What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-04-25 · 149 added, 86 removed, 214 unchanged (52% of the section changed)

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Segments Overview

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

As of June 30, 2024, we had the following reportable segments:

Higher Education (“USHE”) Segment

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

• In the first quarter of 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.

• In the second quarter of 2024, USHE enrollment increased 8.4% to 87,077 compared to 80,353 for the same period in 2023.

• Trailing 4-quarter student persistence within USHE was 86.9% in the first quarter of 2024 compared to 87.4% for the same period in 2023.

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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87.3 % 87.7 % 87.4 % 87.4 % 87.3 % 87.4 % 87.0 % 86.9 %

• 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.

• Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 5.0% as of the end of the first quarter of 2024.

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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• 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.

The employer relationships developed by the Education Technology Services segment are an important source of student enrollment for Capella University and Strayer University, and a significant portion 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 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.

• In the second quarter of 2024, employer affiliated enrollment as a percentage of USHE enrollment was 29.3% compared to 27.1% 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 offers low-cost online general education-level courses recommended by the American Council on Education for credit at other colleges and universities.

Australia/New Zealand (“ANZ”) Segment

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Courses are offered both online and at physical campuses.

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.

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.

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

• In the second quarter of 2024, Australia/New Zealand enrollment increased 6.4% to 19,113 compared to 17,966 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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Critical Accounting Policies and Estimates

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities.

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

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

Approximately 96% of our revenues during the six months ended June 30, 2024 consisted of tuition revenue.

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

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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.

In accordance with Accounting Standards Codification 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.

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

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.

As of June 30, 2024, we had deferred $42.6 million for estimated

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

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

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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 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.

For the second quarter of 2024, our bad debt expense was 4.3% of revenue, compared to 4.4% for the same period in 2023.

A change in our allowance for credit losses of 1% of gross tuition receivable as of June 30, 2024 would have changed our income from operations by approximately $1.4 million.

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

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

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

No events or circumstances occurred in the three and six months ended June 30, 2024 to indicate an impairment to goodwill.

Accordingly, no impairment charges related to goodwill were recorded during the three and six month periods ended June 30, 2024.

In the second quarter of 2024, the Company recorded a $0.8 million indefinite-lived intangible asset impairment charge.

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

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

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

No impairment charges related to finite-lived intangible assets were recorded during the three and six month periods ended June 30, 2024.

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

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Results of Operations

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.

In the second quarter of 2024, we generated $312.3 million in revenue compared to $287.7 million for the same period in 2023.

Our income from operations was $41.9 million in the second quarter of 2024 compared to $16.8 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 second quarter of 2024 was $29.9 million compared to $14.2 million for the same period in 2023, and diluted earnings per share was $1.24 in the second quarter of 2024 compared to $0.59 for the same period in 2023.

For the six months ended June 30, 2024, we generated $602.5 million in revenue compared to $544.3 million for the same period in 2023.

Our income from operations was $83.3 million for the six months ended June 30, 2024 compared to $15.5 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, partially offset by higher operating expenses.

Net income was $59.6 million for the six months ended June 30, 2024 compared to $12.2 million for the same period in 2023, and diluted earnings per share was $2.47 for the six months ended June 30, 2024 compared to $0.51 for the same period in 2023.

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Consolidated revenue increased to $312.3 million in the second quarter of 2024 compared to $287.7 million in the second 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 June 30, 2024, total enrollment increased 8.4% to 87,077 from 80,353 for the same period in 2023.

USHE segment revenue increased 6.9% to $216.6 million in the second quarter of 2024 compared to $202.7 million in the second quarter of 2023, primarily due to an increase in enrollment, partially offset by lower revenue per student.

In the Australia/New Zealand segment for the three months ended June 30, 2024, total enrollment increased 6.4% to 19,113 from 17,966 for the same period in 2023.

Australia/New Zealand segment revenue increased 8.6% to $71.1 million in the second quarter of 2024 compared to $65.5 million in the second 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 25.6% to $24.5 million in the second quarter of 2024 compared to $19.5 million in the second 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 $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.

Consolidated instructional and support costs increased to $163.2 million in the second quarter of 2024 compared to $161.5 million in the second quarter of 2023, principally due to increases in personnel-related costs, bad debt expense, facility costs, and technology-related expenses, partially offset by favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of revenues decreased to 52.3% in the second quarter of 2024 from 56.1% in the second quarter of 2023.

General and administration expenses .

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.

Consolidated general and administration expenses increased to $105.1 million in the second quarter of 2024 compared to $99.0 million in the second quarter of 2023, principally due to increased investments in branding initiatives and partnerships with brand ambassadors, higher personnel-related costs, and higher stock-based compensation expense, partially offset by favorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues decreased to 33.7% in the second quarter of 2024 from 34.4% in the second quarter of 2023.

Amortization of intangible assets .

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.

There was no amortization of intangible assets in the second quarter of 2024 compared to $3.5 million in the second 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.

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.

There were no merger and integration costs in the second quarter of 2024 compared to $0.6 million in the second quarter of 2023.

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

Restructuring costs .

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.

Restructuring costs decreased to $2.0 million in the second quarter of 2024 compared to $6.4 million in the second quarter of 2023, primarily due to a $5.0 million decrease in severance and other personnel-related expenses from employee terminations and a $1.0 million decrease in asset impairment charges, partially offset by a $1.6 million gain from the sale of property and equipment of an owned campus in the second quarter of 2023.

Income from operations .

Consolidated income from operations increased to $41.9 million in the second quarter of 2024 compared to $16.8 million in the second 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.

USHE segment income from operations increased to $19.8 million in the second quarter of 2024 compared to $6.7 million in the second quarter of 2023, primarily driven by higher revenue due to an increase in enrollment, partially offset by higher bad debt expense and personnel costs.

Australia/New Zealand segment income from operations decreased 1.6% to $14.1 million in the second quarter of 2024 compared to $14.3 million in the second quarter of 2023, primarily driven by higher personnel costs and increased investments in branding initiatives, partially offset by higher revenue due to an increase in enrollment and higher revenue per student as a result of students taking higher course loads.

Education Technology Services segment income from operations increased 62.7% to $10.0 million in the second quarter of 2024 compared to $6.2 million in the second 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 (expense).

Other income (expense) decreased to $0.1 million of expense in the second quarter of 2024 compared to $3.2 million of income in the second quarter of 2023, primarily due to a $4.3 million decrease in investment income from our limited partnership investments, partially offset by a $0.6 million increase in interest income and a $0.7 million decrease in interest expense.

We incurred $1.3 million of interest expense in the three months ended June 30, 2024 compared to $2.0 million in the three months ended June 30, 2023.

Provision for income taxes.

Income tax expense was $11.9 million in the second quarter of 2024, compared to $5.8 million in the second quarter of 2023.

Our effective tax rate for the second quarter of 2024 was 28.5% compared to 28.8% in the second quarter of 2023.

Net income increased to $29.9 million in the second quarter of 2024 compared to $14.2 million in the second quarter of 2023 due to the factors discussed above.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Consolidated revenue increased to $602.5 million in the six months ended June 30, 2024 compared to $544.3 million in the same period in 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.

USHE segment revenue increased 9.1% to $435.8 million in the six months ended June 30, 2024 compared to $399.6 million in the same period in 2023, primarily due to an increase in enrollment.

Australia/New Zealand segment revenue increased 10.8% to $118.5 million in the six months ended June 30, 2024 compared to $107.0 million in the same period in 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 27.6% to $48.2 million in the six months ended June 30, 2024 compared to $37.7 million in the same period in 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 $320.9 million in the six months ended June 30, 2024 compared to $314.4 million in the same period in 2023, principally due to increases in personnel-related costs, bad debt expense, facility costs, and technology-related expenses, partially offset by lower depreciation expense and favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of revenues decreased to 53.3% in the six months ended June 30, 2024 from 57.8% in the six months ended June 30, 2023.

General and administration expenses .

Consolidated general and administration expenses increased to $201.8 million in the six months ended June 30, 2024 compared to $194.5 million in the same period in 2023, principally due to higher personnel-related costs, increased investments in branding initiatives and partnerships with brand ambassadors, and higher stock-based compensation expense, partially offset by favorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues decreased to 33.5% in the six months ended June 30, 2024 from 35.7% in the six months ended June 30, 2023.

Amortization of intangible assets .

There was no amortization of intangible assets in the six months ended June 30, 2024 compared to $7.0 million in the same period in 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.

There were no merger and integration costs in the six months ended June 30, 2024 compared to $1.0 million in the same period in 2023.

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

Restructuring costs .

Restructuring costs decreased to a $3.5 million net benefit in the six months ended June 30, 2024 compared to $11.9 million of net costs in the same period in 2023, primarily due to a $6.8 million decrease in severance and other personnel-related expenses from employee terminations, a $6.1 million increase in gains related to the early termination of operating leases, and a $4.6 million decrease in asset impairment charges, partially offset by a $2.1 million gain from the sale of property and equipment of an owned campus in the second quarter of 2023.

Income from operations .

Consolidated income from operations increased to $83.3 million in the six months ended June 30, 2024 compared to $15.5 million in 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, partially offset by higher operating expenses.

USHE segment income from operations increased to $47.8 million in the six months ended June 30, 2024 compared to $16.3 million in the same period in 2023, primarily driven by higher revenue due to an increase in enrollment, partially offset by higher bad debt expense and personnel costs.

Australia/New Zealand segment income from operations increased 66.1% to $11.8 million in the six months ended June 30, 2024 compared to $7.1 million in the same period in 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, partially offset by increased investments in branding initiatives.

Education Technology Services segment income from operations increased 68.2% to $20.1 million in the six months ended June 30, 2024 compared to $12.0 million in the same period in 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.

Other income decreased to $1.7 million in the six months ended June 30, 2024 compared to $3.6 million in the same period in 2023, primarily due to a $4.8 million decrease in investment income from our limited partnership investments, partially offset by a $1.9 million increase in interest income and a $1.1 million decrease in interest expense.

We incurred $2.7 million of interest expense in the six months ended June 30, 2024 compared to $3.8 million in the same period in 2023.

Provision for income taxes.

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.

Income tax expense was $25.4 million in the six months ended June 30, 2024 compared to $6.8 million in the same period in 2023.

Income tax expense for the six months ended June 30, 2024 and 2023 include shortfall tax impacts of approximately $1.2 million and $1.3 million, respectively, related to share-based payment arrangements.

Net income increased to $59.6 million in the six months ended June 30, 2024 compared to $12.2 million in the same period in 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”).

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

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

• severance costs, lease and fixed asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with our restructuring activities;

• severance costs, asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with our restructuring activities;

• income/loss from partnership and other investments that are not part of our core operations;

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

To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three months ended March 31, 2024 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 and six months ended June 30, 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 $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.

Adjusted income from operations was $43.9 million in the second quarter of 2024 compared to $27.2 million for the same period in 2023.

Adjusted net income was $32.3 million in the second quarter of 2024 compared to $19.7 million for the same period in 2023, and adjusted diluted earnings per share was $1.33 in the second quarter of 2024 compared to $0.82 for the same period in 2023.

Adjusted income from operations was $79.8 million for the six months ended June 30, 2024 compared to $35.4 million for the same period in 2023.

Adjusted net income was $58.9 million for the six months ended June 30, 2024 compared to $25.5 million for the same period in 2023, and adjusted diluted earnings per share was $2.44 for the six months ended June 30, 2024 compared to $1.06 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 March 31, 2024

Reconciliation of Reported to Adjusted Results of Operations for the three months ended June 30, 2024

Non-GAAP Adjustments

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Weighted average diluted shares outstanding 24,179 24,179

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

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

Non-GAAP Adjustments

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Total costs and expenses $ 270,863 $ (3,450) $ (580) $ (6,351) $ — $ — $ 260,482

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

Income from operations $ 16,817 $ 3,450 $ 580 $ 6,351 $ — $ — $ 27,198

Operating margin 5.8% 9.5%

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

Income before income taxes $ 19,988 $ 3,450 $ 580 $ 6,351 $ (2,286) $ — $ 28,083

Net income $ 14,231 $ 3,450 $ 580 $ 6,351 $ (2,286) $ (2,668) $ 19,658

Diluted earnings per share $ 0.59 $ 0.82

Weighted average diluted shares outstanding 23,964 23,964

23,430 24,023

Reconciliation of Reported to Adjusted Results of Operations for the six months ended June 30, 2024

Non-GAAP Adjustments

(GAAP) Amortization of intangible assets (1)

Merger and integration costs (2)

Restructuring costs (3)

Loss from other investments (4)

adjustments (5)

Revenues $ 602,516 $ — $ — $ — $ — $ — $ 602,516

Total costs and expenses $ 519,236 $ — $ — $ 3,515 $ — $ — $ 522,751

Income from operations $ 83,280 $ — $ — $ (3,515) $ — $ — $ 79,765

Operating margin 13.8% 13.2%

Income before income taxes $ 84,951 $ — $ — $ (3,515) $ 2,177 $ — $ 83,613

Net income $ 59,600 $ — $ — $ (3,515) $ 2,177 $ 685 $ 58,947

Diluted earnings per share $ 2.47 $ 2.44

Weighted average diluted shares outstanding 24,119 24,119

Reconciliation of Reported to Adjusted Results of Operations for the six months ended June 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 $ 544,286 $ — $ — $ — $ — $ — $ 544,286

Total costs and expenses $ 528,818 $ (6,982) $ (1,005) $ (11,946) $ — $ — $ 508,885

Income from operations $ 15,468 $ 6,982 $ 1,005 $ 11,946 $ — $ — $ 35,401

Operating margin 2.8% 6.5%

Income before income taxes $ 19,037 $ 6,982 $ 1,005 $ 11,946 $ (2,611) $ — $ 36,359

Net income $ 12,203 $ 6,982 $ 1,005 $ 11,946 $ (2,611) $ (4,074) $ 25,451

Diluted earnings per share $ 0.51 $ 1.06

Weighted average diluted shares outstanding 23,993 23,993

_________________________________________________________________________________________

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(2) Reflects integration expenses associated with the Company’s merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand.

(3) Reflects severance costs, lease and fixed asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with the Company’s restructuring activities.

(3) Reflects severance costs, asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with the Company’s restructuring activities.

(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 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

(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 and six months ended June 30, 2024 and 2023, respectively.

The table below presents our adjusted results of operations on a constant currency basis for the three and six months ended June 30, 2024 (amounts in thousands, except per share data):

For the three months ended June 30, 2024 For the six months ended June 30, 2024

(Non-GAAP) Constant currency adjustment (1)

As Adjusted with Constant Currency

(Non-GAAP) As Adjusted

(Non-GAAP) Constant currency adjustment (1)

As Adjusted with Constant Currency

Revenues $ 312,266 $ 1,092 $ 313,358 $ 602,516 $ 3,166 $ 605,682

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__________________________________________________________________________________________

(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.

(1) Reflects an adjustment to translate foreign currency results for the three and six months ended June 30, 2024 at a constant exchange rate of 0.67 and 0.68 Australian Dollars to U.S.

Dollars, respectively, which were the average exchange rates for the same period in 2023.

Liquidity and Capital Resources

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.

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 March 31, 2024 and 2023.

At June 30, 2024, we had cash, cash equivalents, and marketable securities of $256.2 million compared to $208.7 million at December 31, 2023 and $215.1 million at June 30, 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 three months ended March 31, 2024 and 2023, we earned interest income of $3.1 million and $1.8 million, respectively.

During the six months ended June 30, 2024 and 2023, we earned interest income of $6.5 million and $4.6 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 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.

We were in compliance with all applicable covenants related to the Amended Credit Facility as of June 30, 2024.

As of June 30, 2024 and 2023, we had $61.3 million and $101.3 million, respectively, outstanding under our Revolving Credit Facility.

During the six months ended June 30, 2024 and 2023, we paid $2.4 million and $4.2 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.

Our net cash provided by operating activities for the six months ended June 30, 2024 increased to $101.9 million, compared to $40.7 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 net cash used in investing activities for the six months ended June 30, 2024 decreased to $6.2 million, compared to $23.8 million for the same period in 2023.

The decrease in net cash used in investing activities was primarily driven by a $17.1 million increase in cash proceeds from marketable securities and other investments and an $8.3 million decrease in purchases of marketable securities, partially offset by $5.9 million of cash proceeds related to the sale of property and equipment in 2023 and higher capital expenditures for the six months ended June 30, 2024.

Capital expenditures increased to $19.9 million for the six months ended June 30, 2024, compared to $17.8 million for the same period in 2023, primarily due to the timing of capital projects.

Our net cash used in financing activities for the six months ended June 30, 2024 decreased to $33.0 million, compared to $44.4 million for the same period in 2023.

The decrease in net cash used in financing activities was driven by a $10.0 million decrease in share repurchases and a $1.5 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 each of the first two quarters of 2024.

During the six months ended June 30, 2024, we paid a total of $29.5 million in cash dividends on our common stock, compared to $29.5 million for the same period in 2023.

During the six months ended June 30, 2024, we did not repurchase any shares of common stock in the open market under our repurchase program.

As of June 30, 2024, we had $240.0 million of share repurchase authorization remaining to use through December 31, 2024.

For the second quarter of 2024 and 2023, bad debt expense as a percentage of revenue was 4.3% and 4.4%, 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis