What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-11-02 · 109 added, 172 removed, 191 unchanged (60% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022.

The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Cautionary Notice Regarding Forward-Looking Statements

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

The assumptions, risks and uncertainties include the pace of student enrollment, our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as other federal laws and regulations, institutional accreditation standards and state regulatory requirements, rulemaking and other action by the Department or other governmental entities, including without limitation action related to borrower defense to repayment applications, and increased focus by the U.S.

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

Department of Education or other governmental entities, including without limitation action related to borrower defense to repayment applications, gainful employment, 90/10, and increased focus by the U.S.

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

You should not put undue reliance on any forward-looking statements.

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The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only.

We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Strategic Education, Inc.

(“SEI,” “we”, “us” or “our”) is an education services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets.

We operate primarily through our wholly-owned subsidiaries Strayer University and Capella University, both accredited post-secondary institutions of higher education located in the United States, and Torrens University, an accredited post-secondary institution of higher education located in Australia.

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

(“SEI,” “we,” “us,” “our,” or “the Company”) is an education services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets.

We operate primarily through our wholly-owned subsidiaries Capella University and Strayer University, both accredited post-secondary institutions of higher education located in the United States, and Torrens University, an accredited post-secondary institution of higher education located in Australia.

Our operations also include the Education Technology Services segment, which 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.

Segments Overview

As of September 30, 2023, we had the following reportable segments:

As of March 31, 2024, we had the following reportable segments:

Higher Education (“USHE”) Segment

• 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.

• Strayer University is accredited by the Middle States Commission on Higher Education and Capella University is accredited by the Higher Learning Commission, both higher education institutional accrediting agencies recognized by the Department of Education.

• Capella University is accredited by the Higher Learning Commission and Strayer University is accredited by the Middle States Commission on Higher Education, both higher education institutional accrediting agencies recognized by the U.S.

Department of Education.

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

• In the third quarter of 2023, USHE enrollment increased 9.9% to 82,548 compared to 75,144 for the same period in 2022.

• Trailing 4-quarter student persistence within USHE was 87.3% in the second quarter of 2023 compared to 87.3% for the same period in 2022.

• In the first quarter of 2024, USHE enrollment increased 9.8% to 87,731 compared to 79,935 for the same period in 2023.

• Trailing 4-quarter student persistence within USHE was 87.0% in the fourth quarter of 2023 compared to 87.4% for the same period in 2022.

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

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87.1 % 87.3 % 87.7 % 87.4 % 87.4 % 87.3 % 87.4 % 87.0 %

• Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 7.4% as of the end of the second quarter of 2023.

• Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 7.4% as of the end of the fourth quarter of 2023.

Government provided grants and loans per credit earned includes all Federal loans and grants for students (Title IV hereafter) in our USHE institutions, and is calculated on a trailing 4-quarter basis and reported one quarter in arrears.

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Education Technology Services Segment

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

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

• Our 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.

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

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

• In the third quarter of 2023, employer affiliated enrollment as a percentage of USHE enrollment was 27.8% compared to 25.3% for the same period in 2022.

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

• In the first quarter of 2024, employer affiliated enrollment as a percentage of USHE enrollment was 29.2% compared to 26.3% for the same period in 2023.

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

Australia/New Zealand Segment

Australia/New Zealand (“ANZ”) Segment

• Torrens University is the only investor-funded university in Australia.

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Courses are offered both online and at physical campuses.

University is registered with the Tertiary Education Quality and Standards Agency (“TEQSA”), the regulator for higher education providers and universities throughout Australia, as an Australian University that is authorized to self-accredit its courses.

Torrens University is registered with the Tertiary Education Quality and Standards Agency (“TEQSA”), the regulator for higher

education providers and universities throughout Australia, as an Australian University that is authorized to self-accredit its courses.

• Think Education is a vocational registered training organization and accredited higher education provider in Australia.

Think Education delivers education at several campuses in Sydney, Melbourne, Brisbane, and Adelaide as well as through online study.

Think Education delivers education services at several campuses in Sydney, Melbourne, Brisbane, and Adelaide as well as through online study.

Think Education and its colleges are accredited in Australia by the TEQSA and the Australian Skills Quality Authority, the regulator for vocational education and training organizations that operate in Australia.

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

• In the third quarter of 2023, Australia/New Zealand enrollment decreased 1.2% to 18,279 compared to 18,493 for the same period in 2022.

• In the first quarter of 2024, Australia/New Zealand enrollment increased 4.8% to 20,197 compared to 19,269 for the same period in 2023.

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

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

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

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

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

Approximately 96% of our revenues during the nine months ended September 30, 2023 consisted of tuition revenue.

Approximately 96% of our revenues during the three months ended March 31, 2024 consisted of tuition revenue.

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

Capella University also offers its FlexPath program, which allows students to determine their 12-week billing session schedule after they complete their first course.

Tuition revenue for all students is recognized ratably over the course of instruction as the universities provide academic services, whether delivered in person at a physical campus or online.

Tuition revenue is shown net of any refunds, withdrawals, corporate discounts, scholarships, and employee tuition discounts.

The universities also derive revenue from other sources such as textbook-related income, certificate revenue, certain academic fees, licensing revenue, accommodation revenue, food and beverage fees, and other income, which are all recognized when earned.

In accordance with ASC 606, materials provided to students in connection with their enrollment in a course are recognized as revenue when control of those materials transfers to the student.

Tuition revenue for all students is recognized ratably over the period of instruction as the universities provide academic services, whether delivered in person at a physical campus or online.

Tuition revenue is shown net of any refunds, withdrawals, discounts, and scholarships.

The universities also derive revenue from other sources such as textbook-related income, certificate revenue, certain academic fees, licensing revenue, accommodation revenue, and food and beverage fees, which are all recognized when earned.

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue Recognition , materials provided to students in connection with their enrollment in a course are recognized as revenue when control of those materials transfers to the student.

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

Any cash received prior to the start of an academic term or program is recorded as a contract liability.

Students at Strayer University and Capella University finance their education in a variety of ways, and historically about 75% of our students have participated in one or more financial aid program provided through Title IV of the Higher Education Act.

Students at Capella University and Strayer University finance their education in a variety of ways, and historically about 75% of our students have participated in one or more financial aid program provided through Title IV of the Higher Education Act.

In addition, many of our working adult students finance their own education or receive full or partial tuition reimbursement from their employers.

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Our specific refund policies vary across the universities and non-degree programs.

For students attending Strayer University, our refund policy typically permits students who complete less than half of a course to receive a partial refund of tuition for that course.

For students attending Capella University, our refund policy varies based on course format.

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FlexPath students receive a 100% refund through the 12th calendar day of the course for their first billing session only and a 0% refund after that date and for all subsequent billing sessions.

For students attending Strayer University, our refund policy typically permits students who complete less than half of a course to receive a partial refund of tuition for that course.

For domestic students attending an ANZ institution, refunds are typically provided to students that withdraw within the first 20% of a course term.

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

As of September 30, 2023, we had deferred $44.5 million for

As of March 31, 2024, we had deferred $42.1 million for

estimated redemptions earned under the Graduation Fund, as compared to $44.5 million at December 31, 2023.

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

For the third quarter of 2023, our bad debt expense was 5.2% of revenue, compared to 4.5% for the same period in 2022.

A change in our allowance for credit losses of 1% of gross tuition receivable as of September 30, 2023 would have changed our income from operations by approximately $1.5 million.

For the first quarter of 2024, our bad debt expense was 4.2% of revenue, compared to 3.8% for the same period in 2023.

A change in our allowance for credit losses of 1% of gross tuition receivable as of March 31, 2024 would have changed our income from operations by approximately $1.3 million.

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

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

No events or circumstances occurred in the three and nine months ended September 30, 2023 to indicate an impairment to goodwill or indefinite-lived intangible assets.

Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three and nine month periods ended September 30, 2023.

No events or circumstances occurred in the three months ended March 31, 2024 to indicate an impairment to goodwill or indefinite-lived intangible assets.

Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three month periods ended March 31, 2024.

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

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

No impairment charges related to finite-lived intangible assets were recorded during the three and nine month periods ended September 30, 2023.

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

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

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

No impairment charges related to finite-lived intangible assets were recorded during the three month periods ended March 31, 2024.

Other estimates — We record estimates for income tax liabilities and estimate the useful lives of our property and equipment and intangible assets.

We also periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary.

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

Results of Operations

In the third quarter of 2023, we generated $285.9 million in revenue compared to $263.1 million for the same period in 2022.

Our income from operations was $25.6 million in the third quarter of 2023 compared to $7.8 million for the same period in 2022, principally due to higher revenue driven by enrollment growth in the USHE segment and growth in Sophia Learning subscriptions in the Education Technology Services segment, partially offset by higher restructuring costs.

Net income in the third quarter of 2023 was $18.5 million compared to $6.1 million for the same period in 2022, and diluted earnings per share was $0.77 in the third quarter of 2023 compared to $0.25 for the same period in 2022.

For the nine months ended September 30, 2023, we generated $830.2 million in revenue compared to $795.5 million for the same period in 2022.

Our income from operations was $41.1 million for the nine months ended September 30, 2023 compared to $43.1 million for the same period in 2022, principally due to higher restructuring costs and unfavorable foreign currency exchange impacts, partially offset by higher earnings in the Education Technology Services and USHE segments as a result of revenue growth.

Net income was $30.7 million for the nine months ended September 30, 2023 compared to $28.3 million for the same period in 2022, and diluted earnings per share was $1.28 in the nine months ended September 30, 2023 compared to $1.18 for the same period in 2022.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Consolidated revenue increased to $285.9 million in the third quarter of 2023 compared to $263.1 million in the third quarter of 2022, primarily due to an increase in USHE enrollment and growth in Sophia Learning subscriptions, partially offset by

unfavorable foreign currency exchange impacts.

In the USHE segment for the three months ended September 30, 2023, total enrollment increased 9.9% to 82,548 from 75,144 for the same period in 2022.

USHE segment revenue increased 8.8% to $201.8 million in the third quarter of 2023 compared to $185.5 million in the third quarter of 2022, primarily due to an increase in enrollment.

In the Australia/New Zealand segment for the three months ended September 30, 2023, total enrollment decreased 1.2% to 18,279 from 18,493 for the same period in 2022.

Australia/New Zealand segment revenue increased 3.4% to $63.3 million in the third quarter of 2023 compared to $61.2 million in the third quarter of 2022, primarily due to higher revenue per student as a result of students taking higher course loads, partially offset by unfavorable foreign currency exchange impacts.

Education Technology Services segment revenue increased 26.7% to $20.8 million in the third quarter of 2023 compared to $16.4 million in the third quarter of 2022, primarily as a result of growth in Sophia Learning subscriptions and higher employer affiliated enrollment.

Instructional and support costs.

Consolidated instructional and support costs increased to $155.7 million in the third quarter of 2023 compared to $153.2 million in the third quarter of 2022, principally due to increases in bad debt expense, personnel-related costs, student material costs, and technology-related expenses, partially offset by lower stock-based compensation expense and facility costs, and favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of revenues decreased to 54.5% in the third quarter of 2023 from 58.2% in the third quarter of 2022.

General and administration expenses .

Consolidated general and administration expenses decreased to $97.6 million in the third quarter of 2023 compared to $97.8 million in the third quarter of 2022, principally due to lower personnel-related costs and stock-based compensation expense, and favorable foreign currency exchange impacts, partially offset by increased investments in branding initiatives and partnerships with brand ambassadors.

Consolidated general and administration expenses as a percentage of revenues decreased to 34.1% in the third quarter of 2023 from 37.2% in the third quarter of 2022.

Amortization of intangible assets .

Amortization of intangible assets decreased to $3.4 million in the third quarter of 2023 compared to $3.5 million in the third quarter of 2022, due to favorable foreign currency exchange impacts.

Merger and integration costs.

Merger and integration costs were $0.3 million in the third quarter of 2023 and 2022, primarily due to integration expenses associated with the Company’s acquisition of ANZ.

Restructuring costs .

Restructuring costs increased to $3.3 million in the third quarter of 2023 compared to $0.6 million in the third quarter of 2022, primarily due to higher severance and other personnel-related expenses from employee terminations in the third quarter of 2023.

Income from operations .

Consolidated income from operations increased to $25.6 million in the third quarter of 2023 compared to $7.8 million in the third quarter of 2022, principally due to higher revenue driven by enrollment growth in the USHE segment and growth in Sophia Learning subscriptions in the Education Technology Services segment, partially offset by higher restructuring costs.

In the USHE segment, income from operations was $10.4 million in the third quarter of 2023 compared to $1.9 million of loss from operations in the third quarter of 2022, primarily driven by higher revenue due to an increase in enrollment, partially offset by higher bad debt expense.

In the Australia/New Zealand segment, income from operations increased 55.3% to $13.9 million in the third quarter of 2023 compared to $8.9 million in the third quarter of 2022, primarily driven by higher revenue and personnel cost savings due to headcount reductions.

In the Education Technology Services segment, income from operations increased 59.2% to $8.3 million in the third quarter of 2023 compared to $5.2 million in the third quarter of 2022, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment.

Other income (expense).

Other income (expense) increased to $0.8 million of income in the third quarter of 2023 compared to $0.3 million of expense in the third quarter of 2022, as a result of an increase in interest income, partially offset by an increase in interest expense due to higher interest rates.

We incurred $2.0 million of interest expense in the three months ended September 30, 2023 compared to $1.6 million in the three months ended September 30, 2022.

Provision for income taxes.

Income tax expense was $8.0 million in the third quarter of 2023, compared to $1.5 million in the third quarter of 2022.

Our effective tax rate for the quarter was 30.3%, compared to 19.3% for the same period in 2022.

Net income increased to $18.5 million in the third quarter of 2023 compared to $6.1 million in the third quarter of 2022 due to the factors discussed above.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Consolidated revenue increased to $830.2 million in the nine months ended September 30, 2023 compared to $795.5 million in the same period in 2022, primarily due to an increase in USHE enrollment and growth in Sophia Learning subscriptions, partially offset by a decrease in Australia/New Zealand segment revenue due to the timing of academic term start dates and unfavorable foreign currency exchange impacts.

USHE segment revenue increased 5.3% to $601.4 million in the nine

months ended September 30, 2023 compared to $571.3 million in the same period in 2022, primarily due to an increase in enrollment.

Australia/New Zealand segment revenue decreased 3.9% to $170.2 million in the nine months ended September 30, 2023 compared to $177.2 million in the same period in 2022, primarily due to the timing of the academic term start dates and unfavorable foreign currency exchange impacts, partially offset by higher revenue per student as a result of students taking higher course loads.

Education Technology Services segment revenue increased 24.6% to $58.6 million in the nine months ended September 30, 2023 compared to $47.0 million in the same period in 2022, primarily as a result of growth in Sophia Learning subscriptions and higher employer affiliated enrollment.

In the first quarter of 2024, we generated $290.3 million in revenue compared to $256.6 million for the same period in 2023.

Our income from operations was $41.4 million in the first quarter of 2024 compared to a loss from operations of $1.3 million for the same period in 2023, primarily due to higher revenue driven by enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions in the Education Technology Services segment, lower restructuring costs, and lower amortization expense of intangible assets.

Net income in the first quarter of 2024 was $29.7 million compared to a net loss of $2.0 million for the same period in 2023, and diluted earnings per share was $1.23 in the first quarter of 2024 compared to diluted loss per share of $0.09 for the same period in 2023.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Consolidated revenue increased to $290.3 million in the first quarter of 2024 compared to $256.6 million in the first quarter of 2023, primarily due to enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions, partially offset by unfavorable foreign currency exchange impacts.

In the USHE segment for the three months ended March 31, 2024, total enrollment increased 9.8% to 87,731 from 79,935 for the same period in 2023.

USHE segment revenue increased 11.3% to $219.2 million in the first quarter of 2024 compared to $196.9 million in the first quarter of 2023, primarily due to an increase in enrollment.

In the Australia/New Zealand segment for the three months ended March 31, 2024, total enrollment increased 4.8% to 20,197 from 19,269 for the same period in 2023.

Australia/New Zealand segment revenue increased 14.1% to $47.4 million in the first quarter of 2024 compared to $41.5 million in the first quarter of 2023,

primarily due to an increase in enrollment and higher revenue per student as a result of students taking higher course loads, partially offset by unfavorable foreign currency exchange impacts.

Education Technology Services segment revenue increased 29.8% to $23.6 million in the first quarter of 2024 compared to $18.2 million in the first quarter of 2023, primarily as a result of growth in Sophia Learning subscriptions and higher employer affiliated enrollment.

Instructional and support costs.

Consolidated instructional and support costs increased to $470.2 million in the nine months ended September 30, 2023 compared to $445.2 million in the same period in 2022, principally due to increases in personnel-related costs, bad debt expense, student material costs, and technology-related costs, partially offset by lower facility costs and stock-based compensation expense, and favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of revenues increased to 56.6% in the nine months ended September 30, 2023 from 56.0% in the nine months ended September 30, 2022.

Consolidated instructional and support costs increased to $157.7 million in the first quarter of 2024 compared to $152.9 million in the first quarter of 2023, principally due to increases in bad debt expense, personnel-related costs, and technology-related expenses, partially offset by lower stock-based compensation expense and favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of revenues decreased to 54.3% in the first quarter of 2024 from 59.6% in the first quarter of 2023.

General and administration expenses .

Consolidated general and administration expenses increased to $292.1 million in the nine months ended September 30, 2023 compared to $289.3 million in the same period in 2022, principally due to increased investments in branding initiatives and partnerships with brand ambassadors, partially offset by favorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues decreased to 35.2% in the nine months ended September 30, 2023 from 36.4% in the nine months ended September 30, 2022.

Consolidated general and administration expenses increased to $96.7 million in the first quarter of 2024 compared to $95.5 million in the first quarter of 2023, principally due to higher personnel-related costs, partially offset by decreased investments in branding initiatives and partnerships with brand ambassadors and favorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues decreased to 33.3% in the first quarter of 2024 from 37.2% in the first quarter of 2023.

Amortization of intangible assets .

Amortization of intangible assets decreased to $10.4 million in the nine months ended September 30, 2023 compared to $11.0 million in the same period in 2022, due to favorable foreign currency exchange impacts.

There was no amortization of intangible assets in the first quarter of 2024 compared to $3.5 million in the first quarter of 2023, due to the finite-lived intangible assets acquired through the acquisition of ANZ becoming fully amortized in the fourth quarter of 2023.

Merger and integration costs.

Merger and integration costs increased to $1.3 million in the nine months ended September 30, 2023 compared to $0.9 million in the same period in 2022, and are primarily related to integration expenses associated with the Company’s acquisition of ANZ.

There were no merger and integration costs in the first quarter of 2024 compared to $0.4 million in the first quarter of 2023.

These costs primarily relate to integration expenses associated with the Company’s acquisition of ANZ.

Restructuring costs .

Restructuring costs increased to $15.2 million in the nine months ended September 30, 2023 compared to $6.1 million in the same period in 2022, primarily due to higher severance and other personnel-related expenses from employee terminations and higher right-of-use lease asset and fixed asset impairment charges associated with vacating leased space in the nine months ended September 30, 2023, partially offset by a $2.1 million gain from the sale of property and equipment of an owned campus in 2023.

Income from operations .

Consolidated income from operations decreased to $41.1 million in the nine months ended September 30, 2023 compared to $43.1 million in the same period in 2022, principally due to higher restructuring costs and unfavorable foreign currency exchange impacts, partially offset by higher earnings in the Education Technology Services and USHE segments as a result of revenue growth.

USHE segment income from operations increased 5.3% to $26.7 million in the nine months ended September 30, 2023 compared to $25.4 million in the same period in 2022, primarily due to higher revenue from an increase in enrollments.

Australia/New Zealand segment income from operations increased 2.3% to $21.0 million in the nine months ended September 30, 2023 compared to $20.5 million in the same period in 2022, primarily driven by personnel cost savings due to headcount reductions, partially offset by lower revenue due to the timing of academic term start dates and unfavorable foreign currency impacts.

Education Technology Services segment income from operations increased 33.1% to $20.3 million in the nine months ended September 30, 2023 compared to $15.2 million in the same period in 2022, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment, partially offset by increased investment in outreach to corporate partners.

Other income (expense).

Other income (expense) increased to $4.4 million of income in the nine months ended September 30, 2023 compared to $1.1 million of expense in the same period in 2022, as a result of an increase in investment income from our limited partnership investments and an increase in interest income, partially offset by an increase in interest expense due to higher interest rates.

We incurred $5.8 million of interest expense in the nine months ended September 30, 2023 compared to $3.6 million in the nine months ended September 30, 2022.

Restructuring costs decreased to a $5.5 million net benefit in the first quarter of 2024 compared to $5.6 million of net costs in the first quarter of 2023, primarily due to a $6.2 million gain related to the early termination of operating leases in the first quarter of 2024 compared to a $3.6 million right-of-use lease asset impairment charge associated with vacating leased space in the first quarter of 2023, and a $1.8 million decrease in severance and other personnel-related expenses from employee terminations.

Income (loss) from operations .

Consolidated income from operations increased to $41.4 million in the first quarter of 2024 compared to a loss from operations of $1.3 million in the first quarter of 2023, primarily due to higher revenue driven by enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions in the Education Technology Services segment, lower restructuring costs, and lower amortization expense of intangible assets.

In the USHE segment, income from operations increased to $28.0 million in the first quarter of 2024 compared to $9.6 million in the first quarter of 2023, primarily driven by higher revenue due to an increase in enrollment, partially offset by higher bad debt expense and personnel costs.

In the Australia/New Zealand segment, loss from operations decreased to $2.3 million in the first quarter of 2024 compared to $7.2 million in the first quarter of 2023, primarily driven by higher revenue due to an increase in enrollment and higher revenue per student as a result of students taking higher course loads.

In the Education Technology Services segment, income from operations increased to $10.1 million in the first quarter of 2024 compared to $5.8 million in the first quarter of 2023, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment.

Other income.

Other income increased to $1.8 million in the first quarter of 2024 compared to $0.4 million in the first quarter of 2023, primarily due to a $1.3 million increase in interest income and a $0.4 million decrease in interest expense.

We incurred $1.4 million of interest expense in the three months ended March 31, 2024 compared to $1.8 million in the three months ended March 31, 2023.

Provision for income taxes.

Income tax expense was $14.8 million in the nine months ended September 30, 2023 compared to $13.6 million in the same period in 2022.

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

Our effective tax rate for the nine months ended September 30, 2023 was 32.6%, compared to 32.5% for the same period in 2022.

Net income increased to $30.7 million in the nine months ended September 30, 2023 compared $28.3 million in the same period in 2022 due to the factors discussed above.

Income tax expense was $13.4 million in the first quarter of 2024, compared to $1.1 million in the first quarter of 2023.

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

Net income (loss) .

Net income (loss) increased to $29.7 million of net income in the first quarter of 2024 compared to $2.0 million of net loss in the first quarter of 2023 due to the factors discussed above.

Non-GAAP Financial Measures

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

States of America (“GAAP”).

These measures, which are considered “non-GAAP financial measures” under SEC rules, are defined by us to exclude the following:

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

To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three and nine months ended September 30, 2023 are also presented on a constant currency basis.

To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three months ended March 31, 2024 are also presented on a constant currency basis.

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

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

Adjusted income from operations was $32.6 million in the third quarter of 2023 compared to $12.2 million in 2022.

Adjusted net income was $23.3 million in the third quarter of 2023 compared to $8.0 million in 2022, and adjusted diluted earnings per share was $0.97 in the third quarter of 2023 compared to $0.33 in 2022.

Adjusted income from operations was $68.0 million for the nine months ended September 30, 2023 compared to $61.1 million for the same period in 2022.

Adjusted net income was $48.7 million for the nine months ended September 30, 2023 compared to $41.5 million for the same period in 2022, and adjusted diluted earnings per share was $2.03 for the nine months ended September 30, 2023 compared to $1.73 for the same period in 2022.

Adjusted income from operations was $35.8 million in the first quarter of 2024 compared to $8.2 million for the same period in 2023.

Adjusted net income was $26.7 million in the first quarter of 2024 compared to $5.8 million for the same period in 2023, and adjusted diluted earnings per share was $1.11 in the first quarter of 2024 compared to $0.24 for the same period in 2023.

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

Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2023

Non-GAAP Adjustments

(GAAP) Amortization of intangible assets (1)

Merger and integration costs (2)

Restructuring costs (3)

Income from other investments (4)

adjustments (5)

Revenues $ 285,936 $ — $ — $ — $ — $ — $ 285,936

Total costs and expenses $ 260,307 $ (3,382) $ (330) $ (3,262) $ — $ — $ 253,333

Income from operations $ 25,629 $ 3,382 $ 330 $ 3,262 $ — $ — $ 32,603

Operating margin 9.0% 11.4%

Income before income taxes $ 26,471 $ 3,382 $ 330 $ 3,262 $ (215) $ — $ 33,230

Net income $ 18,459 $ 3,382 $ 330 $ 3,262 $ (215) $ (1,957) $ 23,261

Diluted earnings per share $ 0.77 $ 0.97

Weighted average diluted shares outstanding 23,870 23,870

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

Non-GAAP Adjustments

(GAAP) Amortization of intangible assets (1)

Merger and integration costs (2)

Restructuring costs (3)

Income from other investments (4)

adjustments (5)

Revenues $ 263,123 $ — $ — $ — $ — $ — $ 263,123

Total costs and expenses $ 255,316 $ (3,522) $ (269) $ (610) $ — $ — $ 250,915

Income from operations $ 7,807 $ 3,522 $ 269 $ 610 $ — $ — $ 12,208

Operating margin 3.0% 4.6%

Income before income taxes $ 7,545 $ 3,522 $ 269 $ 610 $ (39) $ — $ 11,907

Net income $ 6,092 $ 3,522 $ 269 $ 610 $ (39) $ (2,478) $ 7,976

Diluted earnings per share $ 0.25 $ 0.33

Weighted average diluted shares outstanding 23,902 23,902

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2023

Reconciliation of Reported to Adjusted Results of Operations for the three months ended March 31, 2024

Non-GAAP Adjustments

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Restructuring costs (3)

Income from other investments (4)

Loss from other investments (4)

adjustments (5)

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Weighted average diluted shares outstanding 24,060 24,060

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2022

Reconciliation of Reported to Adjusted Results of Operations for the three months ended March 31, 2023

Non-GAAP Adjustments

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Total costs and expenses $ 257,955 $ (3,532) $ (425) $ (5,595) $ — $ — $ 248,403

Income from operations $ 43,113 $ 10,954 $ 933 $ 6,129 $ — $ — $ 61,129

Income (loss) from operations $ (1,349) $ 3,532 $ 425 $ 5,595 $ — $ — $ 8,203

Operating margin -0.5% 3.2%

Income before income taxes $ 41,980 $ 10,954 $ 933 $ 6,129 $ (178) $ — $ 59,818

Net income $ 28,341 $ 10,954 $ 933 $ 6,129 $ (178) $ (4,666) $ 41,513

Income (loss) before income taxes $ (951) $ 3,532 $ 425 $ 5,595 $ (325) $ — $ 8,276

Net income (loss) $ (2,028) $ 3,532 $ 425 $ 5,595 $ (325) $ (1,406) $ 5,793

Diluted earnings per share $ (0.09) $ 0.24

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23,430 24,023

__________________________________________________________________________________________

(1) Reflects amortization and depreciation expense of intangible assets and software assets acquired through the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand.

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

(5) Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing an adjusted effective tax rate of 30.0% for the three and nine months ended September 30, 2023, and an adjusted effective tax rate of 33.0% and 30.6% for the three and nine months ended September 30, 2022, respectively.

The table below presents our adjusted results of operations on a constant currency basis for the three and nine months ended September 30, 2023 (amounts in thousands, except per share data):

For the three months ended September 30, 2023 For the nine months ended September 30, 2023

(Non-GAAP) Constant currency adjustment (1)

As Adjusted with Constant Currency

(Non-GAAP) As Adjusted

(5) Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing adjusted effective tax rates of 29.5% and 30.0% for the three months ended March 31, 2024 and 2023, respectively.

(6) For the three months ended March 31, 2023, 593,000 shares issuable in connection with stock options, restricted stock and restricted stock units were excluded from the diluted loss per share calculation because the effect would have been anti-dilutive due to the Company’s net loss during the period.

The table below presents our adjusted results of operations on a constant currency basis for the three months ended March 31, 2024 (amounts in thousands, except per share data):

For the three months ended March 31, 2024

(Non-GAAP) Constant currency adjustment (1)

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__________________________________________________________________________________________

(1) Reflects an adjustment to translate foreign currency results for the three and nine months ended September 30, 2023 at a constant exchange rate of 0.68 and 0.71 Australian Dollars to U.S.

Dollars, respectively, which were the average exchange rates for the same periods in 2022.

(1) Reflects an adjustment to translate foreign currency results for the three months ended March 31, 2024 at a constant exchange rate of 0.68 Australian Dollars to U.S.

Dollars, which was the average exchange rate for the same period in 2023.

Liquidity and Capital Resources

At September 30, 2023, we had cash, cash equivalents, and marketable securities of $198.6 million compared to $235.9 million at December 31, 2022 and $288.8 million at September 30, 2022.

We maintain our cash and cash equivalents primarily in money market funds and demand deposit bank accounts at high credit quality financial institutions, which are included in cash and cash equivalents at September 30, 2023 and 2022.

At March 31, 2024, we had cash, cash equivalents, and marketable securities of $253.6 million compared to $208.7 million at December 31, 2023 and $240.0 million at March 31, 2023.

In addition, we invest excess cash in U.S.

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We also hold marketable securities, which primarily include tax-exempt municipal securities, corporate debt securities, and term deposits.

During the nine months ended September 30, 2023 and 2022, we earned interest income of $7.6 million and $1.9 million, respectively.

During the three months ended March 31, 2024 and 2023, we earned interest income of $3.1 million and $1.8 million, respectively.

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

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

We were in compliance with all applicable covenants related to the Amended Credit Facility as of September 30, 2023.

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

As of September 30, 2023 and 2022, we had $61.2 million and $141.2 million, respectively, outstanding under our Revolving Credit Facility.

During the nine months ended September 30, 2023 and 2022, we paid $5.4 million and $3.0 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.

Our net cash provided by operating activities for the nine months ended September 30, 2023 decreased to $87.2 million, compared to $124.7 million for the same period in 2022.

The decrease in net cash from operating activities was primarily driven by an increase in cash used for working capital and higher tax payments.

Our net cash used in investing activities for the nine months ended September 30, 2023 increased to $30.5 million, compared to $30.3 million for the same period in 2022.

The increase in net cash used in investing activities was primarily driven by $16.9 million in purchases of marketable securities, partially offset by $5.9 million of cash proceeds related to the sale of property and equipment, higher cash proceeds from marketable securities and other investments, and lower capital expenditures for the nine

months ended September 30, 2023.

Capital expenditures decreased to $27.3 million for the nine months ended September 30, 2023, compared to $32.5 million for the same period in 2022, primarily due to the timing of capital projects.

Our net cash used in financing activities for the nine months ended September 30, 2023 increased to $99.1 million, compared to $84.5 million for the same period in 2022.

The increase in net cash used in financing activities was primarily driven by a $40.0 million long-term debt payment and an increase in net payments for employee stock awards, partially offset by a $26.9 million decrease in repurchases of common stock.

The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock for each of the first three quarters of 2023.

During the nine months ended September 30, 2023, we paid a total of $44.1 million in cash dividends on our common stock, compared to $44.6 million for the same period in 2022.

During the nine months ended September 30, 2023, we paid $10.0 million to repurchase shares of common stock in the open market under our repurchase program, compared to $36.9 million for the same period in 2022.

As of September 30, 2023, we had $236.8 million of share repurchase authorization remaining to use through December 31, 2023.

For the third quarter of 2023 and 2022, bad debt expense as a percentage of revenue was 5.2% and 4.5%, respectively.

Our recurring cash requirements consist primarily of general operating expenses, capital expenditures, discretionary dividend payments, and contractual obligations related to our lease agreements, limited partnership investments, and Revolving Credit Facility.

We were in compliance with all applicable covenants related to the Amended Credit Facility as of March 31, 2024.

As of March 31, 2024 and 2023, we had $61.3 million and $101.3 million, respectively, outstanding under our Revolving Credit Facility.

During the three months ended March 31, 2024 and 2023, we paid $1.2 million and $2.4 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.

Our net cash provided by operating activities for the three months ended March 31, 2024 increased to $77.6 million, compared to $35.2 million for the same period in 2023.

The increase in net cash from operating activities was primarily driven by higher earnings and favorable working capital.

Our net cash used in investing activities for the three months ended March 31, 2024 decreased to $1.0 million, compared to $23.3 million for the same period in 2023.

The decrease in net cash used in investing activities was primarily driven by a $17.1 million decrease in purchases of marketable securities and a $5.8 million increase in cash proceeds from marketable securities and other investments, partially offset by higher capital expenditures for the three months ended March 31, 2024.

Capital expenditures increased to $9.2 million for the three months ended March 31, 2024, compared to $8.3 million for the same period in 2023, primarily due to the timing of capital projects.

Our net cash used in financing activities for the three months ended March 31, 2024 decreased to $18.4 million, compared to $19.7 million for the same period in 2023.

The decrease in net cash used in financing activities was driven by a $1.3 million decrease in net payments for employee stock awards.

The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock in the first quarter of 2024.

During the three months ended March 31, 2024, we paid a total of $14.7 million in cash dividends on our common stock, compared to $14.8 million for the same period in 2023.

During the three months ended March 31, 2024, we did not repurchase any shares of common stock in the open market under our repurchase program.

As of March 31, 2024, we had $240.0 million of share repurchase authorization remaining to use through December 31, 2024.

For the first quarter of 2024 and 2023, bad debt expense as a percentage of revenue was 4.2% and 3.8%, respectively.

Our recurring cash requirements consist primarily of general operating expenses, capital expenditures, discretionary dividend payments, income tax payments, and contractual obligations related to our lease agreements, limited partnership investments, and Revolving Credit Facility.

We believe that the combination of our existing cash, cash equivalents, and marketable securities, cash generated from operating activities, and if necessary, cash available under our Amended Credit Facility will be sufficient to meet our cash requirements for the next 12 months and beyond.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis