Strategic Education, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Strategic Education, Inc. Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) 72 Consolidated Balance Sheets as of December 31, 202 3 and 202 4 75 Consolidated Statements of Income for each of the three years in the period ended December 31, 202 4 76 Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 202 4 76 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 202 4 77 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 202 4 78 Notes to Consolidated Financial Statements 79 All other schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 71 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Strategic Education, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Strategic Education, Inc. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 72 Table of Contents Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill Impairment Assessment – Australia/New Zealand (ANZ) Reporting Unit As described in Note 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,206.9 million as of December 31, 2024, of which $474.8 million relates to the ANZ reporting unit. The Company assesses goodwill at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount. In 2024, the Company elected to bypass a qualitative annual impairment assessment for goodwill assigned to the ANZ reporting unit and proceeded directly to a quantitative impairment assessment using the first day of the fourth quarter of 2024 as the assessment date. Management used an income-based approach which consisted of a discounted cash flow model to determine the fair value of the ANZ reporting unit. The assumptions and estimates used in determining the estimated fair value of the ANZ reporting unit include, but are not limited to, the amounts and timing of expected future cash flows, revenue growth, operating margins, the discount rate, and the terminal growth rate. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the ANZ reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the ANZ reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth, operating margins, the discount rate, and the terminal growth rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the ANZ reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the ANZ reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model used by management; (iii) testing the completeness and accuracy of the underlying data used in the discounted cash flow model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth, operating margins, the discount rate, and the terminal growth rate. Evaluating management’s assumptions related to revenue growth and operating margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the ANZ reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model and (ii) the reasonableness of the discount rate and terminal growth rate assumptions. Strayer University Graduation Fund Liability – Undergraduate Degree Programs As described in Note 3 to the consolidated financial statements, the Company’s consolidated Strayer University Graduation Fund liability was $37.1 million as of December 31, 2024, of which $35.3 million related to students enrolled in undergraduate degree programs. Strayer University offers the Graduation Fund, a program which allows undergraduate students to earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program. The Company defers the value of the related performance obligation associated with the credits estimated to be redeemed in the future. Management’s estimate of the benefits that will be redeemed in the future is based on the Company’s historical experience of student persistence toward completion of a course of study within this program and similar programs. The principal considerations for our determination that performing procedures relating to the Strayer University graduation fund liability for undergraduate degree programs is a critical audit matter are a high degree of auditor effort in performing procedures and evaluating audit evidence related to the liability. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the determination of the Strayer University graduation fund liability for undergraduate degree programs. These procedures also included, among others (i) evaluating the appropriateness of the methodology used by management to determine the Strayer 73 Table of Contents University graduation fund liability for undergraduate degree programs; (ii) recalculating the Strayer University graduation fund liability for undergraduate degree programs; and (iii) testing the completeness and accuracy of the underlying data used in determining the Strayer University graduation fund liability for undergraduate degree programs by testing, on a sample basis, certain underlying data related to current and historical students. /s/ PricewaterhouseCoopers LLP Washington, District of Columbia February 27, 2025 We have served as the Company’s auditor since 1993. 74 Table of Contents STRATEGIC EDUCATION, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2023 December 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 168,481 $ 137,074 Marketable securities 39,728 46,949 Tuition receivable, net 76,102 76,127 Other current assets 44,758 44,793 Total current assets 329,069 304,943 Property and equipment, net 118,529 111,247 Right-of-use lease assets 119,202 103,673 Marketable securities, non-current 483 14,981 Intangible assets, net 251,623 245,098 Goodwill 1,251,888 1,206,883 Other assets 54,419 62,910 Total assets $ 2,125,213 $ 2,049,735 LIABILITIES & STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 90,888 $ 101,749 Income taxes payable 2,200 2,926 Contract liabilities 92,341 89,563 Lease liabilities 24,190 22,222 Total current liabilities 209,619 216,460 Long-term debt 61,400 — Deferred income tax liabilities 28,338 27,586 Lease liabilities, non-current 127,735 103,004 Other long-term liabilities 45,603 40,186 Total liabilities 472,695 387,236 Commitments and contingencies Stockholders’ equity: Common stock, par value $ 0.01 ; 32,000,000 shares authorized; 24,406,816 and 24,502,385 shares issued and outstanding at December 31, 2023 and 2024, respectively 244 245 Additional paid-in capital 1,517,650 1,532,414 Accumulated other comprehensive loss ( 34,247 ) ( 88,565 ) Retained earnings 168,871 218,405 Total stockholders’ equity 1,652,518 1,662,499 Total liabilities and stockholders’ equity $ 2,125,213 $ 2,049,735 The accompanying notes are an integral part of these consolidated financial statements. 75 Table of Contents STRATEGIC EDUCATION, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) For the Year Ended December 31, 2022 2023 2024 Revenues $ 1,065,480 $ 1,132,924 $ 1,219,930 Costs and expenses: Instructional and support costs 597,321 623,903 650,496 General and administration 379,817 384,443 412,158 Amortization of intangible assets 14,350 11,457 — Merger and integration costs 1,117 1,544 — Restructuring costs 2,115 16,256 1,648 Total costs and expenses 994,720 1,037,603 1,064,302 Income from operations 70,760 95,321 155,628 Other income (expense) ( 1,191 ) 5,405 5,804 Income before income taxes 69,569 100,726 161,432 Provision for income taxes 22,899 30,935 48,748 Net income $ 46,670 $ 69,791 $ 112,684 Earnings per share: Basic $ 1.97 $ 2.98 $ 4.81 Diluted $ 1.94 $ 2.91 $ 4.67 Weighted average shares outstanding: Basic 23,679 23,403 23,406 Diluted 23,998 23,956 24,140 STRATEGIC EDUCATION, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) For the Year Ended December 31, 2022 2023 2024 Net income $ 46,670 $ 69,791 $ 112,684 Other comprehensive income (loss): Foreign currency translation adjustments ( 43,425 ) 533 ( 54,564 ) Unrealized gains (losses) on marketable securities, net of tax ( 846 ) 288 246 Comprehensive income $ 2,399 $ 70,612 $ 58,366 The accompanying notes are an integral part of these consolidated financial statements. 76 Table of Contents STRATEGIC EDUCATION, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shares Par Value Balance at December 31, 2021 24,592,098 $ 246 $ 1,529,969 $ 174,572 $ 9,203 $ 1,713,990 Stock-based compensation — — 21,763 29 — 21,792 Exercise of stock options 377 — 14 — — 14 Issuance of restricted stock, net 422,520 4 ( 2,917 ) — — ( 2,913 ) Repurchase of common stock ( 612,104 ) ( 6 ) ( 37,905 ) ( 2,205 ) — ( 40,116 ) Common stock dividends ($ 2.40 per share) — — — ( 59,376 ) — ( 59,376 ) Foreign currency translation adjustment — — — — ( 43,425 ) ( 43,425 ) Unrealized losses on marketable securities, net of tax — — — — ( 846 ) ( 846 ) Net income — — — 46,670 — 46,670 Balance at December 31, 2022 24,402,891 $ 244 $ 1,510,924 $ 159,690 $ ( 35,068 ) $ 1,635,790 Stock-based compensation — — 19,557 215 — 19,772 Exercise of stock options 4,138 — 223 — — 223 Issuance of restricted stock, net 128,860 1 ( 5,048 ) — — ( 5,047 ) Repurchase of common stock ( 129,073 ) ( 1 ) ( 8,006 ) ( 2,006 ) — ( 10,013 ) Common stock dividends ($ 2.40 per share) — — — ( 58,819 ) — ( 58,819 ) Foreign currency translation adjustment — — — — 533 533 Unrealized gains on marketable securities, net of tax — — — — 288 288 Net income — — — 69,791 — 69,791 Balance at December 31, 2023 24,406,816 $ 244 $ 1,517,650 $ 168,871 $ ( 34,247 ) $ 1,652,518 Stock-based compensation — — 25,571 — — 25,571 Exercise of stock options 8,056 — 512 — — 512 Issuance of restricted stock, net 207,439 2 ( 3,833 ) — — ( 3,831 ) Repurchase of common stock ( 119,926 ) ( 1 ) ( 7,486 ) ( 4,051 ) — ( 11,538 ) Common stock dividends ($ 2.40 per share) — — — ( 59,099 ) — ( 59,099 ) Foreign currency translation adjustment — — — — ( 54,564 ) ( 54,564 ) Unrealized gains on marketable securities, net of tax — — — — 246 246 Net income — — — 112,684 — 112,684 Balance at December 31, 2024 24,502,385 $ 245 $ 1,532,414 $ 218,405 $ ( 88,565 ) $ 1,662,499 The accompanying notes are an integral part of these consolidated financial statements. 77 Table of Contents STRATEGIC EDUCATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Year Ended December 31, 2022 2023 2024 Cash flows from operating activities: Net income $ 46,670 $ 69,791 $ 112,684 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of property and equipment ( 2,886 ) ( 2,136 ) — Gain on early termination of operating leases, net ( 1,187 ) ( 141 ) ( 6,166 ) Amortization of deferred financing costs 552 557 674 Amortization of investment discount/premium 32 ( 65 ) ( 290 ) Depreciation and amortization 63,124 57,313 44,378 Deferred income taxes ( 8,667 ) ( 6,322 ) ( 150 ) Stock-based compensation 21,792 19,772 25,571 Impairment of right-of-use lease assets 1,185 5,135 677 Changes in assets and liabilities: Tuition receivable, net ( 12,558 ) ( 12,874 ) 221 Other assets 3,584 ( 7,631 ) ( 11,622 ) Accounts payable and accrued expenses ( 4,339 ) 552 11,577 Income taxes payable and income taxes receivable 7,580 ( 4,688 ) 1,067 Contract liabilities 18,960 4,495 ( 2,948 ) Other liabilities ( 7,790 ) ( 6,639 ) ( 6,342 ) Net cash provided by operating activities 126,052 117,119 169,331 Cash flows from investing activities: Purchases of property and equipment ( 43,170 ) ( 36,943 ) ( 40,580 ) Purchases of marketable securities — ( 26,905 ) ( 54,117 ) Proceeds from marketable securities 6,420 9,800 31,025 Proceeds from sale of property and equipment 6,525 5,890 — Proceeds from other investments — 457 20 Other investments ( 335 ) ( 314 ) ( 531 ) Cash paid for acquisition, net of cash acquired ( 800 ) ( 530 ) ( 177 ) Net cash used in investing activities ( 31,360 ) ( 48,545 ) ( 64,360 ) Cash flows from financing activities: Common dividends paid ( 59,240 ) ( 58,780 ) ( 58,971 ) Payments on long-term debt ( 40,000 ) ( 40,000 ) ( 61,275 ) Net payments for stock awards ( 3,004 ) ( 4,828 ) ( 3,318 ) Payments of deferred financing costs — — ( 1,698 ) Repurchase of common stock ( 40,116 ) ( 9,999 ) ( 11,510 ) Net cash used in financing activities ( 142,360 ) ( 113,607 ) ( 136,772 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 4,090 ) ( 496 ) ( 3,468 ) Net decrease in cash, cash equivalents, and restricted cash ( 51,758 ) ( 45,529 ) ( 35,269 ) Cash, cash equivalents, and restricted cash — beginning of period 279,212 227,454 181,925 Cash, cash equivalents, and restricted cash — end of period $ 227,454 $ 181,925 $ 146,656 Non-cash transactions: Non-cash additions to property and equipment $ 1,718 $ 3,066 $ 2,488 The accompanying notes are an integral part of these consolidated financial statements. 78 Table of Contents 1. Nature of Operations Strategic Education, Inc. (“Strategic Education” or the “Company”), a Maryland corporation, is an education services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets. Strategic Education’s portfolio of companies is dedicated to closing the skills gap by placing adults on the most direct path between learning and employment. The accompanying consolidated financial statements and footnotes include the results of the Company’s three reportable segments: (1) U.S. Higher Education (“USHE”), which is primarily comprised of Capella University and Strayer University and is focused on providing flexible and affordable certificate and degree programs to working adults; (2) Education Technology Services, which primarily develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs; and (3) Australia/New Zealand, which through Torrens University and associated assets, provides certificate and degree programs in Australia and New Zealand. The Company’s reportable segments are discussed further in Note 20. 2. Significant Accounting Policies Financial Statement Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements. Below is a description of the nature of the costs included in the Company’s operating expense categories. Instructional and support costs generally contain items of expense directly attributable to activities that support students. This expense category includes salaries and benefits of faculty and academic administrators, as well as admissions and administrative personnel who support and serve student interests. Instructional and support costs also include course development costs and costs associated with delivering course content, including educational supplies, facilities, and all other physical plant and occupancy costs, with the exception of costs attributable to the corporate offices. Bad debt expense incurred on delinquent student account balances is also included in instructional and support costs. General and administration expenses include salaries and benefits of management and employees engaged in finance, human resources, legal, regulatory compliance, marketing and other corporate functions. Also included are the costs of advertising and production of marketing materials. General and administration expense also includes the facilities occupancy and other related costs attributable to such functions. Amortization of intangible assets consists of amortization and depreciation expense related to intangible assets and software assets acquired through the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand (“ANZ”). Merger and integration costs include integration expenses associated with the Company’s merger with Capella Education Company and the Company’s acquisition of ANZ. Restructuring costs include severance and other personnel-related expenses from voluntary and involuntary employee terminations, 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. See Note 4 for additional information. Foreign Currency Translation and Transaction Gains and Losses The United States Dollar (“USD”) is the functional currency of the Company and its subsidiaries operating in the United States. The financial statements of its foreign subsidiaries are maintained in their functional currencies. The functional currency of each of the foreign subsidiaries is the currency of the economic environment in which the subsidiary primarily does business. Financial statements of foreign subsidiaries are translated into USD using the exchange rates applicable to the dates of the financial statements. Assets and liabilities are translated into USD using the period-end spot foreign exchange rates. Income and expenses are translated at the weighted-average exchange rates in effect during the period. Equity accounts are translated at historical exchange rates. The effects of these translation adjustments are reported as a component of accumulated other comprehensive income (loss) within stockholders’ equity. For any transaction that is in a currency different from the entity’s functional currency, the Company records a net gain or loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement 79 Table of Contents date (or rate at period end, if unsettled) in the consolidated statements of income. Cash and Cash Equivalents Cash and cash equivalents consist of cash maintained in mostly FDIC-insured bank accounts and cash invested in money market mutual funds, bank overnight deposits, and U.S. treasury bills. The Company places its cash and temporary cash investments with various financial institutions. The Company considers all highly liquid instruments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. Concentration of Credit Risk Most cash and cash equivalent balances are in excess of the FDIC insurance limit. The Company has not experienced any losses on its cash and cash equivalents. Restricted Cash In the United States, a significant portion of the Company’s revenues are funded by various federal and state government programs. The Company generally does not receive funds from these programs prior to the start of the corresponding academic term. The Company may be required to return certain funds for students who withdraw from a U.S. higher education institution during the academic term. The Company had approximately $ 1.8 million of these unpaid obligations as of December 31, 2023 and 2024. In Australia and New Zealand, advance tuition payments from international students are required to be restricted until a student commences his or her course. In addition, a portion of tuition prepayments from students enrolled in a vocational education and training program are held in trust by a third party law firm to adhere to tuition protection requirements. As of December 31, 2023 and 2024, the Company had approximately $ 11.1 million and $ 7.3 million, respectively, of restricted cash related to these requirements in Australia and New Zealand. These balances are recorded as restricted cash and included in other current assets in the consolidated balance sheets. As part of conducting operations in Pennsylvania, the Company is required to maintain a “minimum protective endowment” of at least $ 0.5 million in an interest-bearing account as long as the Company operates its campuses in the state. The Company holds these funds in an interest-bearing account, which is included in other assets. The following table illustrates the reconciliation of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows as of December 31, 2023 and 2024 (in thousands): As of December 31, 2023 2024 Cash and cash equivalents $ 168,481 $ 137,074 Restricted cash included in other current assets 12,944 9,082 Restricted cash included in other assets 500 500 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 181,925 $ 146,656 Marketable Securities Investments in marketable securities are carried at either amortized cost or fair value. Investments in marketable securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in marketable securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Management determines the appropriate designation of marketable securities at the time of purchase and re-evaluates such designation as of each balance sheet date. All of the Company’s marketable securities are designated as either held-to-maturity or available-for-sale. The Company’s held-to-maturity marketable securities consist of term deposits, U.S. treasury securities, and corporate debt securities, which are carried at amortized cost. The Company’s available-for-sale marketable securities consist of tax-exempt municipal securities and corporate debt securities, which are carried at fair value as determined by quoted market prices or other inputs either directly or indirectly observable in the marketplace for identical or similar assets, with unrealized gains and losses, net of tax, recognized as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Management reviews the fair value of the portfolio at least quarterly, and evaluates individual securities with fair value below amortized cost at the balance sheet date for impairment. In order to determine whether there is an impairment, management evaluates whether the Company intends to sell the impaired security and whether it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis. 80 Table of Contents If management intends to sell an impaired debt security, or it is more likely than not the Company will be required to sell the security prior to recovering its amortized cost basis, an impairment is deemed to have occurred. The amount of an impairment related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings. The amount of an impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities as a component of accumulated other comprehensive income (loss) within stockholders’ equity. The cost of securities sold is based on the specific identification method. Amortization of premiums, accretion of discounts, interest, dividend income and realized gains and losses are included in other income (loss). The contractual maturity date of available-for-sale securities is based on the days remaining to the effective maturity. The Company classifies marketable securities as either current or non-current assets based on management’s intent with regard to usage of those funds, which is dependent upon the security’s maturity date and liquidity considerations based on current market conditions. If management intends to hold the securities for longer than one year as of the balance sheet date, they are classified as non-current. Tuition Receivable and Allowance for Credit Losses The Company records tuition receivable and contract liabilities for its students upon the start of the academic term or program. Tuition receivables are not collateralized; however, credit risk is minimized as a result of the diverse nature of the Company’s student bases and through the participation of the majority of the students in federally funded financial aid programs. An allowance for credit losses is established based upon historical collection rates by age of receivable and adjusted for reasonable expectations of future collection performance, net of estimated recoveries. These collection rates incorporate historical performance based on a student’s current enrollment status, likelihood of future enrollment, degree mix trends and changes in the overall economic environment. In the event that current collection trends differ from historical trends, an adjustment is made to the allowance for credit losses and bad debt expense. The Company’s current tuition receivable and allowance for credit losses were as follows as of December 31, 2023 and 2024 (in thousands): December 31, 2023 December 31, 2024 Tuition receivable $ 123,357 $ 127,012 Allowance for credit losses ( 47,255 ) ( 50,885 ) Tuition receivable, net $ 76,102 $ 76,127 An additional $ 2.5 million and $ 7.0 million of tuition receivable, net, are included in other assets as of December 31, 2023 and 2024, respectively, because these amounts are expected to be collected after 12 months. The following table illustrates changes in the Company’s current and non-current allowance for credit losses for each of the three years ended December 31, 2024 (in thousands): 2022 2023 2024 Allowance for credit losses, beginning of period $ 48,783 $ 47,586 $ 47,605 Additions charged to expense 41,226 48,444 53,491 Write-offs, net of recoveries ( 42,423 ) ( 48,425 ) ( 54,911 ) Allowance for credit losses, end of period $ 47,586 $ 47,605 $ 46,185 Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. In accordance with Accounting Standards Codification (“ASC”) 360 Property, Plant, and Equipment , the carrying values of the Company’s assets are re-evaluated when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on expected undiscounted future cash flows, then a loss is recognized using a fair value-based model. During the years ended December 31, 2022, 2023, and 2024, the Company recognized $ 2.5 million, $ 0.4 million and $ 0.2 million, respectively, of impairment charges related to property and equipment, which is included in Restructuring costs on the consolidated statements of income. Depreciation and amortization of property and equipment is calculated using the straight-line method over the estimated useful lives ranging from three years to 40 years. Depreciation and amortization expense of property and equipment was $ 52.0 million, $ 48.4 million and $ 44.4 million for the years ended December 31, 2022, 2023, and 2024, respectively. Included in the 2022 and 2023 depreciation and amortization expense amount is $ 3.2 million and $ 2.6 million of depreciation expense, 81 Table of Contents respectively, related to content acquired in the ANZ acquisition, which is included in Amortization of intangible assets on the consolidated statements of income. Repairs and maintenance costs are expensed as incurred. Over the last several years, the Company has been evaluating its owned and leased real estate portfolio to identify underutilized facilities to either downsize or exit. The Company sold one owned U.S. Higher Education campus in both 2022 and 2023. The Company sold the long-lived assets, consisting of land, buildings, and building improvements, related to these owned campuses and recognized a $ 2.9 million and $ 2.1 million gain on sale during the years ended December 31, 2022 and 2023, respectively, which is included in Restructuring costs on the consolidated statements of income. Construction in progress includes costs of computer software developed for internal use, which is accounted for in accordance with ASC 350-40, Internal-Use Software . Computer software development costs that are incurred in the preliminary project stage are expensed as incurred. During the development stage, direct consulting costs, payroll, and payroll-related costs for employees that are directly associated with the project are capitalized and amortized over the estimated useful life of the software once placed into operation. Purchases of property and equipment and changes in accounts payable for each of the three years in the period ended December 31, 2024 in the consolidated statements of cash flows have been adjusted to exclude non-cash purchases of property and equipment transactions during that period. Deferred Costs The Company defers certain commissions earned by third party international agents that are considered incremental and recoverable costs of obtaining a contract with customers in the Australia/New Zealand segment. These costs are amortized over the period of benefit which ranges from one to two years . The Company also defers implementation costs incurred in cloud computing arrangements and amortizes these costs over the term of the arrangement. Leases The Company determines if an arrangement is a lease at inception. The Company analyzes each lease agreement to determine whether it should be classified as a finance lease or operating lease. Leases with an initial term longer than 12 months are included in right-of-use (“ROU”) lease assets, lease liabilities, and lease liabilities, non-current on the Company’s consolidated balance sheets. The Company combines lease and non-lease components for all leases. ROU lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU lease assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the implicit interest rate for most of the Company’s leases cannot be readily determined, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term for operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company subleases certain building space to third parties and sublease income is recognized on a straight-line basis over the lease term. See Note 7 for additional information. Fair Value ASC 820-10, Fair Value Measurement , establishes a framework for measuring fair value, establishes a fair value hierarchy based upon the observability of inputs used to measure fair value, and expands disclosures about fair value measurements. Assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. Under ASC 820-10, fair value of an investment is the price that would be received to sell an asset or to transfer a liability to an entity in an orderly transaction between market participants at the measurement date. The hierarchy gives the highest priority to assets and liabilities with readily available quoted prices in an active market and lowest priority to unobservable inputs, which require a higher degree of judgment when measuring fair value, as follows: • Level 1 assets or liabilities use quoted prices in active markets for identical assets or liabilities as of the measurement date; • Level 2 assets or liabilities use observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities; and • Level 3 assets or liabilities use unobservable inputs that are supported by little or no market activity. The Company’s assets and liabilities that are subject to fair value measurement are categorized in one of the three levels above. Fair values are based on the inputs available at the measurement dates, and may rely on certain assumptions that may 82 Table of Contents affect the valuation of fair value for certain assets or liabilities. 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 in a business combination. Indefinite-lived intangible assets, which include trade names, are recorded at fair value on their acquisition date. An indefinite life was assigned to the trade names because they have the continued ability to generate cash flows indefinitely. Goodwill and the indefinite-lived intangible assets are assessed at least annually for impairment on the first day of the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible asset below its carrying amount. The Company identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available, and management regularly reviews the operating results of those components. The Company’s goodwill impairment test includes an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount based on the qualitative assessment, or that a qualitative assessment should not be performed for a reporting unit, the Company proceeds with performing a quantitative goodwill impairment test. In performing the quantitative goodwill impairment test, the Company compares the fair value of the reporting unit to the carrying value of its net assets. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired and no further testing is required. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recognized to the extent the fair value of the reporting unit is less than the carrying value of the reporting unit’s net assets. 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. Finite-lived intangible assets consist of student relationships. The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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. Authorized Stock The Company has authorized 32,000,000 shares of common stock, par value $ 0.01 , of which 24,406,816 and 24,502,385 shares were issued and outstanding as of December 31, 2023 and 2024, respectively. The Company also has authorized 8,000,000 shares of preferred stock, none of which is issued or outstanding. Before any preferred stock may be issued, the Board of Directors must establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and the terms or conditions of the redemption of the preferred stock. The Board of Directors declared a quarterly cash dividend of $ 0.60 per common share for each quarter of 2024. The Company paid these quarterly cash dividends in March, June, September and December of 2024. Advertising Costs The Company expenses advertising costs in the quarter incurred. Advertising costs were $ 181.3 million, $ 185.0 million and $ 186.3 million for the years ended December 31, 2022, 2023, and 2024, respectively, and are included within General and administration expense on the consolidated statements of income. Stock-Based Compensation In accordance with ASC 718, Stock Compensation , the Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, restricted stock, restricted stock units, performance stock units, and employee stock purchases related to the Company’s Employee Stock Purchase Plan, based on estimated fair values. The fair value of restricted stock awards granted is measured using the fair value of the Company’s common stock on the date of grant or the most recent modification date, whichever is later. The Company records compensation expense for all share-based payment awards ratably over the vesting period. For awards with graded vesting, the Company measures fair value and records compensation expense separately for each vesting tranche. Stock-based compensation expense recognized in the consolidated statements of income for each of the three years in the period ended December 31, 2024 is based on awards ultimately expected to vest and, therefore, has been adjusted for estimated forfeitures. 83 Table of Contents The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate used is based on historical experience. The Company also assesses the likelihood that performance criteria associated with performance-based awards will be met. If it is determined that it is more likely than not that performance criteria will not be achieved, the Company revises its estimate of the number of shares it believes will ultimately vest. Refer to Note 15 for additional information. Net Income Per Share Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options, restricted stock, and restricted stock units (“stock awards”). The dilutive effect of stock awards was determined using the treasury stock method. Under the treasury stock method, the following are assumed to be used to repurchase shares of the Company’s common stock: (1) the proceeds received from the exercise of stock options, and (2) the amount of compensation cost associated with the stock awards for future service not yet recognized by the Company. Stock awards are excluded from the computation of diluted earnings per share when their effect would be anti-dilutive. Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for each of the three years ended December 31, 2024 (in thousands): 2022 2023 2024 Weighted average shares outstanding used to compute basic earnings per share 23,679 23,403 23,406 Incremental shares issuable upon the assumed exercise of stock options 3 4 5 Unvested restricted stock and restricted stock units 316 549 729 Shares used to compute diluted earnings per share 23,998 23,956 24,140 Anti-dilutive shares excluded from the diluted earnings per share calculation 114 174 — Comprehensive Income Comprehensive income includes net income and all changes in the Company’s equity during a period from non-owner sources, which for the Company consists of unrealized gains and losses on available-for-sale marketable securities, net of tax, and foreign currency translation adjustments. As of December 31, 2022, 2023, and 2024, the balance of accumulated other comprehensive loss was $ 35.1 million, net of tax of $ 0.1 million, $ 34.2 million, net of tax of $ 0.1 million, and $ 88.6 million, net of tax of $ 0.1 million, respectively. There were no reclassifications out of accumulated other comprehensive income (loss) to net income for the years ended December 31, 2022, 2023, and 2024. Income Taxes The Company provides for deferred income taxes based on temporary differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. ASC 740, Income Taxes , requires the company to determine whether uncertain tax positions should be recognized within the Company’s financial statements. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. Uncertain tax positions are recognized when a tax position, based solely on its technical merits, is determined more likely than not to be sustained upon examination. Upon determination, uncertain tax positions are measured to determine the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. A tax position is derecognized if it no longer meets the more likely than not threshold of being sustained. The tax years since 2021 remain open for federal tax examination, the tax years since 2020 remain open to examination by certain states, and the tax years since 2019 remain open to examination by foreign taxing jurisdictions in which the Company is subject to taxation. In December 2021, the Organization for Economic Cooperation and Development (“OECD”) introduced Pillar Two Model Rules to establish a global minimum tax rate of 15% on a per-country basis. Countries where the Company operates, such as 84 Table of Contents Australia and New Zealand, have enacted domestic legislation to implement these global corporate minimum tax rules for fiscal years beginning after January 1, 2024, and January 1, 2025, respectively. The Company has evaluated the impact of the OECD’s Pillar Two framework on its financial statements and determined that Pillar Two did not have a material impact on its 2024 financial statements. We remain compliant with all relevant regulations and will continue to monitor any future developments that may affect our financial reporting. Other Investments The Company holds investments in certain limited partnerships that invest in innovative companies in the health care and education-related technology fields. The Company accounts for the investments in limited partnerships under the equity method. The Company’s pro-rata share in the net income (loss) of the limited partnerships is included in Other income on the consolidated statements of income. The Company also holds investments accounted for at cost less impairment as these investments do not have readily determinable fair value. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period reported. The most significant management estimates include allowances for credit losses, useful lives of property and equipment and intangible assets, incremental borrowing rates, potential sublease income and vacancy periods, accrued expenses, forfeiture rates and the likelihood of achieving performance criteria for stock-based awards, value of free courses earned by students that will be redeemed in the future, valuation of goodwill and intangible assets, and the provision for income taxes. Actual results could differ from those estimates. Recently Adopted Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07 , Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss. The standard also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. Additionally, ASU 2023-07 requires all segment disclosures to be provided on an annual and interim basis. The Company adopted ASU 2023-07 for its annual reporting period ended on December 31, 2024 and applied the amendments retrospectively. See Note 20 for the required segment disclosures. Recently Issued Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires disclosure of specific categories in the effective tax rate reconciliation. Further, the standard requires certain disclosures of state versus federal income tax expense and taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statement disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03 requires the disclosure of amounts related to purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion within each income statement expense line item that contains any of these expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Early adoption is permitted and the amendments can be applied prospectively or retrospectively. The Company is currently evaluating the impact that ASU 2024-03 will have on its consolidated financial statement disclosures. Other ASUs recently issued by the FASB but not yet effective are not expected to have a material effect on the Company’s consolidated financial statements. 3. Revenue Recognition The Company’s revenues primarily consist of tuition revenue arising from educational services provided in the form of classroom instruction and online courses. Tuition revenue is deferred and recognized ratably over the period of instruction, which varies depending on the course format and chosen program of study. Capella University’s GuidedPath classes and 85 Table of Contents Strayer University’s educational programs typically are offered on a quarterly basis, and such periods coincide with the Company’s quarterly financial reporting periods, while Capella University’s FlexPath courses are delivered over a twelve-week subscription period. Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the calendar year. The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the years ended December 31, 2022, 2023, and 2024 (in thousands): 2022 2023 2024 U.S. Higher Education Segment Tuition, net of discounts, grants and scholarships $ 738,050 $ 784,066 $ 820,913 Other (1) 32,929 34,887 36,977 Total U.S. Higher Education Segment 770,979 818,953 857,890 Australia/New Zealand Segment Tuition, net of discounts, grants and scholarships 224,400 226,393 249,336 Other (1) 6,347 7,125 7,783 Total Australia/New Zealand Segment 230,747 233,518 257,119 Education Technology Services Segment (2) 63,754 80,453 104,921 Consolidated revenue $ 1,065,480 $ 1,132,924 $ 1,219,930 ___________________________________________________________ (1) Other revenue is primarily comprised of academic fees, sales of course materials, placement fees and other non-tuition revenue streams. (2) Education Technology Services revenue is primarily derived from tuition revenue. Revenues are recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods and services. The Company applies the five-step revenue model under ASC 606 to determine when revenue is earned and recognized. Arrangements with students may have multiple performance obligations. For such arrangements, the Company allocates net tuition revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers and observable market prices. The standalone selling price of material rights to receive free classes or scholarships in the future is estimated based on class tuition prices or amounts of scholarships, and likelihood of redemption based on historical student attendance and completion behavior. At the start of each academic term or program, a contract liability is recorded for academic services to be provided, and a tuition receivable is recorded for the portion of the tuition not paid in advance. Any cash received prior to the start of an academic term or program is recorded as a contract liability. Some students may be eligible for scholarship awards, the estimated value of which will be realized in the future and is deducted from revenue when earned, based on historical student attendance and completion behavior. Contract liabilities are recorded as a current or long-term liability in the consolidated balance sheets based on when the benefits are expected to be realized. Substantially all of the contract liability balance classified as short term at the beginning of the year was recognized into revenue during the year ended December 31, 2024. Course materials are available to enable students to access electronically all required materials for courses in which they enroll during the quarter. Revenue derived from course materials is recognized ratably over the duration of the course as the Company provides the student with continuous access to these materials during the term. For sales of certain other course materials, the Company is considered the agent in the transaction, and as such, the Company recognizes revenue net of amounts owed to the vendor at the time of sale. Revenues also include certain academic fees recognized within the quarter of instruction, and certificate revenue and licensing revenue, which are recognized as the services are provided. Contract Liabilities - Graduation Fund Strayer University offers the Graduation Fund, which allows undergraduate students to earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program. Students registering in credit-bearing courses in any undergraduate degree program receive one free course for every three courses that the student successfully completes. To be eligible, students must meet all of Strayer University’s admission requirements, and must be enrolled in a bachelor’s degree program. Students who have more than one consecutive term of non-attendance lose any Graduation Fund credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by Strayer University in the future. 86 Table of Contents Revenue from students participating in the Graduation Fund is recorded in accordance with ASC 606. The Company defers the value of the related performance obligation associated with the credits estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student toward earning the benefit. The Company’s estimate of the benefits that will be redeemed in the future is based on its historical experience of student persistence toward completion of a course of study within this program and similar programs. Each quarter, the Company assesses its assumptions underlying these estimates, and to date, any adjustments to the estimates have not been material. The amount estimated to be redeemed in the next 12 months is $ 15.9 million and is included as a current contract liability in the consolidated balance sheets. The remainder is expected to be redeemed within two to four years . The table below presents activity in the contract liability related to the Graduation Fund for the years ended December 31, 2023 and 2024 (in thousands): December 31, 2023 December 31, 2024 Balance at beginning of period $ 46,842 $ 44,480 Revenue deferred 20,173 20,300 Benefit redeemed ( 22,535 ) ( 27,662 ) Balance at end of period $ 44,480 $ 37,118 The portion of the Graduation Fund balance related to students enrolled in undergraduate degree programs was $ 40.6 million and $ 35.3 million as of December 31, 2023 and 2024, respectively. The remaining Graduation Fund balance related to students enrolled in master’s degree programs. Contract Liabilities – Tuition Cap Students in certain programs at Capella University and Strayer University may be eligible for tuition cap pricing, wherein their tuition is waived once the student has reached the designated dollar cap threshold for their program. The Company defers the value of the related performance obligation associated with this tuition benefit estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student towards reaching the tuition cap. The Company’s estimate of the benefits that will be redeemed in the future is based on its historical experience of student persistence toward completion of a course of study within these programs or similar programs. Each quarter, the Company assesses its assumptions underlying these estimates. As of December 31, 2023 and 2024, the Company had $ 11.8 million and $ 14.7 million, respectively, of contract liabilities in the consolidated balance sheets related to tuition cap benefits that are estimated to be redeemed in the future. The amount estimated to be redeemed in the next 12 months is $ 5.3 million and is included as a current contract liability in the consolidated balance sheets. Unbilled Receivables – Student Tuition Academic materials may be shipped to certain new undergraduate students in advance of the term of enrollment. Under ASC 606, the materials represent a performance obligation to which the Company allocates revenue based on the fair value of the materials relative to the total fair value of all performance obligations in the arrangement with the student. When control of the materials passes to the student in advance of the term of enrollment, an unbilled receivable and related revenue are recorded. Costs to Obtain a Contract Certain commissions earned by third party international agents are considered incremental and recoverable costs of obtaining a contract with customers in the Australia/New Zealand segment. These costs are deferred and then amortized over the period of benefit which ranges from one year to two years . 4. Restructuring and Related Charges The Company incurs severance and other employee separation costs related to employee terminations that are not tied to a formal restructuring plan. During the years ended December 31, 2023 and 2024, the Company incurred $ 12.0 million and $ 4.9 million, respectively, of severance and other employee separation charges related to the elimination of certain positions. These severance and other employee separation charges are included in Restructuring costs on the consolidated statements of income. 87 Table of Contents The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities for the year ended December 31, 2024 (in thousands): Severance Restructuring Liability Balance as of December 31, 2022 $ — Restructuring and other charges 12,015 Payments ( 11,220 ) Balance as of December 31, 2023 (1) 795 Restructuring and other charges 4,902 Payments ( 5,163 ) Balance as of December 31, 2024 (1) $ 534 _________________________________________________________ (1) Restructuring liabilities are included in accounts payable and accrued expenses in the consolidated balance sheets. The Company evaluates its owned and leased real estate portfolio on an ongoing basis, which has resulted in the consolidation and sale of underutilized facilities. During the years ended December 31, 2022, 2023, and 2024, the Company recorded right-of-use lease asset charges of approximately $ 1.2 million, $ 5.1 million, and $ 0.7 million, respectively, related to facilities that were consolidated during the period. The Company also recorded fixed asset impairment charges of approximately $ 2.5 million, $ 0.4 million and $ 0.2 million during the years ended December 31, 2022, 2023, and 2024, respectively. The Company recorded net benefits related to the early termination and related extinguishment of lease liabilities of approximately $ 1.2 million, $ 0.1 million and $ 6.2 million during the years ended December 31, 2022, 2023, and 2024, respectively. During the years ended December 31, 2022 and 2023 the Company recorded gains from the sale of property and equipment of owned campuses that were previously closed of approximately $ 2.9 million and $ 2.1 million, respectively. These right-of-use lease asset and fixed asset impairment charges, net benefits from early lease terminations, and gains on the sale of property and equipment are included in Restructuring costs on the consolidated statements of income. In the third quarter of 2020, the Company began implementing a restructuring plan in an effort to reduce the ongoing operating costs of the Company to align with changes in enrollment following the COVID-19 pandemic. Under this plan, the Company incurred severance and other employee separation costs related to voluntary and involuntary employee terminations. The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities related to the 2020 Restructuring Plan for the year ended December 31, 2022 (in thousands): 2020 Restructuring Plan Balance at December 31, 2021 $ 1,612 Restructuring and other charges 1,241 Payments ( 2,853 ) Balance at December 31, 2022 — The final severance payments under the 2020 Restructuring Plan were made in the third quarter of 2022. 88 Table of Contents 5. Marketable Securities The following is a summary of available-for-sale securities, which are carried at fair value, as of December 31, 2023 and 2024 (in thousands): Amortized Cost Gross Unrealized Gain Gross Unrealized (Losses) Estimated Fair Value Balance as of December 31, 2023 Tax-exempt municipal securities $ 10,055 $ 2 $ ( 144 ) $ 9,913 Corporate debt securities 3,202 — ( 79 ) 3,123 Total $ 13,257 $ 2 $ ( 223 ) $ 13,036 Balance as of December 31, 2024 Corporate debt securities $ 500 $ — $ ( 1 ) $ 499 Total $ 500 $ — $ ( 1 ) $ 499 The following is a summary of held-to-maturity securities, which are carried at amortized cost, as of December 31, 2023 and 2024 (in thousands): Amortized Cost Gross Unrealized Gain Gross Unrealized (Losses) Estimated Fair Value Balance as of December 31, 2023 Term deposits $ 27,175 $ — $ — $ 27,175 Total $ 27,175 $ — $ — $ 27,175 Balance as of December 31, 2024 Term deposits $ 21,653 $ — $ — $ 21,653 U.S. treasury securities 19,778 18 — 19,796 Corporate debt securities 20,000 — ( 26 ) 19,974 Total $ 61,431 $ 18 $ ( 26 ) $ 61,423 The unrealized gains and losses on the Company’s investments in marketable securities as of December 31, 2023 and 2024 were caused by changes in market values primarily due to interest rate changes. As of December 31, 2024, the fair value of the Company’s securities which were in an unrealized loss position for a period longer than twelve months was $ 0.5 million. The Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell these securities prior to the recovery of their amortized cost basis, which may be at maturity. As such, no impairment charges were recorded during the years ended December 31, 2022, 2023, and 2024. The Company has no allowance for credit losses related to its available-for-sale or held-to-maturity securities as all investments are in investment grade securities. The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2023 and 2024 (in thousands): December 31, 2023 December 31, 2024 Available-for-sale securities Held-to-maturity securities Available-for-sale securities Held-to-maturity securities Due within one year $ 12,553 $ 27,175 $ 499 $ 46,450 Due after one year through five years 483 — — 14,981 Total $ 13,036 $ 27,175 $ 499 $ 61,431 89 Table of Contents The following table summarizes the purchases of and proceeds from marketable securities for the years ended December 31, 2022, 2023, and 2024 (in thousands): December 31, 2022 December 31, 2023 December 31, 2024 Purchases of marketable securities Purchases of available-for-sale securities $ — $ — $ — Purchases of held-to-maturity securities — 26,905 54,117 Total purchases of marketable securities $ — $ 26,905 $ 54,117 Proceeds from marketable securities Maturities of available-for-sale securities $ 6,420 $ 9,800 $ 12,805 Maturities of held-to-maturity securities — — 18,220 Total proceeds from marketable securities $ 6,420 $ 9,800 $ 31,025 The Company did not sell any available-for-sale or held-to-maturity securities during the years ended December 31, 2022, 2023, and 2024. The Company did not record any gross realized gains or losses in net income during the years ended December 31, 2022, 2023, and 2024. 6. Property and Equipment The composition of property and equipment as of December 31, 2023 and 2024 is as follows (in thousands): December 31, 2023 December 31, 2024 Estimated useful life (years) Land $ 1,499 $ 1,499 — Buildings and improvements 6,707 6,186 10 - 40 Furniture and office equipment 40,520 39,196 5 - 7 Computer hardware 12,339 13,142 3 - 7 Computer software 173,537 175,039 3 - 10 Leasehold improvements 72,351 67,858 3 - 15 Construction in progress 6,525 8,006 — 313,478 310,926 Accumulated depreciation and amortization ( 194,949 ) ( 199,679 ) $ 118,529 $ 111,247 Construction in progress includes costs associated with the construction and renovation of facilities and the development of information technology applications. 7. Leases The Company has long-term, non-cancelable operating leases for campuses and other administrative facilities. These leases generally range from 3 years to 15 years and may include renewal options to extend the lease term. In addition, the leases commonly include lease incentives in the form of rent abatements and tenant improvement allowances. The Company subleases certain portions of unused building space to third parties. 90 Table of Contents The components of lease costs were as follows for the years ended December 31, 2022, 2023, and 2024 (in thousands) 2022 2023 2024 Lease Cost: Operating lease cost (1) $ 28,404 $ 29,897 $ 19,012 Short-term lease cost 641 360 429 Sublease income ( 1,135 ) ( 906 ) ( 389 ) Total lease costs $ 27,910 $ 29,351 $ 19,052 ___________________________________________________________ (1) During the years ended December 31, 2022 , 2023, and 2024, operating lease cost includes $ 1.2 million, $ 5.1 million, and $ 0.7 million of right-of-use lease asset impairment charges, respectively, related to redundant leased space that was vacated during the year. During the years ended December 31, 2022 , 2023 and 2024, operating lease cost includes $ 1.2 million, $ 0.1 million, and $ 6.2 million, respectively, of net benefits related to the early termination and related extinguishment of lease liabilities. The following table provides a summary of the Company’s average lease term and discount rate as of December 31, 2023 and 2024: As of December 31, 2023 As of December 31, 2024 Weighted average remaining lease term (years) 6.6 6.8 Weighted average discount rate 4.27 % 4.88 % Supplemental information related to the Company’s leases for the years ended December 31, 2022, 2023, and 2024 (in thousands): Year ended December 31, 2022 Year ended December 31, 2023 Year ended December 31, 2024 Cash paid for amounts included in the measurement of lease liabilities $ 35,138 $ 30,742 $ 30,348 Right-of-use assets obtained in exchange for operating lease liabilities $ 4,674 $ 17,921 $ 10,299 Maturities of lease liabilities (in thousands): Year Ending December 31, 2025 $ 27,743 2026 21,435 2027 20,032 2028 17,838 2029 15,782 Thereafter 46,338 Total lease payments 149,168 Less: interest ( 23,942 ) Present value of lease liabilities $ 125,226 91 Table of Contents 8. Fair Value Measurement Assets measured at fair value on a recurring basis consist of the following as of December 31, 2023 (in thousands): Fair Value Measurements at Reporting Date Using December 31, 2023 Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Money market funds $ 92,231 $ 92,231 $ — $ — U.S. treasury bills 5,000 5,000 — — Available-for-sale securities : Tax-exempt municipal securities 9,913 — 9,913 — Corporate debt securities 3,123 — 3,123 — Total assets at fair value on a recurring basis $ 110,267 $ 97,231 $ 13,036 $ — Assets measured at fair value on a recurring basis consist of the following as of December 31, 2024 (in thousands): Fair Value Measurements at Reporting Date Using December 31, 2024 Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Money market funds $ 92,416 $ 92,416 $ — $ — Available-for-sale securities : Corporate debt securities 499 — 499 — Total assets at fair value on a recurring basis $ 92,915 $ 92,416 $ 499 $ — The Company measures the above items on a recurring basis at fair value as follows: • Money market funds and U.S. treasury bills — Classified in Level 1 is excess cash the Company holds in money market funds and U.S. treasury bills with original maturities of three months or less, which are included in cash and cash equivalents in the accompanying consolidated balance sheets. The Company’s cash and cash equivalents at December 31, 2023 and 2024 approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments. • Available-for-sale securities – Classified in Level 2 and valued using readily available pricing sources for comparable instruments utilizing observable inputs from active markets. The Company does not hold securities in inactive markets. The Company records any net unrealized gains and losses for changes in fair value as a component of accumulated other comprehensive income (loss) in stockholders’ equity. The Company’s held-to-maturity marketable securities, which consist of term deposits, U.S. treasury securities, and corporate debt securities, are not included in the tables above as they are carried at amortized cost and not measured at fair value on a recurring basis. The estimated fair value of the Company’s held-to-maturity marketable securities at December 31, 2023 and 2024 was $ 27.2 million and $ 61.4 million, respectively. These securities are valued using readily available pricing sources for comparable instruments utilizing observable inputs from active markets and are classified in Level 2 of the fair value hierarchy. The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods and did not transfer assets or liabilities between levels of the fair value hierarchy during the years ended December 31, 2023 or 2024. 92 Table of Contents 9. Goodwill and Intangible Assets Goodwill The following table presents changes in the carrying value of goodwill by segment for the years ended December 31, 2023 and 2024 (in thousands): U.S. Higher Education Australia / New Zealand Education Technology Services Total Balance as of December 31, 2022 $ 632,075 $ 519,202 $ 100,000 $ 1,251,277 Additions — — — — Impairments — — — — Currency translation adjustments — 611 — 611 Balance as of December 31, 2023 632,075 519,813 100,000 1,251,888 Additions — — — — Impairments — — — — Currency translation adjustments — ( 45,005 ) — ( 45,005 ) Balance as of December 31, 2024 $ 632,075 $ 474,808 $ 100,000 $ 1,206,883 The Company assesses goodwill at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount. In 2024, the Company performed a qualitative impairment assessment of goodwill assigned to all reporting units, except for the goodwill assigned to the ANZ reporting unit, using the first day of the fourth quarter of 2024 as the assessment date. The Company evaluated the likelihood of impairment by considering qualitative factors relevant to the reporting units, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and any other factors that have a significant bearing on fair value. Based on the results of its qualitative impairment analysis, the Company determined that no impairment indicators existed for these reporting units as of the assessment date. Due to potential adverse financial impacts of proposed international student enrollment cap regulations in Australia, in 2024 the Company elected to bypass a qualitative annual impairment assessment for goodwill assigned to the ANZ reporting unit and proceeded directly to a quantitative impairment assessment using the first day of the fourth quarter of 2024 as the assessment date. The Company used an income-based approach to determine the fair value of the ANZ reporting unit. The income approach consisted of a discounted cash flow model that included projections of future cash flows for the reporting unit, calculating a terminal value, and discounting such cash flows by a risk adjusted rate of return. The determination of fair value consists of using unobservable inputs under the fair value measurement standards. The Company believes that the most critical assumptions and estimates used in determining the estimated fair value of the ANZ reporting unit include, but are not limited to, the amounts and timing of expected future cash flows, revenue growth, operating margins, the discount rate, and the terminal growth rate. The assumptions used in determining the expected future cash flows consider various factors such as historical operating trends, particularly in student enrollment and pricing, anticipated economic and regulatory conditions, reasonable expectations for planned business expansion opportunities, and long-term operating strategies and initiatives. The discount rate is based on the Company’s assumption of a prudent investor’s required rate of return for assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation, and future margin expectations. The Company believes that these assumptions are consistent with a reasonable market participant view while employing the concept of highest and best use of the asset. Based on the results of its quantitative impairment assessment, the Company concluded that the fair value of its ANZ reporting unit exceeded its carrying value. Accordingly, no goodwill impairment charges were recorded during the years ended December 31, 2022, 2023, and 2024. Intangible Assets The Company’s finite-lived intangible assets are comprised of approximately $ 200.0 million of student relationships, which were amortized on a straight-line basis over a three-year useful life. Straight-line amortization expense for finite-lived intangible assets reflected the pattern in which the economic benefits of the assets were consumed over their estimated useful 93 Table of Contents lives. All finite-lived intangible assets were fully amortized by the end of 2023. Amortization expense related to finite-lived intangible assets was $ 11.1 million and $ 8.9 million for the years ended December 31, 2022 and 2023, respectively. Indefinite-lived intangible assets not subject to amortization consist of trade names. The Company assigned an indefinite useful life to its trade name intangible assets, as it is believed these assets have the ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic, or other factors to limit the useful life of the trade name intangibles. The following table presents changes in the carrying value of indefinite-lived intangible assets for the years ended December 31, 2023 and 2024 (in thousands): Indefinite-Lived Intangible Assets Balance as of December 31, 2022 $ 251,481 Additions — Impairments — Currency translation adjustments 142 Balance as of December 31, 2023 251,623 Additions — Impairments (1) ( 800 ) Currency translation adjustments ( 5,725 ) Balance as of December 31, 2024 $ 245,098 _________________________________________________________ (1) In the second quarter of 2024, the Company recorded a $ 0.8 million indefinite-lived intangible asset impairment charge, which is included in Restructuring costs on the consolidated statements of income. The Company assesses indefinite-lived intangible assets at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective indefinite-lived intangible asset below its carrying amount. There were no impairment charges related to indefinite-lived intangible assets recorded during the years ended December 31, 2022 and 2023. In 2024, the Company performed a qualitative impairment assessment related to its indefinite-lived intangible assets, except for the ANZ trade name, using the first day of the fourth quarter of 2024 as the assessment date. The Company evaluated the likelihood of impairment by considering qualitative factors, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and any other factors that have a significant bearing on fair value. Based on the results of its qualitative impairment analysis, the Company determined that no impairment indicators existed for these indefinite-lived intangible assets as of the assessment date. In 2024, the Company elected to perform a quantitative impairment assessment for indefinite-lived intangible assets related to the ANZ trade name using the first day of the fourth quarter of 2024 as the assessment date. The Company used an income-based approach to determine the fair value of the ANZ trade name. The income approach consisted of a discounted cash flow model, using the relief from royalty method, which included a projection of future revenues for ANZ, identifying a royalty rate, calculating a terminal value, and discounting such cash flows by a risk adjusted rate of return. The determination of fair value of the ANZ trade name primarily consists of using unobservable inputs under the fair value measurement standards. The Company believes that the most critical assumptions and estimates used in determining the estimated fair value of the ANZ trade name include, but are not limited to, the amounts and timing of future revenue growth rates, the royalty rate, the discount rate, and the terminal growth rate. The assumptions used in determining the expected future revenue growth rates consider various factors such as historical operating trends, particularly in student enrollment and pricing, anticipated economic and regulatory conditions, reasonable expectations for planned business expansion opportunities, and long-term operating strategies and initiatives. The royalty rate is based on the Company’s assumption of what a reasonable market participant would pay to license the ANZ trade name, expressed as a percentage of revenues. The discount rate is based on the Company’s assumption of a prudent investor’s required rate of return for assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable revenue growth the business could generate in a perpetual state as a function of inflationary expectations. The Company believes that these assumptions are consistent with a reasonable market participant view while employing the concept of highest and best use of the asset. Based on the results of its quantitative impairment assessment, the Company concluded that the fair value of the ANZ trade name exceeded its carrying value. 94 Table of Contents 10. Other Current Assets Other current assets consist of the following as of December 31, 2023 and 2024 (in thousands): December 31, 2023 December 31, 2024 Prepaid expenses $ 20,028 $ 20,841 Cloud computing arrangements 6,870 9,402 Restricted cash 12,944 9,082 Other 4,916 5,468 Other current assets $ 44,758 $ 44,793 11. Other Assets Other assets consist of the following as of December 31, 2023 and 2024 (in thousands): December 31, 2023 December 31, 2024 Cloud computing arrangements, net of current portion $ 12,806 $ 18,328 Prepaid expenses, net of current portion 16,679 15,678 Equity method investments 16,068 13,428 Tuition receivable, net, non-current 2,516 7,040 Other investments 2,806 2,786 Other 3,544 5,650 Other assets $ 54,419 $ 62,910 Prepaid Expenses Long-term prepaid expenses primarily relate to payments that have been made for future services to be provided after one year. In 2020, pursuant to the terms of the perpetual license agreement associated with the Jack Welch Management Institute, the Company made a final one-time cash payment of approximately $ 25.3 million for the right to continue to use the Jack Welch name and likeness. As of December 31, 2023 and 2024, $ 16.2 million and $ 14.7 million, respectively, of this payment is included in the prepaid expenses, net of current portion balance, as the payment is being amortized over an estimated useful life of 15 years. Equity Method Investments The Company holds investments in certain limited partnerships that invest in various innovative companies in the health care and education-related technology fields. The Company has commitments to invest up to an additional $ 2.1 million across these partnerships through 2031. The Company’s investments range from 3 %- 5 % of any partnership’s interest and are accounted for under the equity method. The following table illustrates changes in the Company’s limited partnership investments for the years ended December 31, 2023 and 2024 (in thousands): 2023 2024 Limited partnership investments, beginning of period $ 13,879 $ 16,068 Capital contributions 314 531 Pro-rata share in the net income (loss) of limited partnerships 2,953 ( 2,699 ) Distributions ( 1,078 ) ( 472 ) Limited partnership investments, end of period $ 16,068 $ 13,428 Cloud Computing Arrangements The Company defers implementation costs incurred in cloud computing arrangements and amortizes these costs over the term of the arrangement. 95 Table of Contents Other Investments The Company holds investments in education technology start-ups focused on transformational technologies that improve student success. These investments are accounted for at cost less impairment as they do not have readily determinable fair value. Tuition Receivable Non-current tuition receivable, net, represents tuition that the Company expects to collect, but not within the next 12 months. Other Other is comprised primarily of deferred financing costs associated with the Company’s credit facility, deferred contract costs related to commissions paid in the Australia/New Zealand segment to third party international recruitment agents, and refundable security deposits associated with the Company’s leased campus and office space. 12. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of December 31, 2023 and 2024 (in thousands): December 31, 2023 December 31, 2024 Trade payables $ 49,247 $ 55,733 Accrued compensation and benefits 34,988 38,843 Accrued student obligations and other 6,653 7,173 Accounts payable and accrued expenses $ 90,888 $ 101,749 13. Long-Term Debt On October 18, 2024, the Company entered into an amended credit facility (“Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $ 250 million. The Amended Credit Facility provides the Company 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 the future in an aggregate amount of 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. In addition, the Amended Credit Facility provides for a subfacility for borrowings in certain foreign currencies in an amount equal to the U.S. dollar equivalent of $ 150 million. The maturity date of the Amended Credit Facility is October 18, 2029. The Company paid approximately $ 1.7 million in debt financing costs associated with the Amended Credit Facility, and these costs are being amortized on a straight-line basis over the five-year term of the Amended Credit Facility. Borrowings under the Revolving Credit Facility bear interest at a per annum rate equal to Term SOFR or a base rate, plus a margin ranging from 1.50 % to 2.00 % depending on the Company’s leverage ratio. The Company also is subject to a quarterly unused commitment fee ranging from 0.20 % to 0.30 % per annum depending on the Company’s leverage ratio, times the daily unused amount under the Revolving Credit Facility. The Amended Credit Facility is guaranteed by all domestic subsidiaries, subject to certain exceptions, and secured by substantially all of the assets of the Company and its subsidiary guarantors. The Amended Credit Facility contains customary affirmative and negative covenants, representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Amended Credit Facility. In addition, the Amended Credit Facility requires that the Company satisfy certain financial maintenance covenants, including: • A leverage ratio of not greater than 2.00 to 1.00. Leverage ratio is defined as the ratio of total debt (net of unrestricted cash in an amount not to exceed $ 150 million) to trailing four-quarter EBITDA. • A coverage ratio of not less than 1.75 to 1.00. Coverage ratio is defined as the ratio of trailing four-quarter EBITDA and rent expense to trailing four-quarter interest and rent expense. 96 Table of Contents The Company was in compliance with all covenants of the Amended Credit Facility as of December 31, 2024. As of December 31, 2023, the Company had approximately $ 61.4 million outstanding under the Revolving Credit Facility, of which approximately $ 3.4 million was denominated in Australian dollars. During the third quarter of 2024, the Company repaid the remaining $ 61.3 million outstanding balance under the Revolving Credit Facility. The Company had no borrowings outstanding under the Revolving Credit Facility as of December 31, 2024. During the years ended December 31, 2022, 2023 and 2024, the Company paid $ 4.2 million, $ 6.8 million and $ 3.2 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility. 14. Other Long-Term Liabilities Other long-term liabilities consist of the following as of December 31, 2023 and 2024 (in thousands): December 31, 2023 December 31, 2024 Contract liabilities, net of current portion $ 37,188 $ 34,505 Asset retirement obligations 5,225 3,876 Other 3,190 1,805 Other long-term liabilities $ 45,603 $ 40,186 Contract Liabilities In connection with its student tuition contracts, the Company has an obligation to provide free classes in the future should certain eligibility conditions be maintained. Long-term contract liabilities represent the amount of revenue under these arrangements that the Company expects will be realized after one year. Asset Retirement Obligations Certain of the Company’s lease agreements require the leased premises to be returned in a predetermined condition. 15. Equity Awards In connection with the merger with Capella Education Company on August 1, 2018, the Capella Education Company 2014 Equity Incentive Plan (the “2014 Capella Plan”) and the Capella Education Company 2005 Stock Incentive Plan (collectively, the “Capella Plans”) were assumed by the Company. Under the Capella Plans, shares of the Company’s common stock were permitted to be issued upon the exercise or settlement of equity awards that were granted prior to the merger date or pursuant to awards granted after the closing of the merger to legacy Capella Education Company employees under the 2014 Capella Plan. On November 6, 2018, the Company’s shareholders approved the Strategic Education, Inc. 2018 Equity Compensation Plan (the “2018 Plan”), which replaced the Strayer Education, Inc. 2015 Equity Compensation Plan (the “2015 Plan”). The 2018 Plan provides for the granting of restricted stock, restricted stock units, stock options intended to qualify as incentive stock options, options that do not qualify as incentive stock options, and other forms of equity compensation and performance-based awards to employees, officers, and directors of the Company, or to a consultant or advisor to the Company, at the discretion of the Board of Directors. Vesting provisions are at the discretion of the Board of Directors. Options may be granted at option prices based at or above the fair market value of the shares at the date of grant. The maximum term of the awards granted under the 2018 Plan is ten years . The original number of shares of common stock authorized for issuance under the 2018 Plan was 700,000 , plus the number of shares available for grant under the 2015 Plan at the time of stockholder approval of the 2018 Plan, plus the number of shares which may become available under the 2015 Plan due to forfeitures of outstanding awards. On April 27, 2022, the Company’s shareholders approved the First Amendment to the 2018 Plan, which increased the total number of shares of common stock available for issuance under the 2018 Plan by the number of shares that were available for issuance under the 2014 Capella Plan as of the effective date of the First Amendment, plus the number of shares that may become available upon the future expiration, forfeiture or cancellation of outstanding awards under the Capella Plans. Subsequent to the shareholders approval of the First Amendment, all equity-based awards are granted under the 2018 Plan. As of December 31, 2024, 498,862 shares were available for issuance under the 2018 Plan. As of December 31, 2024, the Company has issued and outstanding awards under the 2018 Plan and the 2014 Capella Plan. 97 Table of Contents Dividends paid on unvested restricted stock are reimbursed to the Company, and dividend equivalents accumulated on unvested restricted stock units are forfeited, if the recipient forfeits his or her shares as a result of termination of employment prior to vesting in the award, other than as a result of the recipient’s death, disability, or certain qualifying terminations in connection with a change in control of the Company, or unless waived by the Company. Restricted Stock and Restricted Stock Units The table below sets forth the restricted stock and restricted stock units activity for each of the three years in the period ended December 31, 2024: Number of shares or units Weighted- average grant price Balance, December 31, 2021 707,541 $ 106.93 Grants 534,652 50.72 Vested shares ( 139,375 ) 95.27 Forfeitures ( 31,257 ) 62.43 Balance, December 31, 2022 1,071,561 81.70 Grants 271,576 93.93 Vested shares ( 154,764 ) 124.19 Forfeitures ( 97,251 ) 74.03 Balance, December 31, 2023 1,091,122 80.08 Grants 273,533 95.34 Vested shares ( 124,897 ) 137.81 Forfeitures ( 9,417 ) 69.37 Balance, December 31, 2024 1,230,341 $ 78.03 Stock Options The table below sets forth the stock option activity and other stock option information for each of the three years in the period ended December 31, 2024: Number of shares Weighted- average exercise price Weighted- average remaining contractual life (years) Aggregate intrinsic value (1) (in thousands) Balance, December 31, 2021 23,676 $ 65.30 4.0 $ 93 Grants — — Exercises ( 377 ) 36.87 Forfeitures/Expirations — — Balance, December 31, 2022 23,299 65.76 3.0 352 Grants — — Exercises ( 4,138 ) 53.95 Forfeitures/Expirations — — Balance, December 31, 2023 19,161 68.32 2.2 461 Grants — — Exercises ( 8,056 ) 63.57 Forfeitures/Expirations — — Balance, December 31, 2024 11,105 $ 71.76 1.6 $ 241 Exercisable, December 31, 2024 11,105 $ 71.76 1.6 $ 241 __________________________________________________________________________ (1) The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the respective trading day and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all options been exercised on the respective trading day. The amount of intrinsic value will change based on the fair market value of the Company’s common stock. 98 Table of Contents The Company received $ 14 thousand, $ 0.2 million, and $ 0.5 million of net cash proceeds related to stock options exercised during the years ended December 31, 2022, 2023, and 2024, respectively. The aggregate intrinsic value of the stock options exercised during the years ended December 31, 2022, 2023, and 2024 was $ 15 thousand, $ 0.1 million, and $ 0.3 million, respectively. Valuation and Expense Information under ASC 718, Stock Compensation At December 31, 2024, total stock-based compensation cost which has not yet been recognized was $ 39.8 million for unvested restricted stock and restricted stock units. This cost is expected to be recognized over the next 1.6 years on a weighted-average basis. Approximately 804,000 shares of restricted stock awards and restricted stock units are subject to performance conditions. The stock-based compensation expense for performance awards is based on the Company’s estimates that such performance criteria are probable of being achieved over the respective vesting periods. Such a determination involves judgment surrounding the Company’s ability to maintain regulatory compliance. If the performance targets are not reached during the respective vesting period, or it is determined it is more likely than not that the performance criteria will not be achieved, related compensation expense is adjusted. The following table reflects the amount of stock-based compensation expense recorded in each of the expense line items for the years ended December 31, 2022, 2023, and 2024 (in thousands): 2022 2023 2024 Instructional and support costs $ 7,026 $ 5,804 $ 6,989 General and administration 14,766 13,461 18,239 Restructuring costs — 507 343 Stock-based compensation expense included in operating expense 21,792 19,772 25,571 Tax benefit 5,488 5,156 6,824 Stock-based compensation expense, net of tax $ 16,304 $ 14,616 $ 18,747 During the years ended December 31, 2022, 2023, and 2024, the Company recognized shortfall tax impacts of approximately $ 1.5 million, $ 1.4 million, and $ 1.2 million, respectively, related to share-based payment arrangements, which were adjustments to the provision for income taxes. 16. Other Employee Benefit Plans The Company sponsors the Strategic Education, Inc. 401(k) Plan, which covers all eligible employees of the Company. The Company makes discretionary contributions to participants of the Strategic Education, Inc. 401(k) Plan through a Company match of 100 % on the first 2 %, and 50 % on the next 2 %, of the employee contributions, for a maximum company match of 3 %. The Company’s contributions to these plans totaled $ 7.7 million, $ 8.2 million and $ 8.6 million for the years ended December 31, 2022, 2023, and 2024, respectively. Pursuant to local laws, ANZ is required to make contributions on behalf of its employees for post-retirement superannuation benefits. In addition, ANZ has recorded a liability for long service leave, an entitlement for which employees meeting certain requirements are eligible for extended paid leave. The Company incurred $ 8.7 million, $ 8.6 million, and $ 9.3 million in expense related to these arrangements for the benefit of ANZ employees for the years ended December 31, 2022, 2023, and 2024, respectively. In May 1998, the Company adopted the Strayer Education, Inc. Employee Stock Purchase Plan (“ESPP”). Under the ESPP, eligible employees may purchase shares of the Company’s common stock, subject to certain limitations, at 90 % of its market value at the date of purchase. Purchases are limited to 10 % of an employee’s eligible compensation. The aggregate number of shares of common stock that may be made available for purchase by participating employees under the ESPP is 2,500,000 shares. Shares purchased in the open market for employees for the years ended December 31, 2022, 2023, and 2024 were as follows: Shares purchased Average price per share 2022 16,183 $ 58.94 2023 13,934 $ 72.38 2024 12,507 $ 90.79 99 Table of Contents 17. Stock Repurchase Plan In November 2003, the Company’s Board of Directors authorized the Company to repurchase up to an aggregate of $ 15 million in value of common stock in open market purchases from time to time at the discretion of the Company’s management depending on market conditions and other corporate considerations. The Company’s Board of Directors amended the program on various dates, increasing the repurchase amount authorized and extending the expiration date. At December 31, 2024, $ 228.5 million of the Company’s share repurchase authorization was remaining for repurchases through December 31, 2025. All of the Company’s share repurchases were effected in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. This stock repurchase plan may be modified, suspended, or terminated at any time by the Company without notice. Repurchases of common stock are recorded as a reduction to additional paid-in capital in an amount equal to the price at which the repurchased shares were originally sold, with any excess cash paid to repurchase the shares being recorded as a reduction to retained earnings. Shares of common stock repurchased on the open market under the Company’s repurchase program for the years ended December 31, 2022, 2023, and 2024 were as follows: Shares repurchased Average price paid per share 2022 612,104 $ 65.54 2023 129,073 $ 77.47 2024 119,926 $ 95.97 18. Commitments and Contingencies The Company’s U.S. Higher Education institutions participate in various federal student financial assistance programs which are subject to audit by agencies, including the Department of Education, the Veterans Administration, and the Department of Defense. Management believes that the potential effects of audit adjustments, if any, for the periods currently under audit will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial position, results of operations, or cash flows. 19. Income Taxes The income tax provision for the years ended December 31, 2022, 2023 and 2024 is summarized below (in thousands): 2022 2023 2024 Current: Federal $ 13,825 $ 20,071 $ 25,896 State 5,650 6,228 8,844 Foreign 12,063 10,962 14,295 Total current 31,538 37,261 49,035 Deferred: Federal ( 1,978 ) ( 2,437 ) ( 843 ) State ( 1,668 ) ( 100 ) 838 Foreign ( 4,993 ) ( 3,789 ) ( 282 ) Total deferred ( 8,639 ) ( 6,326 ) ( 287 ) Total provision for income taxes $ 22,899 $ 30,935 $ 48,748 The U.S. and foreign components of income before income taxes for the years ended December 31, 2022, 2023 and 2024 are summarized below (in thousands): 2022 2023 2024 United States $ 46,646 $ 76,893 $ 118,785 Foreign 22,923 23,833 42,647 Total income before income taxes $ 69,569 $ 100,726 $ 161,432 100 Table of Contents The Company is making an assertion that all earnings generated by its foreign subsidiaries are permanently reinvested in non-U.S. business or are distributable to the United States without material tax implications. As such, income taxes have not been accrued in the United States with respect to foreign subsidiary earnings. The Company intends to continue to reinvest the earnings outside of the United States for which there would be a material tax implication to distributing, such as withholding tax, for the foreseeable future and, as a result, have not recognized additional tax expense on these earnings. The tax effects of the principal temporary differences that give rise to the Company’s net deferred tax liability are as follows as of December 31, 2023 and 2024 (in thousands): 2023 2024 Lease liabilities $ 19,521 $ 15,182 Allowance for credit losses 13,056 12,465 Stock-based compensation 8,816 9,758 Contract liabilities 9,669 8,972 Other 4,715 4,189 Loss carryforward 2,976 3,088 Other facility-related costs 1,109 1,033 Intangible assets ( 70,135 ) ( 69,712 ) Right-of-use lease assets ( 10,522 ) ( 9,397 ) Valuation allowance ( 2,653 ) ( 2,991 ) Property and equipment ( 4,890 ) ( 173 ) Net deferred tax liability $ ( 28,338 ) $ ( 27,586 ) As of December 31, 2024, Loss carryforward consists of net operating losses related to the states where the Company does not file a consolidated return. The company has state net operating loss carryforwards of $ 36.1 million which will expire from 2027 through 2045 and $ 32.6 million which have an indefinite carryover period. The change in the valuation allowance for deferred tax assets as of December 31, 2023 and 2024 was $ 0.8 million and $ 0.3 million, respectively, and is primarily related to net operating loss carryforwards in states where the Company does not file a consolidated tax return. The Company concluded that it was more likely than not that the deferred tax asset for the net operating loss carryforwards would not be realized due to negative evidence outweighing the positive evidence regarding the realization of the deferred tax assets. The Company will continue to evaluate its ability to realize its net deferred tax assets on a quarterly basis. As of December 31, 2023, the Company’s liabilities for unrecognized tax benefits are included in other long-term liabilities in the consolidated balance sheets. As of December 31, 2024, the Company has no unrecognized tax benefits recorded on its consolidated balance sheets. Interest and penalties, including those related to uncertain tax positions, are included in the provision for income taxes in the consolidated statements of income. The Company recognized approximately $ 47 thousand of expense and $ 107 thousand of benefit related to interest and penalties in 2023 and 2024, respectively. The total amount of interest and penalties included in the consolidated balance sheets was approximately $ 107 thousand as of December 31, 2023. The Company had no interest and penalties included in the consolidated balance sheets as of December 31, 2024. The following table summarizes changes in unrecognized tax benefits, excluding interest and penalties, for the respective periods (in thousands): Year Ended December 31, 2023 2024 Beginning unrecognized tax benefits $ 948 $ 948 Additions for tax positions taken in the prior year — — Reductions for tax positions taken in prior years — ( 948 ) Ending unrecognized tax benefits $ 948 $ — The Company does not anticipate significant changes to unrecognized tax benefits within the next 12 months. During the year ended December 31, 2024, the Company did not record any unrecognized tax benefits. 101 Table of Contents A reconciliation between the Company’s statutory tax rate and the effective tax rate for the years ended December 31, 2022, 2023, and 2024 is as follows: 2022 2023 2024 Statutory federal rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefits 3.2 3.7 3.8 Impact of foreign operations 3.0 2.1 2.4 Nondeductible compensation 2.4 1.9 1.4 Excess tax benefit on share-based compensation 1.7 1.1 0.6 Change in valuation allowance 1.7 0.8 0.2 Other ( 0.1 ) 0.1 0.8 Effective tax rate 32.9 % 30.7 % 30.2 % Cash payments for income taxes were $ 26.8 million, $ 42.9 million, and $ 49.2 million in 2022, 2023, and 2024, respectively. 20. Segment and Geographic Information Strategic Education is an educational services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets. Strategic Education’s portfolio of companies is dedicated to closing the skills gap by placing adults on the most direct path between learning and employment. The Company’s organizational structure includes three operating and reportable segments: U.S. Higher Education, Education Technology Services, and Australia/New Zealand. The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Capella University and Strayer University, including the Jack Welch Management Institute MBA, which is a unit of Strayer University. USHE also operates non-degree web and mobile application development courses through Hackbright Academy and Devmountain, which are units of Strayer University. The Education Technology Services segment primarily develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs. 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. 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. The Australia/New Zealand segment is comprised of Torrens University, Think Education and Media Design School in Australia and New Zealand, which collectively offer certificate and degree programs in business, design, education, hospitality, healthcare, and technology through campuses in Australia, New Zealand, and online. The Company’s Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer. Revenue and operating expenses are generally directly attributable to the segments. Inter-segment revenues are not presented separately, as these amounts are immaterial. The Company’s CODM does not evaluate operating segments using asset information. The Company’s CODM assesses the segments’ performance by using each segment’s income from operations, which includes certain enterprise shared services allocations attributable to each of the segments. The Company’s CODM uses income from operations for each segment in the annual budget and forecasting process. On a monthly basis, the CODM reviews budget-to-actual, latest forecast-to-actual, and year-over-year actual variances when reviewing segment performance and making decisions about the allocation of resources to each segment. 102 Table of Contents A summary of financial information by reportable segment for the year ended December 31, 2022 is presented in the following table (in thousands): U.S. Higher Education Australia/New Zealand Education Technology Services Total Revenues $ 770,979 $ 230,747 $ 63,754 $ 1,065,480 Segment expenses Direct segment expenses 676,895 177,657 40,876 895,428 Enterprise shared services allocation 55,479 22,617 3,614 81,710 Segment income from operations $ 38,605 $ 30,473 $ 19,264 $ 88,342 Unallocated expenses Amortization of intangible assets ( 14,350 ) Merger and integration costs ( 1,117 ) Restructuring costs ( 2,115 ) Consolidated income from operations $ 70,760 Other expense ( 1,191 ) Consolidated income before income taxes $ 69,569 A summary of financial information by reportable segment for the year ended December 31, 2023 is presented in the following table (in thousands): U.S. Higher Education Australia/New Zealand Education Technology Services Total Revenues $ 818,953 $ 233,518 $ 80,453 $ 1,132,924 Segment expenses Direct segment expenses 703,035 178,922 47,283 929,240 Enterprise shared services allocation 56,290 18,734 4,082 79,106 Segment income from operations $ 59,628 $ 35,862 $ 29,088 $ 124,578 Unallocated expenses Amortization of intangible assets ( 11,457 ) Merger and integration costs ( 1,544 ) Restructuring costs ( 16,256 ) Consolidated income from operations $ 95,321 Other income 5,405 Consolidated income before income taxes $ 100,726 103 Table of Contents A summary of financial information by reportable segment for the year ended December 31, 2024 is presented in the following table (in thousands): U.S. Higher Education Australia/New Zealand Education Technology Services Total Revenues $ 857,890 $ 257,119 $ 104,921 $ 1,219,930 Segment expenses Direct segment expenses 719,214 200,776 57,910 977,900 Enterprise shared services allocation 61,511 18,949 4,294 84,754 Segment income from operations $ 77,165 $ 37,394 $ 42,717 $ 157,276 Unallocated expenses Amortization of intangible assets — Merger and integration costs — Restructuring costs ( 1,648 ) Consolidated income from operations $ 155,628 Other income 5,804 Consolidated income before income taxes $ 161,432 The following table presents a schedule of significant non-cash items included in segment income from operations by reportable segment for the years ended December 31, 2022, 2023, and 2024 (in thousands): 2022 2023 2024 Depreciation and amortization U.S. Higher Education $ 35,863 $ 33,655 $ 31,663 Australia/New Zealand 8,842 8,954 9,065 Education Technology Services 1,589 2,526 3,468 Amortization of intangible assets 14,350 11,457 — Merger and integration costs — 336 — Restructuring costs 2,480 385 182 Consolidated depreciation and amortization $ 63,124 $ 57,313 $ 44,378 Stock-based compensation U.S. Higher Education $ 19,572 $ 17,653 $ 19,337 Australia/New Zealand 1,073 ( 117 ) 3,951 Education Technology Services 1,147 1,729 1,940 Restructuring costs — 507 343 Consolidated stock-based compensation $ 21,792 $ 19,772 $ 25,571 Geographic Information The Company’s revenues by geographic area, which are primarily generated by students enrolled at institutions in those areas, for the years ended December 31, 2022, 2023, and 2024 were as follows (in thousands): 2022 2023 2024 United States $ 834,733 $ 899,406 $ 962,811 Australia/New Zealand 230,747 233,518 257,119 104 Table of Contents The Company’s long-lived assets are comprised of Property and equipment, net and Right-of-use lease assets. The Company’s long-lived assets by geographic area as of December 31, 2023 and 2024 were as follows (in thousands): December 31, 2023 December 31, 2024 United States $ 115,453 $ 108,418 Australia/New Zealand 122,278 106,502 21. Litigation The Company is involved in litigation and other legal proceedings arising out of the ordinary course of its business. Certain of these matters are discussed below. From time to time, certain matters may arise that are other than ordinary and routine. The outcome of such matters is uncertain, and the Company may incur costs in the future to defend, settle, or otherwise resolve them. The Company accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that it will incur these costs in the future and the costs are reasonably estimable. The Company currently believes that the ultimate outcome of such matters will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect future results of operations in a particular period. On April 20, 2021, Capella University received a letter from the Department of Education referencing Wright, et al. v. Capella Education Co., et al. (subsequently captioned Ornelas, et al. v. Capella, et al. ), United States District Court for the District of Minnesota, Case No. 18-cv-1062, and indicating that the Department would require a fact-finding process pursuant to the borrower defense to repayment regulations to determine the validity of more than 1,000 borrower defense applications that have been submitted regarding Capella University. According to the Department, some of the applications allege similar claims as in the Wright matter concerning alleged misrepresentations of the length of time to complete doctoral programs. Capella University subsequently received approximately 500 applications for borrower defense to repayment. Capella University contested each claim for defense to repayment in individualized responses with supporting evidence, the last of which was sent to the Department in August 2021. Since that time, Capella University has not received any communication from the Department related to the set of borrower defense claims received in 2021, nor has Capella University received indication that any of these claims has been evaluated on the facts presented and adjudicated on the merits. On June 22, 2022, in litigation in which Capella University is not a party, Sweet, et al. v. Miguel Cardona and the United States Department of Education , United States District Court for the Northern District of California, Case No. 3:19-cv-03674-WHA, the Department joined a proposed class settlement agreement that resulted in a blanket grant of automatic, presumptive relief for all borrower defense to repayment applications filed by students at any of approximately 150 different listed institutions, including Capella University, through June 22, 2022. The class settlement agreement also provided certain expedited review of borrower defense claims related to schools excluded from the automatic relief list, as well as for borrowers who applied during the period after execution of the settlement and before final approval (“Post-Class Applicants”). The district court granted final approval of the settlement on November 16, 2022. Intervenors, including multiple intervening higher education institutions and companies, appealed the district court’s order. Intervenors’ request to stay the district court’s final judgment approving the settlement pending resolution of the appeal has been denied. It is unclear whether the Department might seek recovery for the amounts of loans discharged pursuant to the automatic relief provision in the Sweet settlement. In a July 25, 2022 filing in the same litigation, the Department stated that providing automatic relief to such borrowers “does not constitute the granting or adjudication of a borrower defense pursuant to the Borrower Defense Regulations, and therefore provides no basis to the Department for initiating a borrower defense recoupment proceeding against any institution identified” on the list. The Department has indicated that any recoupment against institutions “could be imposed only after the Department initiated a separate, future proceeding, in accordance with regulations that require the Department to prove a sufficient basis for liability and provide schools with notice and an opportunity to be heard.” If the Department were to seek recovery for the amounts of automatically discharged loans of Capella University students under the Sweet settlement, Capella University would dispute and defend against such efforts. At this time, the Company is unable to predict the ultimate outcome of Capella-related borrower defense applications. If the Department were to successfully seek recovery for the amounts of discharged loans from Capella University in future proceedings, any such recovery could have a material adverse effect on our business. As a result of the Fifth Circuit’s August 7, 2023 nationwide injunction of the 2022 Borrower Defense to Repayment (“BDTR”) Regulations, the Department announced that while it will not adjudicate any borrower defense applications under the 2022 Borrower Defense to Repayment Regulations unless and until the effective date is reinstated, it will continue to adjudicate applications under a prior version of the rule if required pursuant to a court ordered settlement. For the Sweet Post-Class Applicants, the Department agreed to adjudicate such claims under the 2016 BDTR Rule, and, if the Department does not 105 Table of Contents adjudicate the applications by January 28, 2026, it will provide the applicants “Full Settlement Relief” (i.e., federal student loan(s) associated with the borrower’s attendance at the school will be discharged, the Department will refund any amounts paid to the Department on those loans, and the credit tradeline for those loans will be deleted from the borrower’s credit report). In 2023, the Department informed institutions that: it would be notifying most schools of all applications received by the Department from June 23, 2022 to November 15, 2022 (constituting Sweet Post-Class Applicants) in a single send (and anticipates completing notification to all schools by approximately April 2024). On January 25, 2024, Capella University received notice that the Department received approximately 6,700 borrower defense to repayment applications with claims for forgiveness of loans taken out at the university and filed between June 23, 2022 and November 15, 2022. On February 1, 2024, Strayer University received notice that the Department received approximately 1,900 borrower defense to repayment applications with claims for forgiveness of loans taken out at the university and filed between June 23, 2022 and November 15, 2022. In the notices received, the Department indicated that: (1) the notification was occurring prior to any substantive review of the applications as well as their adjudication; (2) it would send the applications to Capella University and Strayer University in batches of 500 per week; (3) it is optional for institutions to respond to the applications; and (4) not responding will result in no negative inference by the Department. The Department has also explained that it will separately decide whether to seek recoupment on any approved claim and that any recoupment actions the Department chooses to initiate will have their own notification and response processes, which include providing additional evidence to the institution. The Department has indicated that an institution will learn of the Department’s determination only if it approves a BDTR application and the Department seeks recoupment. In relation to the separate 2021 notice received by Capella University, the Department indicated there were more than 1,000 applications pending, but the Company only ever received approximately 500 actual claims, and after an exhaustive review and response process the Company believes that none properly stated a claim for loan forgiveness. Since the Department’s 2024 notices, Capella University has received approximately 6,770 applications, and Strayer University has received approximately 1,870 applications. Each university has provided a response to the applications it received within the time allowed by the Department. At this time, the Company is unable to predict whether the Department will grant BDTR relief for the claims noticed on January 25, 2024, February 1, 2024, or at any other time, or if so, whether it will seek recoupment from Capella University or Strayer University. If the Department were to seek recoupment, Capella University and Strayer University would dispute and defend against such efforts. However, if the Department were to successfully seek recovery for the amounts of discharged loans from Strayer University and Capella University in future proceedings, any such recovery could have a material adverse effect on our business. 22. Regulation United States Regulation As institutionally accredited institutions of higher education operating in multiple jurisdictions, Capella University and Strayer University are subject to accreditation rules and varying state licensing and regulatory requirements. In addition, the Higher Education Act and the regulations promulgated thereunder require all higher education institutions that participate in the various Title IV programs, including Capella University and Strayer University, to comply with detailed substantive and reporting requirements and to undergo periodic regulatory scrutiny. The Higher Education Act mandates specific regulatory responsibility for each of the following components of the higher education regulatory triad: (1) the institutional accrediting agencies recognized by the U.S. Secretary of Education; (2) state education regulatory bodies; and (3) the federal government through the Department of Education. The Company’s business activities are planned and implemented to achieve compliance with the rules and regulations of the state, regional and federal agencies that regulate its activities. The regulations, standards, and policies of these regulatory agencies are subject to frequent change. Students finance their education at Capella University and Strayer University in a variety of ways, and historically a majority of students have participated in one or more Title IV programs. Title IV Programs Capella University and Strayer University maintain eligibility for their students to participate in the following Title IV programs: • Federal Grants. Grants under the Federal Pell Grant program are available to eligible students based on financial need and other factors. • Campus-Based Programs. The campus-based Title IV programs include the Federal Supplemental Educational Opportunity Grant program, the Federal Perkins Loan, and the Federal Work-Study Program. Neither Capella University nor Strayer University actively participates in the Federal Perkins Loan program, which expired on September 30, 2017. In addition, Strayer University does not actively participate in the Federal Work-Study Program. 106 Table of Contents • Federal Direct Student Loans. Under the William D. Ford Federal Direct Loan Program, the Department of Education makes loans directly to students and their parents. Undergraduate students who demonstrate financial need may qualify for a subsidized loan. The federal government pays the interest on a subsidized loan while the student is in school and during any approved periods of deferment, after which the student’s obligation to repay the loan begins. Unsubsidized loans are available to students who do not qualify for a subsidized loan or, in some cases, in addition to a subsidized loan. PLUS loans, including Graduate PLUS loans, are unsubsidized loans available in amounts up to the total cost of attendance less any other financial aid. Federal Financial Aid Regulation To be eligible to participate in Title IV programs, Capella University and Strayer University must comply with specific standards and procedures set forth in the Higher Education Act and the regulations issued thereunder by the Department of Education. As part of those participation standards, the Department of Education determines whether, among other things, the institution meets certain standards of administrative capability and financial responsibility. The institutions must also follow extensive Department of Education rules regarding the awarding and processing of funds issued under Title IV programs. Some of the key provisions regarding institutional eligibility and processing federal financial aid are described below. Financial Responsibility The Higher Education Act and Department of Education regulations establish extensive standards of financial responsibility that institutions such as Capella University and Strayer University must satisfy in order to participate in Title IV programs. These standards generally require that an institution provide the services described in its official publications and statements, properly administer Title IV programs in which it participates, and meet all of its financial obligations, including required refunds and any repayments to the Department of Education for debts and liabilities incurred in programs administered by the Department of Education. Department of Education standards utilize a complex formula to assess financial responsibility. The standards focus on three financial ratios: (1) equity ratio (which measures the institution’s capital resources and ability to borrow); (2) primary reserve ratio (which measures the institution’s financial viability and liquidity); and (3) net income ratio (which measures the institution’s ability to operate at a profit or within its means). An institution’s financial ratios must yield a composite score of at least 1.5 for the institution to be deemed financially responsible without alternative measures and further federal oversight. For Capella University and Strayer University, the Department evaluates financial responsibility at the parent level, based on review of SEI’s financial statements. The Company has applied the financial responsibility standards to its financial statements as of and for the year ended December 31, 2024, and based on its calculated composite score and other relevant factors, it believes the Company met the Department of Education’s financial responsibility standards. On November 1, 2016, the Department of Education released a new regulation, which after a series of delays became effective as of October 16, 2018, under which an institution may no longer be considered financially responsible if one or more of a list of triggering events occurs. The Department of Education will automatically determine that an institution is not financially responsible if a “mandatory” triggering event occurs, which includes, among other things, the institution receives certain warnings from the SEC, fails to file required reports in a timely manner, or has a cohort default rate of 30% or greater for each of the two most recent official calculations. The Department of Education will also determine that an institution is not financially responsible if certain triggering events, such as a lawsuit against the institution, an accrediting agency’s requirement that the institution submit a teach-out plan, or potential loss of Title IV eligibility for gainful employment programs, result in the institution’s recalculated composite score to be less than 1.0. The Department of Education may also invoke certain “discretionary” triggering events, such as citation by a state agency or accrediting agency for failure to satisfy the agency’s standards, to determine that an institution is not financially responsible. An institution determined not to be financially responsible because of one or more triggering events may be required to issue an irrevocable letter of credit for not less than 10% of the Title IV funds received by the school for the most recently completed fiscal year and/or will be issued a Provisional Program Participation Agreement. On August 30, 2019, as part of the final BDTR regulations, the Department of Education made changes to the financial responsibility requirements, including establishing a more limited set, as compared to the 2016 rule, of mandatory and discretionary triggering events that have, or could have, a materially adverse impact on the institution’s financial condition and therefore warrant financial protection. The 2019 rule left intact the consequences of the triggering events under the 2016 rule. The 2019 rule further updates the definitions of terms used to calculate an institution’s composite score and otherwise amends the composite score methodology to reflect changes in FASB accounting standards pertaining to new leases. The financial responsibility changes became effective July 1, 2020. 107 Table of Contents In 2022, the Department of Education considered as part of the Institutional and Programmatic Eligibility negotiated rulemaking new regulations regarding, among other things, financial responsibility. Negotiated rulemaking committee meetings completed in March 2022 with no consensus reached on the topic. On October 23, 2023, the Department released final rules on financial responsibility. Pursuant to new regulations effective July 1, 2024, the Department adopted new mandatory and discretionary triggers and new reporting requirements. New mandatory triggers include but are not limited to failing the 90/10 Rule; receiving at least 50% of Title IV funds from programs that fail gainful employment requirements; certain SEC or exchange actions; and certain actions that result in an institution’s recalculated composite score to fall below 1.0, including being subject to a Department action to recover losses from approved Borrower Defense to Repayment claims. All of the mandatory triggers constitute an automatic failure of the financial responsibility requirements and would enable the Department to seek financial protection. The rules also establish new discretionary triggers that permit the Department to conduct a case-by-case analysis to determine if additional financial protection is needed. Such discretionary triggers include accrediting agency and government agency actions; certain defaults or creditor events; high annual dropout rates; elimination of programs or locations that enroll more than 25% of the institution’s Title IV students; and pending Borrower Defense to Repayment claims, among other things. In general, institutions will be required to report triggering events within 21 days of occurrence. According to the regulation, such triggering events may result in a financial protection requirement that would most likely take the form of a letter of credit or cash escrow and provisional certification to participate in Title IV. The amount of financial protection can range from 10% up to 50% of Title IV funds per triggering event, and the Department may “stack” financial protection requirements if more than one mandatory or discretionary trigger is present. Student Loan Defaults The Department of Education calculates a rate of student defaults (known as a cohort default rate) for each institution with 30 or more borrowers entering repayment in a given federal fiscal year. The Department of Education includes in the cohort all student borrowers at the institution who entered repayment on any Direct or Federal Family Education Loan Program loan during that fiscal year. The cohort default rate is the percentage of those borrowers who become subject to their repayment obligation in the relevant federal fiscal year and default by the end of the second federal fiscal year following that fiscal year, resulting in a three-year cohort default rate. Because of the need to collect data on defaults, the Department of Education publishes cohort default rates three years in arrears; for example, in the fall of 2024, the Department of Education issued cohort default rates for federal fiscal year 2021. The Department of Education may take adverse action against an institution if it has excessive cohort default rates, including without limitation the following: • If an institution’s cohort default rate is 30% or more in a given fiscal year, the institution will be required to assemble a “default prevention task force” and submit to the Department of Education a default improvement plan. • If an institution’s cohort default rate exceeds 30% for two consecutive years, the institution will be required to review, revise, and resubmit its default improvement plan. • If an institution’s cohort default rate exceeds 30% for two out of three consecutive years, the Department of Education may subject the institution to provisional certification. • If an institution’s cohort default rate is equal to or greater than 30% for each of the three most recent federal fiscal years for which data are available, the institution will be ineligible to participate in the Direct Loan Program and Federal Pell Grant Program. An institution generally loses eligibility to participate in Title IV programs if its most recent cohort default rate is greater than 40%. Institutions with a cohort default rate equal to or greater than 15% for any of the three most recent fiscal years for which data are available are subject to a 30-day delayed disbursement period for first-year, first-time undergraduate borrowers. National and institutional cohort default rates for cohort years 2019, 2020, and 2021 have been impacted by the COVID-19 repayment pause. Capella University’s and Strayer University’s official three-year cohort default rates for 2019, 2020, and 2021, as well as the average official three-year cohort default rates for proprietary institutions nationally, were as follows: Cohort Year Capella University Strayer University National Average Proprietary Institutions 2019 1.1 % 2.2 % 3.1 % 2020 0.0 % 0.0 % 0.0 % 2021 0.0 % 0.0 % 0.0 % 108 Table of Contents As part of the compliance programs related to the cohort default rate, Capella University and Strayer University provide entrance and exit counseling to their students and engage the services of third parties to counsel students once they are in repayment status regarding their repayment obligations. On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which included a provision that established a federal student loan administrative forbearance period, pause in interest accrual, and suspension of collections activity. In June 2023, the Department of Education announced that student loan interest would begin to accrue on September 1, 2023, and student loan repayment resumed in October 2023. As part of the return to repayment, the Department has also announced a 12 month “on-ramp” during which time delinquent borrowers will not be reported to credit bureaus or be counted as in default for the purpose of cohort default rate calculations. On July 10, 2023, the Department issued final regulations to create a new income-driven repayment plan to reduce future monthly payments for lower- and middle-income borrowers. Among other things, this new regulation—known as the Saving on a Valuable Education (SAVE) Plan—revised the Revised Pay As You Earn (REPAYE) regulations, eliminated negative amortization, and offered $0 monthly payments for any individual borrower who makes less than roughly $32,800 annually and any borrower in a family of four who makes less than about $67,500 annually (using the 2023 Federal poverty guidelines). The SAVE Plan was scheduled to be fully implemented in July 2024, but a federal appeals court paused implementation of the entire SAVE Plan pending resolution of legal challenges brought by several states. Meanwhile, the Department published an interim final rule to allow borrowers to enroll in the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) repayment plans, designated for early implementation on December 16, 2024, through July 1, 2027, while the SAVE Plan is paused. Although it is too early to know the entirety of the impact that COVID and COVID-related repayment flexibility will have on the cohort default rate, the Company expects that the next one or more cohort years will be affected. The 90/10 Rule A requirement of the Higher Education Act, commonly referred to as the 90/10 Rule, applies only to proprietary institutions of higher education, which include Capella University and Strayer University. Under this rule, a proprietary institution is prohibited from deriving more than 90% of its revenues (as revenues are computed under the Department of Education’s methodology) from federal funds on a cash accounting basis (except for certain institutional loans) for any fiscal year. Historically, by statute, only Title IV funds have been considered within the 90% metric; however as described below, that changed for fiscal years beginning on or after January 1, 2023. A proprietary institution of higher education that violates the 90/10 Rule for any fiscal year will be placed on provisional certification for up to two fiscal years. Proprietary institutions of higher education that violate the 90/10 Rule for two consecutive fiscal years will become ineligible to participate in Title IV programs for at least two fiscal years and will be required to demonstrate compliance with Title IV eligibility and certification requirements for at least two fiscal years prior to resuming Title IV program participation. In addition, the Department of Education discloses on its website any proprietary institution of higher education that fails to meet the 90/10 requirement, and reports annually to Congress the relevant ratios for each proprietary institution of higher education. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021, which included a change to the 90/10 methodology to include all federal funding. The Department of Education promulgated new regulations regarding, among other things, the 90/10 rule as part of the Institutional and Programmatic Eligibility negotiated rulemaking and the committee reached consensus on the topic in March 2022. The Department released final regulations on October 27, 2022. The regulatory changes require proprietary institutions to count all “federal education assistance funds” as federal revenue in the 90/10 calculation for fiscal years beginning on or after January 1, 2023. The preamble to the final rule and subsequent sub-regulatory guidance further prohibit inclusion of non-Title IV eligible programs offered in part or in full through distance education in the 10% calculation. On December 21, 2022, the Department released a list of federal agencies and federal education assistance programs that must be included as federal revenue in the 90/10 calculation. Such agencies include the U.S. Department of Defense (military tuition assistance) and the Department of Veterans Affairs (veterans education benefits). The Department indicated that it will publish periodic updates to the list as needed. In addition, certain members of Congress have proposed to revise the 90/10 Rule to reduce the limit on federal funding to 85% of total revenue. In the context of Higher Education Act reauthorization, defense bills and appropriations bills, other members of Congress have proposed legislation that would eliminate the 90/10 Rule. The Company cannot predict whether or how legislative or regulatory changes will affect the 90/10 Rule. Gainful Employment Under the Higher Education Act, a proprietary institution offering programs of study other than a baccalaureate degree in 109 Table of Contents liberal arts (for which there is a limited statutory exception) must prepare students for gainful employment in a recognized occupation. On October 31, 2014, the Department of Education published final regulations related to gainful employment. The regulation went into effect on July 1, 2015 (“2015 Regulations”), with the exception of new disclosure requirements, which generally went into effect January 1, 2017, although some portions of those requirements were delayed until July 1, 2019. The 2015 Regulations included two debt-to-earnings measures, consisting of an annual income rate and a discretionary income rate. The annual income rate measured student debt in relation to earnings, and the discretionary income rate measured student debt in relation to discretionary income. A program passed if the program’s graduates: • have an annual income rate ratio that does not exceed 8%; or • have a discretionary income rate that does not exceed 20%. In addition, a program that did not pass either of the debt-to-earnings metrics and had an annual income rate between 8% and 12% or a discretionary income rate between 20% and 30% was considered to be in a warning zone. A program failed if the program’s graduates had an annual income rate of 12% or greater and a discretionary income rate of 30% or greater. A program became Title IV-ineligible for three years if it failed both metrics for two out of three consecutive years or failed to pass at least one metric for four consecutive award years. On January 8, 2017, Capella University and Strayer University received their final 2015 debt-to-earnings measures. None of their programs failed the debt-to-earnings metrics. One active Capella University program, the Masters of Science in Marriage and Family Counseling/Therapy, was “in the zone” and two active Strayer University programs, the Associate in Arts in Accounting and Associate in Arts in Business Administration, were “in the zone.” Each of those three programs remained fully eligible. The Department has not released any subsequent debt-to-earnings measures under the 2015 Regulations. On July 1, 2019, the Department of Education released final gainful employment regulations, which contain a full repeal of the 2015 Regulations, including all debt measures, reporting, disclosure, and certification requirements, effective July 1, 2020. On December 8, 2021, the Department of Education announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations for, among other topics, gainful employment, via the Institutional and Programmatic Eligibility rulemaking. Meetings of the negotiated rulemaking committee occurred in spring 2022 with the committee failing to reach consensus. On May 17, 2023, the Department released proposed rules on financial value transparency and gainful employment, financial responsibility, administrative capability, certification procedures, and ability to benefit. On September 27, 2023, the Department released final regulations on financial value transparency and gainful employment, which are largely consistent with the proposed rule. The gainful employment final rule establishes two independent metrics, both of which must be passed by a gainful employment program subject to the rule in order to maintain Title IV eligibility. Any gainful employment program that fails either or both metrics in a single year would be required to provide a disclosure to current and prospective students, and any such program that fails the same metric in two out of three consecutive years for which the program’s metrics are calculated would lose its access to federal financial aid. The two metrics are 1) a debt-to-earnings ratio that compares the median earnings of graduates who received federal financial aid to the median annual payments on loan debt borrowed for the program, which must be less than or equal to 8% of annual earnings or 20% of discretionary earnings, and 2) an earnings premium test that measures whether the typical graduates from a program that received federal financial aid earn more than a typical high school graduate in their state (or, in some cases, nationally) and within a certain age range in the labor force. A program that fails in two out of three consecutive years, or is voluntarily discontinued by the institution, would not be eligible to have Title IV reinstated for the program or launch and receive Title IV for a “substantially similar program” (generally defined as a program with the same four-digit CIP code) for a minimum of three years. The final rule describes that the Department will now measure earnings six years after graduation (instead of the proposed rule’s three years after graduation) for certain qualifying graduate programs such as clinical psychology, marriage and family therapy, clinical social work, and clinical counseling. The final rule also includes the requirement that, beginning July 1, 2026, all schools provide a link to a Department of Education-hosted website that includes information on cost, earnings, and licensure information, and the gainful employment metrics. The final gainful employment regulations took effect July 1, 2024. The Department initially indicated that it will release metrics beginning in the 2025 financial aid award year. Based on that timeline, beginning July 1, 2026, if a program fails a metric, an institution must provide warnings to students and prospective students meeting certain minimum requirements to be specified by the Department; programs that fail the same metric in the first two years the rates are issued will lose eligibility in 2026. On December 22, 2023, a lawsuit was filed against the Department in the United States District Court for the Northern District of Texas alleging that the rulemaking process and final rule were based on arbitrary and capricious decisions made by the Department, and that the rule violates constitutional rights related to speech, equal protection, and due process. On March 20, 2024, another lawsuit was filed against the Department in the United States District Court for the Northern District of Texas seeking a preliminary and permanent injunction enjoining the Department from enforcing the final rule on the grounds that the rule exceeds the Department’s statutory authority, and is arbitrary, capricious, an 110 Table of Contents abuse of discretion, and otherwise is not in accordance with law, and the motion for preliminary injunction was denied on June 20, 2024. On July 2, 2024, the court consolidated the two Gainful Employment cases into one. Capella University and Strayer University are not parties to the lawsuit. The Company is unable to predict the ultimate outcome of the litigation. In a March 29, 2024 Electronic Announcement (GE-24-01), the Department released additional information and updates to help institutions prepare for complying with the Financial Value Transparency (“FVT”) and Gainful Employment (“GE”) Regulations, including that the deadline for initial institutional data reporting was extended from July 31, 2024 to October 1, 2024. The Department indicated that in early 2025, it plans to publish the FVT/GE metrics and notify institutions of failing GE programs, as well as provide additional information on the program eligibility effects of the metrics on failing GE programs. In a September 13, 2024 Electronic Announcement (GE-24-08), the Department announced the deadline for initial institutional data reporting was further extended from October 1, 2024 to January 15, 2025. Capella University and Strayer University submitted the appropriate data ahead of the extended deadline. On January 17, 2025, the Department reopened the reporting process for debt reporting until February 18, 2025. On February 14, 2025, the Department announced that it would further extend the deadline for all reporting data associated with FVT/GE to September 30, 2025; it does not plan to produce any FVT/GE metrics prior to the new deadline and will take no enforcement or other punitive actions against institutions that had not completed reporting to date; and it anticipates that there will be no additional extensions of the reporting deadline beyond September 30, 2025. Misrepresentation Under the Higher Education Act, the Department of Education may impose various sanctions, including a fine or suspension or termination of an institution’s participation in Title IV programs, if it engages in substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of its graduates. The Department’s related regulations, which took effect July 1, 2011, set forth the types of activities that constitute misrepresentation and describe the adverse actions that the Department of Education may take if it finds that an institution or a third party that provides educational programs, marketing, advertising, recruiting, or admissions services to the institution engaged in substantial misrepresentation. The rule specifies the types of statements that can subject the institution to liability for misrepresentation, as well as the nature and form of misleading statements. As part of the Department’s 2016 promulgation of the Borrower Defenses to Repayment regulation, the Department changed the definition of misrepresentation for Title IV regulations to include any statement that “has the likelihood or tendency to mislead under the circumstances.” The expanded definition included “any statement that omits information in such a way as to make the statement false, erroneous, or misleading.” This regulation was published on November 1, 2016 and, after a series of delays, went into effect as of October 16, 2018. On August 30, 2019, the Department released final Borrower Defense to Repayment regulations that included a new definition of “misrepresentation,” which became effective July 1, 2020. The final rule defines a “misrepresentation” as: a statement, act, or omission by an eligible school to a borrower (a) that is false, misleading, or deceptive, (b) that was made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard for the truth, and (c) that directly and clearly relates to either (1) enrollment or continuing enrollment at the institution, or (2) the provision of educational services for which the loan was made. On August 10, 2021, the Department of Education announced its intention to establish a rulemaking committee to prepare proposed regulations on, among other things, Borrower Defense to Repayment, including a new definition of misrepresentation. Negotiated rulemaking committee meetings completed in December 2021 with no consensus reached on the topic. On October 31, 2022, the Department released final Borrower Defense to Repayment regulations, which include among other defenses to repayment substantial misrepresentation, with a significantly expanded definition of misrepresentation. The final rule’s definition of misrepresentation includes any false, erroneous or misleading statement made by the institution or its representatives, or its marketing, advertising, recruiting or admissions agents, as well as any omission of fact that a reasonable person would have considered in deciding to enroll in or continue attendance at the institution. A statement is deemed misleading if it has the likelihood or tendency to mislead under the circumstances. A misrepresentation includes statements and omissions made in any medium, whether directly or indirectly, to a student, prospective student or any member of the public, or to an accrediting agency, to a State agency, or to the Secretary of Education. Misrepresentation also includes the dissemination of a student endorsement or testimonial that a student gives either under duress or because the institution required such an endorsement or testimonial to participate in a program. On September 25, 2024, the Department issued a Federal Student Aid Enforcement Bulletin (Electronic Announcement GENERAL-24-115) with examples of “conduct that creates a risk of engaging in a substantial misrepresentation” which could form the basis of a BDTR complaint or otherwise result in adverse administrative action by the Department, including a fine or limitation of an institution’s participation in the Title IV programs. Topics identified included certain claims related to general 111 Table of Contents salary information (including use of Bureau of Labor Statistics salary data), job placement rates, rankings, licensure, faculty qualifications, for- or non-profit status, and cost of attendance or price. On January 16, 2025, the Department issued a Federal Student Aid Notice of Interpretation (Dear Colleague Letter GEN-25-01) reminding institutions that misrepresentation requirements “apply with equal force to statements made by a third-party entity engaged by the eligible institution” and that “institutions may be responsible for the consequences of any misrepresentation committed by any external service provider that they engage.” The Department gave examples of statements that are “likely” to qualify as a misrepresentation, including inaccurately identifying an individual employed by an external servicer provider as being employed by the eligible institution; inaccurately presenting a sales representative or recruiter as an academic advisor, such as by referring to them as a “counselor”; and describing a program provided in substantial part by an external service provider as “the same as” a corollary residential- or campus-based program. Borrower Defenses to Repayment Pursuant to the Higher Education Act and following negotiated rulemaking, on November 1, 2016, the Department of Education released a final regulation specifying the acts or omissions of an institution that a borrower may assert as a defense to repayment of a loan made under the Direct Loan Program and the consequences of such borrower defenses for borrowers, institutions, and the Secretary of Education (the “2016 BDTR Rule”). Under the 2016 BDTR Rule, for Direct Loans disbursed after July 1, 2017, a student borrower may assert a defense to repayment if: (1) the student borrower obtained a state or federal court judgment against the institution; (2) the institution failed to perform on a contract with the student; and/or (3) the institution committed a “substantial misrepresentation” on which the borrower reasonably relied to his or her detriment. These defenses are asserted through claims submitted to the Department of Education, and the Department has the authority to issue a final decision. In addition, the regulation permits the Department to grant relief to an individual or group of individuals, including individuals who have not applied to the Department seeking relief. If a defense is successfully raised, the Department has discretion to initiate action to collect from an institution the amount of losses incurred based on the borrower defense. The 2016 BDTR Rule also amends the rules concerning discharge of federal student loans when a school or campus closes and prohibits pre-dispute arbitration agreements and class action waivers for borrower defense-type claims. On January 19, 2017, the Department of Education issued a final rule, updating the hearing procedures for actions to establish liability against an institution of higher education and establishing procedures for recovery proceedings under the borrower defense regulations. Several times between June 2017 and February 2018, the Department of Education announced delays until July 1, 2019 of implementation of certain portions of the 2016 BDTR Rule, including those portions of the regulations that establish a new federal standard and a process for determining whether a Direct Loan borrower has a defense to repayment of a Direct Loan based on an act or omission of an institution. However, in October 2018, a judge denied a request to delay implementation of portions of the regulations, and as a result the 2016 BDTR Rule went into effect as of October 16, 2018. On September 23, 2019, the Department published final Borrower Defense to Repayment regulations (the “2019 BDTR Rule”), which governs borrower defense to repayment claims in connection with loans first disbursed on or after July 1, 2020. Under the 2019 BDTR Rule, an individual borrower can assert a defense to repayment and be eligible for relief if she or he establishes, by a preponderance of the evidence, that (1) the institution at which the borrower enrolled made a misrepresentation of material fact upon which the borrower reasonably relied in deciding to obtain a Direct Loan or a loan repaid by a Direct Consolidation Loan; (2) the misrepresentation directly and clearly related to the borrower’s enrollment or continuing enrollment at the institution or the institution’s provision of education services for which the loan was made; and (3) the borrower was financially harmed by the misrepresentation. The Department will grant forbearance on all loans related to a claim at the time the claim is made. The 2019 BDTR Rule defines “financial harm” as the amount of monetary loss that a borrower incurs as a consequence of a misrepresentation. The Department will determine financial harm based upon individual earnings and circumstances, which must include consideration of the individual borrower’s career experience subsequent to enrollment and may include, among other factors, evidence of program-level median or mean earnings. “Financial harm” does not include damages for nonmonetary loss, and the act of taking out a Direct Loan, alone, does not constitute evidence of financial harm. Financial harm also cannot be predominantly due to intervening local, regional, national economic or labor market conditions, nor can it arise from the borrower’s voluntary change in occupation or decision to pursue less than full-time work or decision not to work. The 2019 BDTR Rule contains certain limitations and procedural protections. Among the most prominent of these restrictions, the regulation contains a three-year limitation period of claims, measured from the student’s separation from the institution, does not permit claims to be filed on behalf of groups, and requires that institutions receive access to any evidence in the Department’s possession to inform its response. The 2019 BDTR Rule permits the usage of pre-dispute arbitration agreements as a condition of enrollment, so long as the institution provides plain-language disclosures to students and the disclosure is placed on the institution’s website. The regulations also allow for a borrower to choose whether to apply for a closed school 112 Table of Contents loan discharge or accept a teach-out opportunity. In addition, the closed school discharge window is expanded from 120 days to 180 days prior to the school’s closure, though the final rule does not allow for an automatic closed school loan discharge. Institutions are required to accept responsibility for the repayment of amounts discharged by the Secretary pursuant to the borrower defense to repayment, closed school discharge (associated with closure of a school or an additional location or branch campus), false certification discharge, and unpaid refund discharge regulations. If the Secretary discharges a loan in whole or in part, the Department of Education may require the school to repay the amount of the discharged loan. On August 10, 2021, the Department of Education announced its intention to establish a rulemaking committee to develop proposed regulations on, among other things, Borrower Defense to Repayment. Negotiated rulemaking committee meetings completed in December 2021 with no consensus reached on the topic. On July 6, 2022, the Department released proposed Borrower Defense to Repayment regulations for public comment and subsequently published a final rule on October 31, 2022 (the “2022 BDTR Rule”). Among other things, the 2022 BDTR Rule sets a single standard and streamlined process for relief that will apply to all future and pending Borrower Defense to Repayment claims as of July 1, 2023, regardless of the date of a borrower’s loan disbursement; defines the types of misconduct that could lead to borrower defense discharges, including substantial misrepresentations, substantial omissions of fact, breaches of contract, aggressive and deceptive recruitment, and state or federal judgments or final Department of Education actions that could give rise to a Borrower Defense to Repayment claim; establishes a presumption that borrowers reasonably relied upon misrepresentations or omissions; establishes a reconsideration process for borrowers whose claims are not approved for a full discharge, including based on a state law standard; and creates a process for the adjudication of group claims based on common facts. The 2022 BDTR Rule permits nonprofit legal assistance organizations to request group claims. The 2022 BDTR Rule also establishes a recoupment process separate from the approval of Borrower Defense to Repayment claims. In addition, the 2022 BDTR Rule prohibits institutions from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class action waivers for claims related to the making of a Federal Direct Loan or the provision of educational services for which the loan was obtained. The 2022 BDTR Rule also modified the closed school discharge rule to provide an automatic discharge one year after an institution or location’s closure date for borrowers who were enrolled at the time of closure or left 180 days before closure and who do not accept an approved teach-out agreement or continuation of the program at another location of the school; those who accept but do not complete a teach-out agreement or program continuation will receive a discharge one year after their last date of attendance. The 2022 BDTR Rule became effective July 1, 2023. On August 7, 2023, in the matter of Career Colleges and Schs. of Tex. vs. U.S. Dep’t of Educ. , et al. (No. 23-50491), the U.S. Court of Appeals for the Fifth Circuit granted a nationwide emergency injunction preventing the Department of Education’s enforcement of the 2022 BDTR Rule. On April 4, 2024, the Fifth Circuit reversed the underlying district court decision denying injunctive relief and remanded the case to the district court with instructions to enjoin and postpone the effective date of the 2022 BDTR Rule pending final judgment. The Department petitioned the Fifth Circuit for panel rehearing, which the Fifth Circuit denied on June 12, 2024. On October 10, 2024, the Department timely filed a petition for a writ of certiorari, seeking review by the Supreme Court of the United States. The Respondent’s (i.e., Career Colleges and Schools of Texas) filed a response to the Department’s petition on December 12, 2024, and the Department filed a reply on December 23, 2024. On January 10, 2025, the Supreme Court agreed to hear arguments on the Department’s appeal, and on February 6, 2025, at the Department’s request, the Supreme Court agreed to pause the briefing schedule. The Department has previously stated that it will not adjudicate any borrower defense applications under the latest rule unless and until the effective date is reinstated. The Department will continue to adjudicate borrower defense applications using an earlier version of the regulations, including where required under a court settlement (the Sweet case discussed above). The Company is unable to predict the ultimate outcome of the litigation. State Authorization Reciprocity Agreement (SARA) Capella University and Strayer University participate in the State Authorization Reciprocity Agreement (“SARA”), which allows the universities to enroll students in distance education programs in each SARA member state, including 49 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Each of the universities applies separately to non-SARA member states (i.e., California) for authorization to enroll students, if such authorization is required by the state. On January 16, 2024, SARA’s coordinating entity, the National Council for State Authorization Reciprocity Agreements (“NC-SARA”), initiated its 2024 policy manual modification process with a call for proposals for SARA policy changes. The call for proposals ended February 2, 2024 and yielded 50 proposed changes to NC-SARA policies, some of which, if adopted, could significantly alter the distance education reciprocity agreements. Such proposals included that an institution may be denied participation in SARA if it violates any requirement related to state authorization, accreditation, or participation in federal Title IV financial aid programs; and that an institution may be denied participation in SARA or have its participation limited as a result of adverse actions against it related to the institution’s academic quality, financial stability, or student consumer protection issues. On April 26, 2024, NC-SARA held its public comment forum to seek input on these potential changes. In addition to the public 113 Table of Contents comment forum, NC-SARA accepted written comments between April 15, 2024 and May 17, 2024. On September 10, 2024, NC-SARA announced that the four regional compacts/regional steering committees approved 10 policy change proposals, which include proposed changes related to when an institution may be placed on provisional status and when a state must deny or may exercise its discretion to deny an institution’s participation in SARA. The NC-SARA board of directors approved the proposals on October 23-25, 2024, concluding the 2024 policy modification process. The adoption of certain proposals, including those described above to the extent they affect the ability of institutions to participate in the agreements, could have a material adverse effect on Capella University, Strayer University, and the Company. Beginning in January 2024, the Department convened a negotiated rulemaking committee to consider new proposed regulations on, among other things, state authorization and state authorization reciprocity agreements. In December 2024, the Department terminated the state authorization negotiated rulemaking process, prior to issuing any draft regulations. Negotiated Rulemaking Beginning January 2024, the Department convened negotiated rulemaking committee meetings to consider new proposed regulations on distance education, cash management, return of federal funds, state authorization, accreditation and related issues, and TRIO programs. On December 30, 2024, the Department released final regulations on distance education, return of federal funds and the TRIO program, which all make modest changes to existing regulatory language requiring additional data collection and reporting, or, in the case of the TRIO program, make technical changes. Also in December 2024, the Department officially terminated the negotiated rulemaking process for cash management, state authorization and accreditation, prior to releasing any draft rules. Title IX On April 19, 2024, the U.S. Department of Education released its final rule regarding the implementation of Title IX, which prohibits discrimination on the basis of sex in education programs that receive funding from the federal government (the “2024 Title IX Rule”). The 2024 Title IX Rule applies to all forms of sex-based harassment (not only sexual harassment); clarifies that Title IX’s prohibition against sex discrimination includes discrimination on the basis of sex stereotypes, sex characteristics, pregnancy or related conditions, sexual orientation, and gender identity; and eliminates the requirement for live hearings with an opportunity for cross-examination at the post-secondary level. Multiple states have joined lawsuits against the Department challenging the new rules, and federal district courts have granted preliminary injunctions enjoining the Department from enforcing the final rule in Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming. Certain courts have issued orders expanding the injunction to named schools, irrespective of where those schools are located; Capella University and Strayer University were named among nearly 700 schools in one such order on July 15, 2024. Kansas v. U.S. Dep’t of Educ. , No. 5:24-cv-4041 (D. Kan. 2024). Except where enjoined, the 2024 Title IX Rule otherwise became effective on August 1, 2024. On January 9, 2025, in State of Tennessee et al v. Cardona , 2:24-cv-00072, the U.S. District Court for the Eastern District of Kentucky granted summary judgment against the U.S. Department of Education, vacating the 2024 Title IX Rule as unlawful. On February 4, 2025, the Department’s Office for Civil Rights issued a Dear Colleague Letter confirming that it will enforce Title IX under the 2020 Title IX Rule, and that open investigations initiated under the 2024 Title IX Rule should be reevaluated for consistency with the 2020 Title IX Rule. Australian and New Zealand Regulation The Company operates two post-secondary educational institutions in Australia, Torrens University Australia Limited (“Torrens”) and Think: Colleges Pty Ltd (“Think”). In Australia, a distinction is made between higher education and vocational education organizations. Higher education providers consist of public and private universities, Australian branches of overseas universities and other higher education providers. Higher education qualifications consist of undergraduate awards (bachelor’s degrees, associate degrees and diplomas) and postgraduate awards (graduate certificates and diplomas, master’s degrees and doctoral degrees). The regulation of higher education providers is undertaken at a national level by the Tertiary Education Quality and Standards Agency (“TEQSA”). All organizations that offer higher education qualifications in or from Australia must be registered by TEQSA. Higher education providers that have not been granted self-accrediting status must also have their courses of study accredited by TEQSA. Registration as a higher education provider is for a fixed period of up to seven years. TEQSA regularly reviews the conduct and operation of accredited higher education providers. The vocational education and training (“VET”) sector consists of technical and further education institutes, agricultural colleges, adult and community education providers, community organizations, industry skill centers and private providers. VET 114 Table of Contents qualifications include certificates, diplomas and advanced diplomas. The regulation of VET providers is undertaken at a national level by the Australian Skills Quality Authority (“ASQA”). Organizations providing VET courses in Australia must be registered by ASQA as a Registered Training Organisation (“RTO”). Courses offered by RTOs need to be accredited by ASQA. Registration as an RTO is for a fixed period of up to seven years. ASQA regularly reviews the conduct and operations of RTOs. Torrens is one of 44 universities in Australia. It is a private, for-profit entity and is registered with TEQSA. As a self-accrediting university, it is not required to have its individual courses of study accredited by TEQSA. Torrens is also registered with ASQA as an RTO and is thus entitled to offer vocational and training courses. Torrens is currently undergoing an ordinary course re-registration process with TEQSA. Think is one of approximately 5,000 RTOs in Australia and in that capacity is regulated by ASQA. It is also registered as a higher education provider with TEQSA. Its higher education courses require, and have received, accreditation by TEQSA. Australia also maintains a Commonwealth Register of Institutions and Courses for Overseas Students (“CRICOS”) for Australian education providers that recruit, enroll and teach overseas students. Registration on CRICOS allows providers to offer courses to overseas students studying on Australian student visas. Both Torrens and Think are so registered. The Commonwealth government has established income-contingent loan schemes that assist eligible fee-paying students to pay all or part of their tuition fees (separate but similar schemes exist for higher education and vocational courses). Under the schemes, the relevant fees are paid directly to the institutions by the Commonwealth government on behalf of the student. A corresponding obligation then exists from the participating student to the Commonwealth government, which is addressed by adding a levy to that student’s income tax until the loan amount has been repaid. Neither Torrens nor Think have any responsibility in connection with the repayment of these loans by students and, generally, this assistance is not available to international students. Both Torrens and Think are registered for the purposes of these plans (a precondition to their students being eligible to receive such loans). On May 16, 2024, the Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024 , which would amend the Education Services for Overseas Students Act 2000 , was introduced into the House of Representatives of the Australian Parliament. On August 15, 2024, the Bill was introduced into the Senate of the Australian Parliament. The Bill contained several measures that would authorize the Minister for Education to regulate the provision of education to overseas students, including, among other things, by limiting the enrollments of overseas students. These limits would apply to Torrens and to Think. The Bill has not passed the Senate; however, on December 19, 2024, the Australian Federal Government introduced Ministerial Direction 111, which, like the Bill, seeks to limit the number of international students, and is expected to draw student allocations determined by the Government on a prioritization approach. The Company operates a post-secondary educational institution in New Zealand, Media Design School Limited (“MDS”). MDS is a Private Training Establishment, a private organization offering education or training. It is a globally renowned and specialist provider of design and creative technology education with qualifications ranging from diplomas to postgraduate degrees. MDS also has access to New Zealand Government student finance where study loans are offered to students who are New Zealand citizens or ordinarily resident in New Zealand, subject to certain conditions. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.