What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-07-31 · 107 added, 99 removed, 264 unchanged (44% of the section changed)

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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 U.S.

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.

Congress on for-profit education institutions, and including actions by governmental entities in Australia and New Zealand, 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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Segments Overview

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

As of September 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 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.

• In the third quarter of 2024, USHE enrollment increased 4.8% to 86,533 compared to 82,548 for the same period in 2023.

• Trailing 4-quarter student persistence within USHE was 87.0% in the second quarter of 2024 compared to 87.3% 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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87.7 % 87.4 % 87.4 % 87.3 % 87.4 % 87.0 % 86.9 % 87.0 %

• 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.

• Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 3.8% as of the end of the second 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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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 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.

• In the third quarter of 2024, employer affiliated enrollment as a percentage of USHE enrollment was 29.8% compared to 27.8% 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.

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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 second quarter of 2024, Australia/New Zealand enrollment increased 6.4% to 19,113 compared to 17,966 for the same period in 2023.

• In the third quarter of 2024, Australia/New Zealand enrollment increased 5.1% to 19,205 compared to 18,279 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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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 six months ended June 30, 2024 consisted of tuition revenue.

Approximately 96% of our revenues during the nine months ended September 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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Estimated redemption rates of eligible students vary based on their term of enrollment.

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.

As of September 30, 2024, we had deferred $43.8 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 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.

For the third quarter of 2024, our bad debt expense was 4.5% of revenue, compared to 5.2% for the same period in 2023.

A change in our allowance for credit losses of 1% of gross tuition receivable as of September 30, 2024 would have changed our income from operations by approximately $1.6 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 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.

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

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

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

There were no other impairment charges related to indefinite-lived intangible assets recorded during the three and nine months ended September 30, 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 six month periods ended June 30, 2024.

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

In the third quarter of 2024, we generated $306.0 million in revenue compared to $285.9 million for the same period in 2023.

Our income from operations was $36.3 million in the third quarter of 2024 compared to $25.6 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 in the third quarter of 2024 was $27.7 million compared to $18.5 million for the same period in 2023, and diluted earnings per share was $1.15 in the third quarter of 2024 compared to $0.77 for the same period in 2023.

For the nine months ended September 30, 2024, we generated $908.5 million in revenue compared to $830.2 million for the same period in 2023.

Our income from operations was $119.6 million for the nine months ended September 30, 2024 compared to $41.1 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 $87.3 million for the nine months ended September 30, 2024 compared to $30.7 million for the same period in 2023, and diluted earnings per share was $3.62 for the nine months ended September 30, 2024 compared to $1.28 for the same period in 2023.

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

Consolidated revenue increased to $306.0 million in the third quarter of 2024 compared to $285.9 million in the third quarter of 2023, primarily due to enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions.

In the USHE segment for the three months ended September 30, 2024, total enrollment increased 4.8% to 86,533 from 82,548 for the same period in 2023.

USHE segment revenue increased 2.9% to $207.7 million in the third quarter of 2024 compared to $201.8 million in the third 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 September 30, 2024, total enrollment increased 5.1% to 19,205 from 18,279 for the same period in 2023.

Australia/New Zealand segment revenue increased 13.7% to $71.9 million in the third quarter of 2024 compared to $63.3 million in the third quarter of 2023, primarily due to an increase in enrollment, higher revenue per student as a result of students taking higher course loads, and favorable foreign currency exchange impacts.

Education Technology Services segment revenue increased 26.2% to $26.3 million in the third quarter of 2024 compared to $20.8 million in the third 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 $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.

Consolidated instructional and support costs increased to $162.7 million in the third quarter of 2024 compared to $155.7 million in the third quarter of 2023, principally due to increases in personnel-related costs, stock-based compensation expense, and technology-related expenses, and unfavorable foreign currency exchange impacts, partially offset by lower student material costs, bad debt expense, and facility costs.

Consolidated instructional and support costs as a percentage of revenues decreased to 53.2% in the third quarter of 2024 from 54.5% in the third quarter of 2023.

General and administration expenses .

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.

Consolidated general and administration expenses increased to $106.2 million in the third quarter of 2024 compared to $97.6 million in the third quarter of 2023, principally due to higher personnel-related costs, increased investments in branding initiatives and partnerships with brand ambassadors, higher stock-based compensation expense, and unfavorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues increased to 34.7% in the third quarter of 2024 from 34.1% in the third quarter of 2023.

Amortization of intangible assets .

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.

There was no amortization of intangible assets in the third quarter of 2024 compared to $3.4 million in the third 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 second quarter of 2024 compared to $0.6 million in the second quarter of 2023.

There were no merger and integration costs in the third quarter of 2024 compared to $0.3 million in the third quarter of 2023.

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

Restructuring costs .

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.

Restructuring costs decreased to $0.8 million in the third quarter of 2024 compared to $3.3 million in the third quarter of 2023, primarily due to a $2.3 million decrease in severance and other personnel-related expenses from employee terminations and a $0.1 million decrease in asset impairment charges.

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.

Consolidated income from operations increased to $36.3 million in the third quarter of 2024 compared to $25.6 million in the third 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, partially offset by higher operating expenses.

USHE segment income from operations increased 9.9% to $11.4 million in the third quarter of 2024 compared to $10.4 million in the third quarter of 2023, primarily driven by higher revenue due to an increase in enrollment, decreased investments in branding initiatives, lower student material costs, and lower bad debt expense, partially offset by higher personnel-related costs, stock-based compensation expense, and technology-related expenses.

Australia/New Zealand segment income from operations increased 7.0% to $14.8 million in the third quarter of 2024 compared to $13.9 million in the third 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, partially offset by increased investments in branding initiatives, higher personnel-related costs, and higher stock-based compensation expense.

Education Technology Services segment income from operations increased 29.8% to $10.8 million in the third quarter of 2024 compared to $8.3 million in the third quarter of 2023, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment, partially offset by higher personnel-related costs.

Other income.

Other income increased to $2.3 million in the third quarter of 2024 compared to $0.8 million in the third quarter of 2023, primarily due to a $1.3 million decrease in interest expense and a $0.2 million increase in interest income.

We incurred $0.7 million of interest expense in the three months ended September 30, 2024 compared to $2.0 million in the three months ended September 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.

Income tax expense was $10.8 million in the third quarter of 2024, compared to $8.0 million in the third quarter of 2023.

Our effective tax rate for the third quarter of 2024 was 28.1% compared to 30.3% in the third quarter of 2023.

Net income increased to $27.7 million in the third quarter of 2024 compared to $18.5 million in the third quarter of 2023 due to the factors discussed above.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Consolidated revenue increased to $908.5 million in the nine months ended September 30, 2024 compared to $830.2 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 7.0% to $643.6 million in the nine months ended September 30, 2024 compared to $601.4 million in the same period in 2023, primarily due to an increase in enrollment.

Australia/New Zealand segment revenue increased 11.9% to $190.5 million in the nine months ended September 30, 2024 compared to $170.2 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 27.1% to $74.5 million in the nine months ended September 30, 2024 compared to $58.6 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.

Consolidated instructional and support costs increased to $483.6 million in the nine months ended September 30, 2024 compared to $470.2 million in the same period in 2023, principally due to increases in personnel-related costs, technology-related expenses, bad debt expense, and stock-based compensation expense, partially offset by lower student material costs and favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of revenues decreased to 53.2% in the nine months ended September 30, 2024 from 56.6% in the nine months ended September 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.

Consolidated general and administration expenses increased to $308.0 million in the nine months ended September 30, 2024 compared to $292.1 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 33.9% in the nine months ended September 30, 2024 from 35.2% in the nine months ended September 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.

There was no amortization of intangible assets in the nine months ended September 30, 2024 compared to $10.4 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.

There were no merger and integration costs in the nine months ended September 30, 2024 compared to $1.3 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.

Restructuring costs decreased to a $2.8 million net benefit in the nine months ended September 30, 2024 compared to $15.2 million of net costs in the same period in 2023, primarily due to a $9.1 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 $4.7 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 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.

Consolidated income from operations increased to $119.6 million in the nine months ended September 30, 2024 compared to $41.1 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 $59.3 million in the nine months ended September 30, 2024 compared to $26.7 million in the same period in 2023, primarily driven by higher revenue due to an increase in enrollment, decreased investments in branding initiatives, and lower student material costs, partially offset by higher personnel-related costs, technology-related expenses, and bad debt expense.

Australia/New Zealand segment income from operations increased 27.0% to $26.7 million in the nine months ended September 30, 2024 compared to $21.0 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, higher personnel-related costs, and higher stock-based compensation expense.

Education Technology Services segment income from operations increased 52.5% to

$30.9 million in the nine months ended September 30, 2024 compared to $20.3 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, partially offset by higher personnel-related costs.

Other income.

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.

Other income decreased to $3.9 million in the nine months ended September 30, 2024 compared to $4.4 million in the same period in 2023, primarily due to a $5.0 million decrease in net investment income from our limited partnership investments, partially offset by a $2.1 million increase in interest income and a $2.4 million decrease in interest expense.

We incurred $3.4 million of interest expense in the nine months ended September 30, 2024 compared to $5.8 million in the same period in 2023.

Provision for income taxes.

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.

Income tax expense was $36.2 million in the nine months ended September 30, 2024 compared to $14.8 million in the same period in 2023.

Income tax expense for the nine months ended September 30, 2024 and 2023 include shortfall tax impacts of approximately $1.2 million and $1.4 million, respectively, related to share-based payment arrangements.

Net income increased to $87.3 million in the nine months ended September 30, 2024 compared to $30.7 million in the same period in 2023 due to the factors discussed above.

Non-GAAP Financial Measures

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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 six months ended June 30, 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 nine months ended September 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 $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.

Adjusted income from operations was $37.1 million in the third quarter of 2024 compared to $32.6 million for the same period in 2023.

Adjusted net income was $27.9 million in the third quarter of 2024 compared to $23.3 million for the same period in 2023, and adjusted diluted earnings per share was $1.16 in the third quarter of 2024 compared to $0.97 for the same period in 2023.

Adjusted income from operations was $116.8 million for the nine months ended September 30, 2024 compared to $68.0 million for the same period in 2023.

Adjusted net income was $86.9 million for the nine months ended September 30, 2024 compared to $48.7 million for the same period in 2023, and adjusted diluted earnings per share was $3.60 for the nine months ended September 30, 2024 compared to $2.03 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 June 30, 2024

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

Non-GAAP Adjustments

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Weighted average diluted shares outstanding 24,173 24,173

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

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

Non-GAAP Adjustments

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Weighted average diluted shares outstanding 23,870 23,870

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

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2024

Non-GAAP Adjustments

12 unchanged sentences

Weighted average diluted shares outstanding 24,137 24,137

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

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

Non-GAAP Adjustments

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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 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

(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 nine months ended September 30, 2024 and 2023, respectively.

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

For the three months ended September 30, 2024 For the nine months ended September 30, 2024

(Non-GAAP) Constant currency adjustment (1)

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__________________________________________________________________________________________

(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.

(1) Reflects an adjustment to translate foreign currency results for the three and nine months ended September 30, 2024 at a constant exchange rate of 0.65 and 0.67 Australian Dollars to U.S.

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

Liquidity and Capital Resources

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.

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 June 30, 2024 and 2023.

At September 30, 2024, we had cash, cash equivalents, and marketable securities of $222.1 million compared to $208.7 million at December 31, 2023 and $198.6 million at September 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 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.

During the nine months ended September 30, 2024 and 2023, we earned interest income of $9.7 million and $7.6 million, respectively.

We are party to a credit facility (the “Amended Credit Facility”), which, prior to the Amendment (as defined below) in October 2024, provided for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $350 million.

The Amended Credit Facility provides us with an option, subject to obtaining additional loan commitments and satisfaction of certain conditions, to increase the commitments under the Revolving Credit Facility or establish one or more incremental term loans (each, an “Incremental Facility”) in an amount up to the sum of (x) the greater of (A) $300 million and (B) 100% of the Company’s consolidated EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation) calculated on a trailing four-quarter basis and on a pro forma basis, and (y) if such Incremental Facility is incurred in connection with a permitted acquisition or other permitted investment, any amounts so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00.

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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 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.

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

In July 2024, we repaid the remaining $61.3 million outstanding balance under the Revolving Credit Facility.

We had no borrowings outstanding under the Revolving Credit Facility as of September 30, 2024 and $61.2 million outstanding under our Revolving Credit Facility as of September 30, 2023.

During the nine months ended September 30, 2024 and 2023, we paid $3.1 million and $5.4 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.

On October 18, 2024, we entered into a Sixth Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement and Amendment to Other Loan Documents (the “Amendment”) with certain of our subsidiaries party thereto as subsidiary guarantors, Truist Bank, as administrative agent, and the other lenders party thereto.

The Amendment, among other things, (i) extends the maturity date of the Revolving Credit Facility from November 3, 2025 to October 18, 2029 and (ii) reduces the total commitments under the Revolving Credit Facility from $350 million to $250 million.

Except as amended by the Amendment, the remaining terms of the Amended Credit Facility remain in full force and effect.

The foregoing descriptions of the Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of the Amendment which is filed as Exhibit 10.1 to this Quarterly Report and incorporated by reference herein.

Our net cash provided by operating activities for the nine months ended September 30, 2024 increased to $153.4 million, compared to $87.2 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 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 net cash used in investing activities for the nine months ended September 30, 2024 decreased to $15.2 million, compared to $30.5 million for the same period in 2023.

The decrease in net cash used in investing activities was primarily driven by a $20.9 million increase in cash proceeds from marketable securities and other investments and a $2.2 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 nine months ended September 30, 2024.

Capital expenditures increased to $29.3 million for the nine months ended September 30, 2024, compared to $27.3 million for the same period in 2023, primarily due to the timing of capital projects.

Our net cash used in financing activities for the nine months ended September 30, 2024 increased to $114.1 million, compared to $99.1 million for the same period in 2023.

The increase in net cash used in financing activities was primarily driven by a $61.3 million long-term debt payment during the nine months ended September 30, 2024 compared to a $40.0 million long-term debt payment for the same period in 2023, partially offset by a $5.0 million decrease in share repurchases and a $1.4 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 three quarters of 2024.

During the nine months ended September 30, 2024, we paid a total of $44.3 million in cash dividends on our common stock, compared to $44.1 million for the same period in 2023.

During the nine months ended September 30, 2024, we paid $5.0 million to repurchase shares of common stock in the open market under our repurchase program, compared to $10.0 million for the same period in 2023.

As of September 30, 2024, we had $235.0 million of share repurchase authorization remaining to use through December 31, 2024.

For the third quarter of 2024 and 2023, bad debt expense as a percentage of revenue was 4.5% and 5.2%, 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.

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