as clinical psychology, marriage and family therapy, clinical social work, and clinical counseling.

4 unchanged sentences

programs that fail the same metric in the first two years the rates are issued will lose eligibility in 2026.

On October 23, 2023, the Department released final rules on financial responsibility, administrative capability, certification procedures, and ability to benefit.

The Department’s final rules regarding financial responsibility establish new mandatory triggers—including but not limited to failing 90/10, receiving at least 50% of funds from programs that are failing gainful employment, or being subject to a Department action to recover losses from approved Borrower Defense to Repayment claims that would cause a recalculated composite score to fall below 1.0—that allow the Department to seek financial protection or recalculate the institution’s financial composite score to determine whether an institution’s financial condition has materially weakened.

rules also establish new discretionary triggers that will result in the Department conducting case-by-case analysis to see if additional protection is needed.

In general, institutions will be required to report triggering events within 21 days of occurrence.

According to the regulation, such triggering events may result in a financial protection requirement that would most likely take the form of a letter of credit or cash escrow and provisional certification to participate in Title IV.

Under the final administrative capability rule, institutions will be required to offer adequate services to students, including financial aid counseling and career services support.

The final language also includes a new requirement that institutions provide students with geographically accessible clinical or externship opportunities as required for licensure.

In final rules regarding certification procedures, the Department indicates, among other things, that it will consider withdrawal rates, gainful employment rates, licensure passage rates, and instructional and advertising spend when making institutional eligibility determinations.

The regulation also provides the Secretary authority to require institutions to submit all marketing materials in cases where the institution is provisionally certified and is found to have engaged in substantial misrepresentation, aggressive recruitment, or a failure to comply with incentive compensation rules.

The final regulation also makes changes regarding licensure-track programs, including preventing an institution from offering Title IV aid to a student enrolled in a program that does not meet educational prerequisites for licensure in the state in which the student is located.

The Department’s final regulation also requires institutions to comply with all State laws related to closure, including record retention, teach-out plans or agreements and tuition recovery funds or surety bonds for each state in which the institution is located and in each state in which students enrolled by the institution in distance education courses are located.

On December 22, 2023, a lawsuit was filed against the Department in the United States District Court for the Northern District of Texas alleging that the rulemaking process and final rule were based on arbitrary and capricious decisions made by the Department, and that the rule violates constitutional rights related to speech, equal protection, and due process.

On March 20, 2024, another lawsuit was filed against the Department in the United States District Court for the Northern District of Texas seeking a preliminary and permanent injunction enjoining the Department from enforcing the final rule on the grounds that the rule exceeds the Department’s statutory authority, and is arbitrary, capricious, an abuse of discretion, and otherwise is not in accordance with law.

Capella University and Strayer University are not parties to the lawsuits.

The Company is unable to predict the ultimate outcome of litigation.

In a March 29, 2024 Electronic Announcement (GE-24-01), the Department released additional information and updates to help institutions prepare for complying with the Financial Value Transparency (“FVT”) and Gainful Employment (“GE”) Regulations, including that the deadline for initial institutional data reporting has been extended to October 1, 2024 (originally:

July 31, 2024).

The Department indicated that in early 2025, it plans to publish the FVT/GE metrics and notify institutions of failing GE programs, as well as provide additional information on the program eligibility effects of the metrics on failing GE programs.

Borrower Defenses to Repayment

On March 16, 2022, Federal Student Aid (“FSA”) announced that it is monitoring complaints and borrower defense to repayment (“BDTR”) applications from veterans, service members and their family members who report claims of deceptive recruitment and enrollment practices, including misrepresentations related to cost, financing, and application of military and veteran benefits.

The Department indicated that it will seek all appropriate corrective measures pursuant to the BDTR regulations if it finds that an institution has engaged in substantial misrepresentation or fraudulent conduct, and that it will share information and complaints with the Department of Defense and Department of Veterans Affairs.

On March 14, 2023, the Department of Education announced that the Office of Enforcement of FSA will use “secret shoppers” to monitor post-secondary institutions’ compliance with the laws and regulations governing participation in federal student aid programs.

The Department indicated that secret shoppers will evaluate recruitment, enrollment, financial aid, and other practices of post-secondary institutions to help identify potentially deceptive or predatory practices used to recruit and enroll students.

The Department noted that findings from secret shopping may serve as evidence in ongoing investigations and reviews or serve as the basis for opening new investigations and reviews.

The Department further noted that, where appropriate and permissible, FSA may refer secret shopping findings to other offices within the Department, as well as other state and federal enforcement agencies.

The Department of Education’s final BDTR rules that took effect on July 1, 2023 are currently being challenged in litigation, to which we are not a party.

The litigation alleges that the new rules are unconstitutional, arbitrary and capricious, and that the Department has exceeded its authority in adopting them.

On August 7, 2023, the U.S.

Court of Appeals for the Fifth Circuit granted a nationwide emergency injunction preventing the Department of Education’s enforcement of the final BDTR and closed school discharge rules.

The matter will be heard by the Fifth Circuit panel during the sitting commencing November 6, 2023, and the previous versions of the BDTR and closed school discharge rules remain in effect until at least then.

Pursuant to the Higher Education Act and following negotiated rulemaking, on November 1, 2016, the Department of Education released a final regulation specifying the acts or omissions of an institution that a borrower may assert as a defense to repayment of a loan made under the Direct Loan Program and the consequences of such borrower defenses for borrowers, institutions, and the Secretary of Education (the “2016 BDTR Rule”).

Under the 2016 BDTR Rule, for Direct Loans disbursed after July 1, 2017, a student borrower may assert a defense to repayment if:

(1) the student borrower obtained a state or federal court judgment against the institution;

(2) the institution failed to perform on a contract with the student;

and/or (3) the institution committed a “substantial misrepresentation” on which the borrower reasonably relied to his or her detriment.

These defenses are asserted through claims submitted to the Department of Education, and the Department has the authority to issue a final decision.

In addition, the regulation permits the Department to grant relief to an individual or group of individuals, including individuals who have not applied to the Department seeking relief.

If a defense is successfully raised, the Department has discretion to initiate action to collect from an institution the amount of losses incurred based on the borrower defense.

The 2016 BDTR Rule also amends the rules concerning discharge of federal student loans when a school or campus closes and prohibits pre-dispute arbitration agreements and class action waivers for borrower defense-type claims.

On January 19, 2017, the Department of Education issued a final rule, updating the hearing procedures for actions to establish liability against an institution of higher education and establishing procedures for recovery proceedings under the borrower defense regulations.

Several times between June 2017 and February 2018, the Department of Education announced delays until July 1, 2019 of implementation of certain portions of the 2016 BDTR Rule, including those portions of the regulations that establish a new federal standard and a process for determining whether a Direct Loan borrower has a defense to repayment of a Direct Loan based on an act or omission of an institution.

However, in October 2018, a judge denied a request to delay implementation of portions of the regulations, and as a result the 2016 BDTR Rule went into effect as of October 16, 2018.

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.

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;

(2) the misrepresentation directly and clearly related to the borrower’s enrollment or continuing enrollment at the institution or the institution’s provision of education services for which the loan was made;

and (3) the borrower was financially harmed by the misrepresentation.

The Department will grant forbearance on all loans related to a claim at the time the claim is made.

The 2019 BDTR Rule defines “financial harm” as the amount of monetary loss that a borrower incurs as a consequence of a misrepresentation.

The Department will determine financial harm based upon individual earnings and circumstances, which must

include consideration of the individual borrower’s career experience subsequent to enrollment and may include, among other factors, evidence of program-level median or mean earnings.

“Financial harm” does not include damages for nonmonetary loss, and the act of taking out a Direct Loan, alone, does not constitute evidence of financial harm.

Financial harm also cannot be predominantly due to intervening local, regional, national economic or labor market conditions, nor can it arise from the borrower’s voluntary change in occupation or decision to pursue less than full-time work or decision not to work.

The 2019 BDTR Rule contains certain limitations and procedural protections.

Among the most prominent of these restrictions, the regulation contains a three-year limitation period of claims, measured from the student’s separation from the institution, does not permit claims to be filed on behalf of groups, and requires that institutions receive access to any evidence in the Department’s possession to inform its response.

The 2019 BDTR Rule permits the usage of pre-dispute arbitration agreements as a condition of enrollment, so long as the institution provides plain-language disclosures to students and the disclosure is placed on the institution’s website.

The regulations also allow for a borrower to choose whether to apply for a closed school loan discharge or accept a teach-out opportunity.

In addition, the closed school discharge window is expanded from 120 days to 180 days prior to the school’s closure, though the final rule does not allow for an automatic closed school loan discharge.

Institutions are required to accept responsibility for the repayment of amounts discharged by the Secretary pursuant to the borrower defense to repayment, closed school discharge (associated with closure of a school or an additional location or branch campus), false certification discharge, and unpaid refund discharge regulations.

If the Secretary discharges a loan in whole or in part, the Department of Education may require the school to repay the amount of the discharged loan.

On August 10, 2021, the Department of Education announced its intention to establish a rulemaking committee to develop proposed regulations on, among other things, Borrower Defense to Repayment.

Negotiated rulemaking committee meetings completed in December 2021 with no consensus reached on the topic.

On July 6, 2022, the Department released proposed Borrower Defense to Repayment regulations for public comment and subsequently published a final rule on October 31, 2022 (the “2022 BDTR Rule”).

Among other things, the 2022 BDTR Rule sets a single standard and streamlined process for relief that will apply to all future and pending Borrower Defense to Repayment claims as of July 1, 2023, regardless of the date of a borrower’s loan disbursement;

defines the types of misconduct that could lead to borrower defense discharges, including substantial misrepresentations, substantial omissions of fact, breaches of contract, aggressive and deceptive recruitment, and state or federal judgments or final Department of Education actions that could give rise to a Borrower Defense to Repayment claim;

establishes a presumption that borrowers reasonably relied upon misrepresentations or omissions;

establishes a reconsideration process for borrowers whose claims are not approved for a full discharge, including based on a state law standard;

and creates a process for the adjudication of group claims based on common facts.

The 2022 BDTR Rule permits nonprofit legal assistance organizations to request group claims.

The 2022 BDTR Rule also establishes a recoupment process separate from the approval of Borrower Defense to Repayment claims.

In addition, the 2022 BDTR Rule prohibits institutions from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class action waivers for claims related to the making of a Federal Direct Loan or the provision of educational services for which the loan was obtained.

The 2022 BDTR Rule also modified the closed school discharge rule to provide an automatic discharge one year after an institution or location’s closure date for borrowers who were enrolled at the time of closure or left 180 days before closure and who do not accept an approved teach-out agreement or continuation of the program at another location of the school;

those who accept but do not complete a teach-out agreement or program continuation will receive a discharge one year after their last date of attendance.

The 2022 BDTR Rule became effective July 1, 2023.

On August 7, 2023, in the matter of Career Colleges and Schs.

Dep’t of Educ.

23-50491), the U.S.

Court of Appeals for the Fifth Circuit granted a nationwide emergency injunction preventing the Department of Education’s enforcement of the 2022 BDTR Rule.

On April 4, 2024, the Fifth Circuit reversed the underlying district court decision denying injunctive relief and remanded the case to the district court with instructions to enjoin and postpone the effective date of the 2022 BDTR Rule pending final judgment.

The Department has previously stated that it will not adjudicate any borrower defense applications under the latest rule unless and until the effective date is reinstated.

The Department will continue to adjudicate borrower defense applications using an earlier version of the regulations where required under the court settlement in the Sweet matter discussed above in Note 16, Litigation.

The Company is unable to predict the ultimate outcome of the litigation.

Accrediting Agencies and State Authorization

Capella University’s accreditor, Higher Learning Commission (“HLC”), and Strayer University’s accreditor, Middle States Commission on Higher Education (“Middle States”), must periodically be reviewed by the U.S.

Secretary of Education in order to maintain recognition as an institutional accrediting agency.

On May 31, 2023, the Department of Education, acting on the recommendation of the National Advisory Committee for Institutional Quality and Integrity, renewed its recognition of HLC for a period of five years and required it provide a monitoring report regarding one item of substantial compliance, and continued the current recognition of Middle States for one year, requiring a compliance report regarding one item of noncompliance.

State Authorization Reciprocity Agreement (SARA)

Strayer University and Capella University participate in the State Authorization Reciprocity Agreement (“SARA”), which allows the Universities to enroll students in distance education programs in each SARA member state, including 49 states, the District of Columbia, Puerto Rico, and the U.S.

Capella University and Strayer University participate in the State Authorization Reciprocity Agreement (“SARA”), which allows the Universities to enroll students in distance education programs in each SARA member state, including 49 states, the District of Columbia, Puerto Rico, and the U.S.

Virgin Islands.

Each of the Universities applies separately to non-SARA member states (i.e., California) for authorization to enroll students, if such authorization is required by the state.

On March 1, 2023, SARA’s

coordinating entity, the National Council for State Authorization Reciprocity Agreements (“NC-SARA”), held its first of two public comment forums to seek input on potential changes to NC-SARA policies.

The forum included a discussion of 63 proposed policy changes, some of which, if adopted, would have significantly altered the distance education reciprocity agreements, including a proposal that NC-SARA permit states to apply more stringent standards to for-profit institutions or to eliminate the ability of for-profit institutions to participate in the agreements altogether.

In addition to the public comment forums, written comments were accepted through May 17, 2023.

In September 2023, NC-SARA’s four regional compacts completed evaluation of the proposed policy changes and unanimously approved six proposed policy changes to be voted upon by the NC-SARA board of directors on October 24, 2023.

The remaining proposed policy changes to be voted upon do not include the proposals to permit states to apply more stringent standards to for-profit institutions or exclude for-profit institutions from NC-SARA participation.

On June 23, 2022, the Department of Education released proposed Title IX regulations for public comment.

Among other changes, the proposed rule would address all forms of sex-based harassment (not only sexual harassment);

clarify that Title IX’s prohibition against sex discrimination includes discrimination on the basis of sex stereotypes, sex characteristics, pregnancy or related conditions, sexual orientation, and gender identity;

and eliminate the requirement for live hearings at the post-secondary level.

The public comment period on the proposed rule ended on September 12, 2022, and the Department has indicated its intention to publish a final Title IX rule in October 2023.

When the Department publishes the final Title IX rule, it will indicate an effective date.

Third-Party Servicers

Department of Education regulations permit an institution to enter into a written contract with a third-party servicer for the administration of any aspect of the institution’s participation in Title IV programs.

The third-party servicer must, among other obligations, comply with Title IV requirements and be jointly and severally liable with the institution to the Secretary of Education for any violation by the servicer of any Title IV provision.

An institution must report to the Department of Education new contracts or any significant modifications to contracts with third-party servicers as well as other matters related to third-party servicers.

On February 15, 2023 the Department released a Dear Colleague Letter (“DCL”) (GEN 23-03) with updated guidance expanding the definition of third-party servicers and covered activities to include vendors providing student recruitment and retention services, software products and services related to Title IV administration activities, and educational content and instruction, initially requiring institutions to be in compliance with the new guidance by May 1, 2023.

On February 28, 2023, the Department extended the effective date of the updated guidance and reporting requirements from May 1, 2023 to September 1, 2023.

On April 11, 2023, the Department again delayed the effective date until six months after the Department publishes a new, revised final guidance letter on the topic, and on May 16, 2023, the Department formally rescinded its 2023 and prior guidance (DCL GEN-16-15 and the March 8, 2017 Electronic Announcement) prohibiting contracts between colleges and foreign-owned or operated servicers.

Additionally, in March 2023, the Department indicated via Federal Register publication its intention to establish a negotiated rulemaking committee in 2023 to consider new proposed regulations on third-party servicers and related issues.

Program Participation Agreement

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 subjected 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 filed its application for recertification in advance of the September 30, 2022 deadline, and on April 18, 2023, Capella University and the Department of Education executed a fully certified Program Participation Agreement, approving Capella University’s continued participation in Title IV programs through September 30, 2025.

On January 16, 2024, SARA’s coordinating entity, the National Council for State Authorization Reciprocity Agreements (“NC-SARA”), initiated its 2024 policy manual modification process with a call for proposals for SARA policy changes.

The call for proposals ended February 2, 2024 and yielded 50 proposed changes to NC-SARA policies, some of which, if adopted, could significantly alter the distance

education reciprocity agreements.

Such proposals include that an institution may be denied participation in SARA if it violates any requirement related to state authorization, accreditation, or participation in federal Title IV financial aid programs;

and that an institution may be denied participation in SARA or have its participation limited as a result of adverse actions against it related to the institution’s academic quality, financial stability, or student consumer protection issues.

On April 26, 2024, NC-SARA will hold its public comment forum to seek input on these potential changes.

In addition to the public comment forum, written comments will be accepted between April 15, 2024 and May 17, 2024.

NC-SARA’s regional compacts/regional steering committees and the NC-SARA board of directors will vote on each proposal presented by September 6, 2024, and October 25, 2024, respectively.

We cannot predict whether NC-SARA will adopt any of these proposals.

The adoption of certain proposals, including those described above, could have a material adverse effect on Capella University, Strayer University, and the Company.

Beginning in January 2024, the Department convened a negotiated rulemaking committee to consider new proposed regulations on, among other things, state authorization and state authorization reciprocity agreements.

Negotiated rulemaking committee meetings concluded in March 2024 with no consensus reached on the topics.

In the absence of consensus, the Department of Education has discretion to propose a rule for public comment.

We cannot predict whether the Department of Education will promulgate any regulations that would negatively affect Capella University or Strayer University.

Negotiated Rulemaking

Beginning January 2024, the Department convened negotiated rulemaking committee meetings to consider new proposed regulations on distance education, cash management, return of federal funds, state authorization (discussed above), accreditation and related issues, and TRIO programs.

Negotiated rulemaking committee meetings concluded in March 2024.

Consensus was reached on TRIO programs but no other topics.

In the absence of consensus, the Department of Education has discretion to propose a rule for public comment.

We cannot predict whether the Department of Education will promulgate any regulations that would negatively affect Capella University or Strayer University.

On April 19, 2024, the U.S.

Department of Education released its final rule regarding the implementation of Title IX, which prohibits discrimination on the basis of sex in education programs that receive funding from the federal government.

The new rule applies to all forms of sex-based harassment (not only sexual harassment);

clarifies that Title IX’s prohibition against sex discrimination includes discrimination on the basis of sex stereotypes, sex characteristics, pregnancy or related conditions, sexual orientation, and gender identity;

and eliminates the requirement for live hearings with an opportunity for cross-examination at the post-secondary level.

The new rules are effective on August 1, 2024.

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