# PERDOCEO EDUCATION Corp: Form 10-Q for the period ended Sep 30, 2022

- Company: [PERDOCEO EDUCATION Corp](/companies/prdo.md) (CIK 1046568)
- Form: 10-Q
- Filed: 2022-11-07
- Accepted by EDGAR: Nov 7, 2022, 16:21 ET
- Period: 2022-09-30
- Accession: 0000950170-22-022632
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1046568/000095017022022632/prdo-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1046568/000095017022022632/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $168.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $519.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $29.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $107.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $96.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $298.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $9.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $29.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $22.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $79.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.32 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $1.16 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $1.17 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 68,550,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 69,131,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $107.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $23.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $147.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $582.3m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $899.2m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $140.4m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2022-09-30 | $706.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,850 characters.

*The discussion below and other items in this Quarterly Report on Form 10-Q contain “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current expectations regarding our future growth, results of operations, cash flows, performance and business prospects and opportunities, as well as assumptions made by, and information currently available to, our management. We have tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “expect,” “plan,” “may,” “should,” ”will,” “continue to,” “focused on” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors, including, but not limited to, those matters discussed in Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2021 that could cause our actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Among the factors that could cause actual results to differ materially from those expressed in, or implied by, our forward-looking statements are the following:*

- *declines in enrollment or interest in our programs;*
- *our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the 90-10, financial responsibility and administrative capability standards prescribed by the U.S. Department of Education (the “Department”)), as well as applicable accreditation standards and state regulatory requirements;*
- *the impact of various versions of “borrower defense to repayment” regulations;*
- *rulemaking by the Department or any state or accreditor and increased focus by Congress and governmental agencies on, or increased negative publicity about, for-profit education institutions;*
- *the success of our initiatives to improve student experiences, retention and academic outcomes;*
- *our continued eligibility to participate in educational assistance programs for veterans and other military personnel;*
- *increased competition;*
- *the impact of management changes; and*
- *changes in the overall U.S. economy.*

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“*MD&A”*) should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to help investors understand the results of operations, financial condition and present business environment. The MD&A is organized as follows:

- Overview
- Consolidated Results of Operations
- Segment Results of Operations
- Summary of Critical Accounting Policies and Estimates
- Liquidity, Financial Position and Capital Resources

### OVERVIEW

Our academic institutions offer a quality postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. Our accredited institutions – Colorado Technical University (“*CTU”)* and the American InterContinental University System (“*AIUS” or “AIU System”) –* provide degree programs from associate through doctoral level as well as non-degree professional development and continuing education offerings. Our universities offer students industry-relevant and career-focused academic programs that are designed to meet the educational needs of today’s busy adults. CTU and AIUS continue to show innovation in higher education, advancing personalized learning technologies like their intelli**path®** learning platform and using data analytics and technology to support students and enhance learning. Perdoceo is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

On July 1, 2022, the Company acquired substantially all of the assets of California Southern University ("*CalSouthern" and the "CalSouthern acquisition"*). CalSouthern provides online education with a quality technology platform and strong course content in the areas of behavioral sciences and business management programs. CalSouthern's operations were brought within the AIUS segment, preserving the 'California Southern University' name and programs as part of AIUS' operations. Results of operations related to the CalSouthern acquisition are not material to our consolidated results of operations and are included in the unaudited condensed consolidated financial statements from the date of acquisition.

Our reporting segments are determined in accordance with Financial Accounting Standards Board (“*FASB”)* Accounting Standards Codification (“*ASC”)* Topic 280 – *Segment Reporting* and are based upon how the Company analyzes performance and makes decisions. Each segment represents a postsecondary education provider that offers a variety of academic programs. We organize our business across two reporting segments: CTU and AIUS.

### Regulatory Environment and Political Uncertainty

We operate in a highly regulated industry, which has significant impacts on our business and creates risks and uncertainties. In recent years, Congress, the Department, states, accrediting agencies, the CFPB, the FTC, state attorneys general and the media have scrutinized the for-profit postsecondary education sector. Congressional hearings and roundtable discussions were held regarding various aspects of the education industry and reports were issued that are highly critical of for-profit colleges and universities. A group of influential U.S. senators, consumer advocacy groups and some media outlets have strongly and repeatedly encouraged the Departments of Education, Defense and Veterans Affairs to take action to limit or terminate the participation of for-profit educational institutions, including Perdoceo, in existing tuition assistance programs. In addition, targeted loan relief to student borrowers is a stated priority for the Department, and consumer advocacy groups and others are focusing their lobbying and other efforts relating to student debt forgiveness on for-profit colleges and universities, encouraging loan discharge applications and complaints by former students.

The current Presidential and Department administrations, as well as Congress, are pursuing significant legislative, regulatory and administrative actions affecting our business. A loss or material reduction in Title IV Programs or the amount of student financial aid for which our students are eligible would materially impact our student enrollments and profitability and could impact the continued viability of our business as currently conducted.

We encourage you to review Item 1, “Business,” and Item 1A, “Risk Factors,” in our Annual Report on Form 10-K to learn more about our highly regulated industry and related risks and uncertainties, in addition to the MD&A in our 2022 Quarterly Reports on Form 10-Q.

### Note Regarding Non-GAAP measures

We believe it is useful to present non-GAAP financial measures which exclude certain significant and non-cash items as a means to understand the performance of our core business. As a general matter, we use non-GAAP financial measures in conjunction with results presented in accordance with GAAP to help analyze the performance of our core business, assist with preparing the annual operating plan, and measure performance for some forms of compensation. In addition, we believe that non-GAAP financial information is used by analysts and others in the investment community to analyze our historical results and to provide estimates of future performance.

We believe certain non-GAAP measures allow us to compare our current operating results with respective historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by items we do not consider reflective of underlying operating performance. In evaluating the use of non-GAAP measures, investors should be aware that in the future we may incur expenses similar to the adjustments presented below. Our presentation of non-GAAP measures should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine or non-recurring. A non-GAAP measure has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for net income, operating income, earnings per diluted share, or any other performance measure derived in accordance with and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of our liquidity.

Non-GAAP financial measures, when viewed in a reconciliation to respective GAAP financial measures, provide an additional way of viewing the Company's results of operations and the factors and trends affecting the Company's business. Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the respective financial results presented in accordance with GAAP.

### 2022 Third Quarter Overview

During the quarter ended September 30, 2022 ("*current quarter"*), revenue decreased 3.2% to $168.4 million and operating income decreased 22.5% to $29.3 million as compared to the prior year quarter. We continued to invest in technology upgrades and maintain appropriate levels of academic and student support services that we believe are positively impacting academic outcomes and student experiences. Our current quarter operating results were supported by better than expected improvements in student engagement and student retention, as the overall macroeconomic and governmental responses generally wind down from the pandemic.

Total student enrollments decreased 2.1% at September 30, 2022 as compared to September 30, 2021, with CTU’s increase of 2.7% more than offset with a decrease of 9.5% at AIUS. CTU’s increase in total student enrollments was driven by improved student engagement and retention, which we believe is a result of the adjustments we made to our marketing processes in the third quarter of 2021. These marketing changes were made to refine the process to identify prospective students who are more likely to succeed at one of our academic institutions. AIUS’ rate of decline in total student enrollments continued to moderate during the current quarter as the overall pandemic winds down and we continue to see improvements in student engagement and retention.

We believe investments in technology positively impact student experiences and academic outcomes. We are making necessary investments to upgrade our student-serving systems and continue to leverage data analytics and machine learning to enable timely and relevant engagement with our students. We launched a new student relationship system that provides assistance and insights in the advising process, enabling us to effectively engage with students with the appropriate support at the right time. We also continue to make meaningful updates to our mobile applications for both students and faculty. We have upgraded our mobile technology framework allowing for better performance and increased stability. These upgrades also provide more flexibility with third party plugins enabling consistency amongst newer devices. Overall app usage is high at both institutions with an approximate 90% adoption rate. Lastly, after being successfully launched at AIUS, we have also completed the chat bot integration with messenger at CTU, allowing students to receive real-time support.

We continued to focus on and invest in our corporate partnership program at both institutions and our teams are successfully engaging with employers who provide tuition assistance programs which allows for a debt-free education to their employees. In general, these partnerships take time to develop, and students are awarded higher tuition grants from the university to offset their tuition costs, resulting in lower revenue per student in any given period. However, we believe students participating in these programs typically experience higher retention over the course of their program, have better academic outcomes, graduate with no debt and ultimately may lead to a higher life time value per student.

While we experienced better than expected improvements in student engagement and student retention during the current quarter, we expect AIUS' total student enrollments to decline at December 31, 2022 versus the prior year end and expect CTU's total student enrollments to increase at December 31, 2022 versus the prior year end. Typically, changes in total student enrollments have a lag in the impact on revenue, and, as a result, we still expect revenue and operating income for 2022 to be lower as compared to 2021, excluding any positive impacts from acquisitions or the academic calendar redesign. We will continue our efforts to adjust our operating processes and expenses to align with overall revenue and enrollment trends, although we do not expect these adjustments to fully offset the expected revenue decline.

### Financial Highlights

Revenue for the quarter ended September 30, 2022 decreased by 3.2% or $5.6 million as compared to the prior year quarter, resulting from a decrease in revenue for CTU of 6.9% or $7.2 million partially offset with an increase for AIUS of 2.4% or $1.6 million. The decrease in revenue for the current quarter at CTU was driven primarily by the lag impact on revenue of lower total student enrollments over the past several quarters and the increase in the number of student enrollments related to corporate partnerships. While student enrollments related to corporate partnerships have a lower revenue per student, we believe these students have higher retention over the course of their program. The increase in revenue at AIUS for the current quarter was driven by the acquisition completed during the current quarter. Excluding the current quarter acquisition, revenue would have declined at AIUS for the current quarter as compared to the prior year quarter driven by the decrease in total student enrollments. Operating income in the current quarter decreased to $29.3 million as compared to operating income of $37.9 million in the prior year quarter. The decrease in operating income for the current quarter was primarily due to the decrease in revenue.

The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant and non-cash items, as a means to understand the performance of its operations. (See tables below for a GAAP to non-GAAP reconciliation.) Adjusted operating income was $38.7 million for the current quarter as compared to $46.3 million for the prior year quarter.

Adjusted operating income and adjusted earnings per diluted share for the quarters and years to date ended September 30, 2022 and 2021 is presented below (dollars in thousands, unless otherwise noted):

| Adjusted Operating Income | For the Quarter Ended September 30, 2022 2021 | For the Year to Date Ended September 30, 2022 2021 |
| --- | ---: | ---: |
| **Operating income** | **$29,324** **$37,861** | **$106,963** **$114,440** |
| Depreciation and amortization (1) | 5,065 3,887 | 14,856 11,802 |
| Legal fee expense related to certain matters (2) | 4,294 4,583 | 9,728 7,241 |
| **Adjusted Operating Income** | **$38,683** **$46,331** | **$131,547** **$133,483** |
|  | **For the Quarter Ended September 30,** | **For the Year to Date Ended September 30,** |
| **Adjusted Earnings Per Diluted Share** | **2022** **2021** | **2022** **2021** |
| **Reported Earnings Per Diluted Share** | **$0.32** **$0.39** | **$1.16** **$1.19** |
| **Pre-tax adjustments included in operating expenses:** |  |  |
| Amortization for acquired intangible assets (1) | 0.03 0.01 | 0.08 0.03 |
| Legal fee expense related to certain matters (2) | 0.06 0.06 | 0.14 0.10 |
| **Total pre-tax adjustments** | $0.09 $0.07 | $0.22 $0.13 |
| **Tax effect of adjustments (3)** | (0.02) (0.01) | (0.06) (0.03) |
| **Total adjustments after tax** | 0.07 0.06 | 0.16 0.10 |
| **Adjusted Earnings Per Diluted Share** | **$0.39** **$0.45** | **$1.32** **$1.29** |

(1) Amortization for acquired intangible assets relate to definite-lived intangible assets associated with acquisitions.

(2) Legal fee expense associated with (i) responses to the Department relating to borrower defense to repayment applications from former students, and (ii) acquisition efforts.

(3) The tax effect of adjustments was calculated by multiplying the pre-tax adjustments with a tax rate of 25%. This tax rate is intended to reflect federal and state taxable jurisdictions as well as the nature of the adjustments.

### Regulatory Updates

### Student Loan Forgiveness

On August 24, 2022, President Biden and the Department announced a plan to provide broad student loan forgiveness to borrowers with certain federal student loans. The plan provides $20,000 in debt relief to Pell Grant recipients with loans held by the Department and up to $10,000 in debt relief to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households. This plan includes our current and former students that had loan balances as of June 30, 2022. The Congressional Budget Office (“*CBO”*) estimated that 42.4 million individuals will be eligible for debt relief at a total cost of $430 billion. The plan was described as a form of COVID pandemic related financial support that relies upon Congressional authorization given to the Department for loan modifications for individuals impacted by national emergencies. The plan is currently subject to a number of legal challenges in Federal courts and the Department is currently enjoined by an Eighth Circuit Federal Court of Appeals from proceeding with the loan forgiveness while the court considers the pending challenge. The loan relief will benefit our eligible current and former students, however, we are unable to determine what impact it will have on our schools, if any, or on any pending borrower defense to repayment or closed school discharge claims.

See Item 1A, “Risk Factors – Risks Related to the Highly Regulated Field in Which We Operate - ‘*Borrower defense to repayment’ regulations, including closed school discharges, may subject us to significant repayment liability to the Department for discharged federal student loans and posting of substantial letters of credit that may limit our ability to make investments in our business which could negatively impact our future growth,”* in our Annual Report on Form 10-K for the year ended December 31, 2021 for more information about risks associated with the borrower defense to repayment regulations.

### 2021-22 Negotiated Rulemakings

In December 2021, the Department concluded negotiated rulemaking on a number of topics related to affordability and student loans. The topics discussed during these negotiations generally related to different Title IV regulations that impact the Department’s ability to discharge student loans. During the process, the Department expressed a goal of making it easier for students to have their loans discharged or forgiven and providing more favorable loan repayment terms. The Department also intends to make it easier to seek recovery of discharged loan funds from institutions through leveraging existing processes and modifications to current procedures. On July 13, 2022, the Department published in the Federal Register a set of proposed regulations for public comment covering most of the topics that were part of the affordability and student loan negotiations. The public comment period was set at 30 days and concluded on August 12, 2022. The Department published final regulations on November 1, 2022 in the *Federal Register*, which means these regulations will become effective July 1, 2023.

These new regulations from the July 13, 2022 Notice of Proposed Rulemaking include the following topics:

- Discharges for borrowers with a total and permanent disability;
- Eliminating certain interest capitalization events not required by statute;
- Discharges for when a school falsely certifies a student was eligible for Title IV Program financial aid;
- Closed school discharges;
- Expanding and simplifying public service loan forgiveness;
- Modifying the bases for borrower defense to repayment (“*BDR”*) claims as well as the adjudication processes for student claims;
- Modifying the procedures for recovering funds from schools for loans discharged pursuant to the borrower defense to repayment process; and
- Prohibiting schools from adopting or enforcing pre-dispute arbitration agreements and waivers of class action lawsuits.

These rules remove certain barriers and simplify the process for borrowers with a total and permanent disability and borrowers seeking public service loan forgiveness. The rules also expand closed school discharge provisions. The rules reduce the required supporting evidence and related obligations of students applying for *BDR* loan forgiveness, expand the categories students could raise in a BDR application, and provide the Department wide latitude to selectively adjudicate future BDR applications without affording institutions adequate opportunity to respond. The BDR rules remove any statute of limitations on student claims and create a rebuttable presumption in favor of full loan forgiveness as opposed to partial relief for most approved applications, eliminating the Department’s approach under the current rules of assessing whether and to what extent a student had been financially harmed. The combination of the reduced requirements, increased categories, and presumptions will increase the likelihood of loan forgiveness and potentially create a significant financial incentive for existing and former students to apply for loan forgiveness regardless of a claim’s merit. The proposed rules also increase the burden on institutions to maintain and provide documentation to refute student claims. As a result, an institution’s failure to maintain and provide timely and responsive information that goes beyond the contents of a typical student’s academic file in response to future BDR applications could form the basis for loan forgiveness.

Under existing BDR rules, the standards applicable to BDR applications generally corresponds to the rules that were in effect when the loans were first disbursed to the student. The standards arising from existing and prior regulations are sometimes referred to as the pre-2016 BDR standards, the 2016 BDR standards, and the 2019 BDR standards to correlate to the BDR rules initially applicable when adopted in 1994, and later revised by the Department in 2016 and 2019. The Department seeks to eliminate the differing standards that have resulted from these prior rulemakings. Upon the effective date of these new regulations, the Department proposes to apply its new standards to all pending and future BDR applications regardless of prior rules or limitations applicable to such BDR applications and regardless of the student’s loan disbursement date.

As a separate process from the adjudication of a borrower’s BDR application, the rules establish a new process for the Department to recoup funds from schools for any loans forgiven pursuant to a BDR application. The new rules require the Department to rely upon and adhere to existing or prior applicable BDR regulations for loans disbursed prior to the effective date of the regulations, but would significantly expand the basis for recovery for loans disbursed after the rules become effective.

We continue to closely monitor the rulemaking process along with the Department’s public statements, legal filings, and other communications, but are unable to determine the ultimate impact of any final regulations on our business at this time. See Item 1A, “Risk Factors – Risks Related to the Highly Regulated Field in Which We Operate – *The extensive regulatory requirements applicable to our business may change, in particular as a result of the scrutiny of the for-profit postsecondary education sector and the results of the 2020 Presidential and Congressional elections, which could require us to make substantial changes to our business, reduce our profitability, and make compliance more difficult,”* for information about the potential impact of new regulations on our business.

On July 28, 2022, the Department published in the *Federal Register* another set of proposed regulations for public comment covering a topic that was part of the 2021 affordability and student loan negotiations along with two topics that were part of the 2022 institutional and programmatic eligibility negotiations. The public comment period was set for 30 days and concluded on August 27, 2022. The Department published final regulations on October 28, 2022 in the *Federal Register,* which means these regulations will become effective July 1, 2023.

The new regulations from the October 28, 2022 Final Rule include the following topics:

- Adopting new regulations to calculate the percentage of a for-profit school’s revenue that is derived from federal education assistance, referred to as the “90-10 Rule”;
- Placing additional requirements and limits on changes of ownership or control; and
- Pell Grant eligibility for prison education programs.

The American Rescue Plan Act of 2021 (H.R.1319), passed on March 11, 2021, amended the Higher Education Act requirement of the 90-10 Rule that for-profit schools derive at least 10% of their tuition and fee revenue from Title IV funds aid to requires that the 90% revenue cap include all sources of federal funding, not just Title IV student aid funds. The regulation describing the new 90-10 Rule includes an expanded view of what federal aid is considered “federal educational assistance funds” under the rule, and is intended to include any identifiable revenue a school receives from tuition assistance programs offered by federal agencies, such as the Departments of Defense, Veterans Affairs, and Labor. The new rule also includes a number of technical changes, including a departure from the historical focus on cash basis revenue and existing Title IV Program cash management regulations. For example, institutions would be required to accelerate the receipt of, or would be deemed to have received, federal funds at the end of the annual measurement period. Although the Department published regulations in its Final Rule that are consistent with the consensus language reached during negotiated rulemaking, the Department included in the preamble to the regulation a number of interpretations that may potentially narrow and/or limit non-federal revenue that may be included by institutions in their annual calculations. These interpretations were offered with limited explanation and are expected to make future compliance with these regulations more difficult for for-profit institutions. We are continuing to evaluate these regulations along with the Department’s interpretations, public statements, and other communications but are unable to determine the ultimate impact of these final regulations on our business at this time.

See Item 1, “Business – Legislative Action and Recent Department Regulatory Initiatives” and “Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations” in our Annual Report on Form 10-K for the year ended December 31, 2021 for an overview of the previously adopted and rescinded gainful employment regulation and the current rules relating to the 90-10 Rule, change of ownership or control, financial responsibility and administrative capability. See Item 1A, “Risk Factors – Risks Related to the Highly Regulated Field in Which We Operate – *The extensive regulatory requirements applicable to our business may change, in particular as a result of the scrutiny of the for-profit postsecondary education sector and the results of the 2020 Presidential and Congressional elections, which could require us to make substantial changes to our business, reduce our profitability and make compliance more difficult,”* in our Annual Report on Form 10-K for the year ended December 31, 2021 for information about the potential impact of new regulations on our business.

### CONSOLIDATED RESULTS OF OPERATIONS

The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the quarters and years to date ended September 30, 2022 and 2021 (dollars in thousands):

|  | For the Quarter Ended September 30, 2022 | % of Total Revenue | 2021 | % of Total Revenue | 2022 vs 2021 % Change | For the Year to Date Ended September 30, 2022 | % of Total Revenue | 2021 | % of Total Revenue | 2022 vs 2021 % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| TOTAL REVENUE | $168,420 |  | $173,998 |  | -3.2% | $519,063 |  | $533,175 |  | -2.6% |
| OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |
| Educational services and facilities (1) | 30,149 | 17.9% | 25,961 | 14.9% | 16.1% | 85,506 | 16.5% | 83,467 | 15.7% | 2.4% |
| General and administrative: (2) |  |  |  |  |  |  |  |  |  |  |
| Advertising and marketing | 32,827 | 19.5% | 35,435 | 20.4% | -7.4% | 96,051 | 18.5% | 107,671 | 20.2% | -10.8% |
| Admissions | 23,732 | 14.1% | 23,207 | 13.3% | 2.3% | 70,175 | 13.5% | 74,235 | 13.9% | -5.5% |
| Administrative | 39,418 | 23.4% | 37,455 | 21.5% | 5.2% | 113,000 | 21.8% | 105,196 | 19.7% | 7.4% |
| Bad debt | 7,905 | 4.7% | 10,192 | 5.9% | -22.4% | 32,284 | 6.2% | 36,364 | 6.8% | -11.2% |
| Total general and administrative expense | 103,882 | 61.7% | 106,289 | 61.1% | -2.3% | 311,510 | 60.0% | 323,466 | 60.7% | -3.7% |
| Depreciation and amortization | 5,065 | 3.0% | 3,887 | 2.2% | 30.3% | 14,856 | 2.9% | 11,802 | 2.2% | 25.9% |
| Asset impairment | - | 0.0% | - | 0.0% | NM | 228 | 0.0% | - | 0.0% | NM |
| OPERATING INCOME | 29,324 | 17.4% | 37,861 | 21.8% | -22.5% | 106,963 | 20.6% | 114,440 | 21.5% | -6.5% |
| PRETAX INCOME | 31,292 | 18.6% | 37,326 | 21.5% | -16.2% | 109,841 | 21.2% | 114,292 | 21.4% | -3.9% |
| PROVISION FOR INCOME TAXES | 9,225 | 5.5% | 9,557 | 5.5% | -3.5% | 29,929 | 5.8% | 29,121 | 5.5% | 2.8% |
| Effective tax rate | 29.5% |  | 25.6% |  |  | 27.2% |  | 25.5% |  |  |
| **NET INCOME** | **$22,067** | **13.1%** | **$27,769** | **16.0%** | **-20.5%** | **$79,912** | **15.4%** | **$85,171** | **16.0%** | **-6.2%** |

(1) Educational services and facilities expense includes costs attributable to the educational activities of our universities, including: salaries and benefits of faculty, academic administrators and student support personnel, and costs of educational supplies and facilities, such as rents on leased facilities and certain costs of establishing and maintaining computer laboratories. Also included in educational services and facilities expense are rents on leased administrative facilities, such as our corporate headquarters, and costs of other goods and services provided by our campuses, including costs of textbooks and laptop computers.

(2) General and administrative expense includes operating expenses associated with, including salaries and benefits of personnel in, corporate and campus administration, marketing, admissions, information technology, financial aid, accounting, human resources, legal and compliance. Other expenses within this expense category include costs of advertising and production of marketing materials and bad debt expense.

### Revenue

The current quarter and year to date revenue decreased by 3.2% or $5.6 million and 2.6% or $14.1 million, respectively, as compared to the prior year periods. These declines were driven by the lag impact on revenue of the overall decline in total student enrollments over the past several quarters along with an increase in the number of student enrollments related to corporate partnerships. Typically, total student enrollment balances at the end of any given quarter have a lag impact on revenue in the subsequent quarter.

The current quarter includes a $7.2 million decline in revenue within CTU which was partially offset with an increase in revenue of $1.6 million within AIUS, as compared to the prior year period. AIUS' revenue increase for the current quarter was benefitted by the acquisition completed during the current quarter which more than offset the decrease resulting from the decline in total student enrollments as compared to the prior year quarter end.

The current year to date decline in revenue was driven by the overall decline in total student enrollments over the past several quarters which more than offset the positive impact of the academic calendar redesign at CTU and the acquisitions.

### Educational Services and Facilities Expense (dollars in thousands)

| Educational services and facilities: | For the Quarter Ended September 30, 2022 | 2021 | 2022 vs 2021 % Change | For the Year to Date Ended September 30, 2022 | 2021 | 2022 vs 2021 % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Academics & student related | $25,674 | $21,921 | 17.1% | $72,251 | $69,554 | 3.9% |
| Occupancy | 4,475 | 4,040 | 10.8% | 13,255 | 13,913 | -4.7% |
| **Total educational services and facilities** | **$30,149** | **$25,961** | **16.1%** | **$85,506** | **$83,467** | **2.4%** |

The educational services and facilities expense for the current quarter and year to date increased by 16.1% or $4.2 million and 2.4% or $2.0 million, respectively, as compared to the prior year periods. Academics and student related costs increased by 17.1% or $3.8 million and 3.9% or $2.7 million for the current quarter and year to date, respectively, as compared to the prior year periods, primarily as a result of the acquisitions completed in the current quarter and the prior year quarter. Partially offsetting the year to date increase in academics and student related costs was a decrease in occupancy expense of 4.7% or $0.7 million as compared to the prior year period. Occupancy expense for the current quarter increased by 10.8% or $0.4 million primarily due to the relocation of the CTU Colorado Springs campus.

### General and Administrative Expense (dollars in thousands)

| General and administrative: | For the Quarter Ended September 30, 2022 | 2021 | 2022 vs 2021 % Change | For the Year to Date Ended September 30, 2022 | 2021 | 2022 vs 2021 % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Advertising and marketing | $32,827 | $35,435 | -7.4% | $96,051 | $107,671 | -10.8% |
| Admissions | 23,732 | 23,207 | 2.3% | 70,175 | 74,235 | -5.5% |
| Administrative | 39,418 | 37,455 | 5.2% | 113,000 | 105,196 | 7.4% |
| Bad debt | 7,905 | 10,192 | -22.4% | 32,284 | 36,364 | -11.2% |
| **Total general and administrative expense** | **$103,882** | **$106,289** | **-2.3%** | **$311,510** | **$323,466** | **-3.7%** |

The general and administrative expense for the current quarter and year to date decreased by 2.3% or $2.4 million and 3.7% or $12.0 million, respectively, as compared to the prior year periods, primarily driven by decreases in advertising and marketing and bad debt expenses, as explained more fully below. Partially offsetting the current quarter and year to date decreases in these expenses were increased administrative costs as compared to the prior year periods.

Advertising and marketing expense for the current quarter and year to date decreased by 7.4% or $2.6 million and 10.8% or $11.6 million, respectively, as compared to the prior year periods, as a result of adjustments to our marketing processes related to identifying prospective student interest within both CTU and AIUS.

Admissions expense for the current quarter increased by 2.3% or $0.5 million and decreased by 5.5% or $4.1 million for the current year to date, as compared to the prior year periods. The year to date improvement was driven by the changes to the marketing processes mentioned above which also benefit admissions expense at both institutions. The current quarter increase was driven by increased expenses within CTU primarily due to the acquisition completed in the prior year quarter which only had one month of expense as compared to a full three months of expense in the current quarter.

Administrative expense for the current quarter and year to date increased by 5.2% or $2.0 million and 7.4% or $7.8 million, respectively, as compared to the prior year periods. The current quarter and year to date increase was driven by increased legal fees, including those related to the borrower defense to repayment applications from former students, as well as acquisition-related costs.

Bad debt expense incurred by each of our segments during the quarters and years to date ended September 30, 2022 and 2021 was as follows (dollars in thousands):

| Bad debt expense: | For the Quarter Ended September 30, 2022 | % of Segment Revenue | 2021 | % of Segment Revenue | 2022 vs 2021 % Change | For the Year to Date Ended September 30, 2022 | % of Segment Revenue | 2021 | % of Segment Revenue | 2022 vs 2021 % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| CTU | $3,678 | 3.8% | $4,248 | 4.1% | -13.4% | $16,853 | 5.4% | $16,328 | 5.2% | 3.2% |
| AIUS | 4,232 | 6.0% | 5,954 | 8.6% | -28.9% | 15,465 | 7.5% | 20,079 | 9.1% | -23.0% |
| Corporate and Other | (5) | NM | (10) | NM | NM | (34) | NM | (43) | NM | NM |
| **Total bad debt expense** | **$7,905** | **4.7%** | **$10,192** | **5.9%** | **-22.4%** | **$32,284** | **6.2%** | **$36,364** | **6.8%** | **-11.2%** |

Bad debt expense improved by 22.4% or $2.3 million and 11.2% or $4.1 million for the current quarter and current year to date, respectively, as compared to the prior year periods. AIUS’ bad debt expense decreased by 28.9% or $1.7 million and 23.0% or $4.6 million, respectively, for the current quarter and current year to date as compared to the prior year periods. CTU's bad debt expense improved by 13.4% or $0.6 million and increased by 3.2% or $0.5 million, respectively, for the current quarter and year to date, as compared to the prior year periods.

We continue to expect quarterly fluctuations in bad debt expense. We regularly evaluate our reserve rates, which includes a quarterly update of our analysis of historical student receivable collectability based on the most recent data available and a review of current known factors which we believe could affect future collectability of our student receivables, such as the number of students that do not complete the financial aid process. Our student support teams have maintained their focus on financial aid documentation collection and are counseling students through the Title IV financial aid process so that they are better prepared to start school. We have also focused on emphasizing employer-paid and other direct-pay education programs such as corporate partnerships as students within these programs typically have lower bad debt expense associated with them.

### Operating Income

Operating income decreased by 22.5% or $8.5 million and 6.5% or $7.5 million for the current quarter and year to date, respectively, as compared to the prior year periods. The current quarter decrease was primarily driven by the decrease within revenue along with the increase in academics and administrative expenses as compared to the prior year quarter. The current year to date decrease was driven by the decrease within revenue, which was partially offset with decreases within advertising and marketing expense and bad debt expense as compared to the prior year to date.

### Provision for Income Taxes

For the current quarter and year to date, we recorded a provision for income taxes of $9.2 million, reflecting an effective tax rate of 29.5% and $29.9 million, reflecting an effective tax rate of 27.2%, respectively, as compared to a provision for income taxes of $9.6 million, reflecting an effective tax rate of 25.6% and $29.1 million, reflecting an effective tax rate of 25.5% for the respective prior year periods.

The effective tax rate for the current quarter and year to date was impacted by the tax effect of a $1.4 million valuation allowance increase related to select combined state net operating losses which increased the effective tax rate for the quarter and year to date by 4.6% and 1.3%, respectively. The effective tax rate for the current quarter and year to date benefitted by the tax effect of federal and state tax credits claimed for the 2021 tax return, which decreased the effective tax rate for the quarter and year to date by 0.3% and 0.1%, respectively. The current year to date effective tax rate also benefitted by 0.2% for the net tax effect of stock-based compensation and the release of previously recorded tax reserves. The effective tax rate for the prior year quarter and year to date was impacted by federal and state tax credits claimed for the 2020 tax return, which decreased the effective tax rate for the prior year quarter and year to date by 0.6% and 0.2%, respectively. The tax effect of stock-based compensation and the release of previously recorded tax reserves for the 2021 year to date tax rate reflects a 0.5% net benefit. For the full year 2022, we expect our effective tax rate to be between 26.5% and 27.5%.

### SEGMENT RESULTS OF OPERATIONS

The following tables present unaudited segment results for the reported periods (dollars in thousands):

| REVENUE: | For the Quarter Ended September 30, REVENUE 2022 | 2021 | % Change | OPERATING INCOME (LOSS) 2022 | 2021 | % Change | OPERATING MARGIN 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| CTU (1) | $97,562 | $104,788 | -6.9% | $31,506 | $41,217 | -23.6% | 32.3% | 39.3% |
| AIUS (2) | 70,582 | 68,948 | 2.4% | 9,590 | 8,334 | 15.1% | 13.6% | 12.1% |
| Corporate and other (3) | 276 | 262 | 5.3% | (11,772) | (11,690) | 0.7% | NM | NM |
| **Total** | **$168,420** | **$173,998** | **-3.2%** | **$29,324** | **$37,861** | **-22.5%** | **17.4%** | **21.8%** |

| REVENUE: | For the Year to Date Ended September 30, REVENUE 2022 | 2021 | % Change | OPERATING INCOME (LOSS) 2022 | 2021 | % Change | OPERATING MARGIN 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| CTU (1) | $311,171 | $312,645 | -0.5% | $107,540 | $112,758 | -4.6% | 34.6% | 36.1% |
| AIUS (2) | 207,034 | 219,648 | -5.7% | 29,846 | 28,875 | 3.4% | 14.4% | 13.1% |
| Corporate and other (3) | 858 | 882 | -2.7% | (30,423) | (27,193) | 11.9% | NM | NM |
| **Total** | **$519,063** | **$533,175** | **-2.6%** | **$106,963** | **$114,440** | **-6.5%** | **20.6%** | **21.5%** |

(1) CTU’s results of operations include the Hippo acquisition commencing on the September 10, 2021 date of acquisition.

(2) AIUS’ results of operations include the CalSouthern acquisition commencing on the July 1, 2022 date of acquisition and the DigitalCrafts acquisition commencing on the August 2, 2021 date of acquisition.

(3) Results of operations for closed campuses are included within Corporate and Other. Revenue recorded within Corporate and Other relates to miscellaneous non-student related revenue.

Total student enrollments represent all students who are active as of the last day of the reporting period. Active students are defined as those students who are considered in attendance by generally having participated in class related activities during the previous two weeks. Total student enrollments do not include learners participating in: a) non-degree seeking professional development and continuing education offerings, and b) degree seeking, non-Title IV, self-paced programs at our universities.

|  | TOTAL STUDENT ENROLLMENTS As of September 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| CTU | 26,500 | 25,800 | 2.7% |
| AIUS | 15,200 | 16,800 | -9.5% |
| **Total** | **41,700** | **42,600** | **-2.1%** |

***CTU.*** Current quarter and year to date revenue decreased by 6.9% or $7.2 million and 0.5% or $1.5 million, respectively, as compared to the prior year periods driven by decreases in total student enrollments over the past several quarters. Typically, total student enrollment balances at the end of any given quarter have a lag impact on revenue in subsequent quarters.

Current quarter and year to date operating income for CTU decreased by 23.6% or $9.7 million and 4.6% or $5.2 million, respectively, as compared to the prior year periods, primarily driven by the decrease in revenue discussed above. Additionally, amortization expense associated with the acquisition completed in the third quarter of 2021 contributed to the decrease in operating income for the current year to date as compared to the prior year to date.

***AIUS.*** Current quarter revenue increased by 2.4% or $1.6 million as compared to the prior year period and decreased by 5.7% or $12.6 million for the current year to date as compared to the prior year period. The increase for the current quarter was due to the CalSouthern acquisition. Excluding the acquisition during the current quarter, revenue would have declined. This decline, along with the decline in revenue for the current year to date, was driven by a decrease in total student enrollments of 9.5% at September 30, 2022 as compared to September 30, 2021.

Current quarter and year to date operating income for AIUS increased by 15.1% or $1.3 million and 3.4% or $1.0 million, respectively, as compared to the prior year periods. The current quarter and year to date improvement was primarily driven by decreased advertising and marketing, admissions and bad debt expenses as compared to the prior year periods.

***Corporate and Other.*** This category includes unallocated costs that are incurred on behalf of the entire company. Total Corporate and Other operating loss for the current quarter and year to date increased by 0.7% or $0.1 million and 11.9% or $3.2 million, respectively, as compared to the prior year periods, primarily as a result of increased legal fee expense, including legal fees associated with the borrower defense to repayment applications from former students and expenses associated with acquisitions.

### SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A detailed discussion of the accounting policies and estimates that we believe are most critical to our financial condition and results of operations that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties is included under the caption “Summary of Critical Accounting Policies and Estimates” included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021. Note 2 “*Summary of Significant Accounting Policies”* of the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 also includes a discussion of these and other significant accounting policies.

### LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of September 30, 2022, cash, cash equivalents, restricted cash and available-for-sale short-term investments (“*cash balances”)* totaled $525.2 million. Restricted cash as of September 30, 2022 was $2.2 million and relates to amounts held in escrow accounts to secure post-closing indemnification obligations of the seller pursuant to the CalSouthern and Hippo acquisitions. Our cash flows from operating activities have historically been adequate to fulfill our liquidity requirements. We have historically financed our operating activities, organic growth and acquisitions primarily through cash generated from operations and existing cash balances. We expect to continue to generate cash during the remainder of 2022. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, our working capital needs, capital expenditures, lease commitments and acquisitions through at least the next 12 months primarily with cash generated by operations and existing cash balances.

We maintain a balanced capital allocation strategy that focuses on maintaining a strong balance sheet and adequate liquidity, while (i) investing in organic projects at our universities, in particular technology-related initiatives which are designed to benefit our students, and (ii) evaluating diverse strategies to enhance stockholder value, including acquisitions that further extend the depth and breadth of our educational offerings and share repurchases. Ultimately, our goal is to deploy resources in a way that drives long term stockholder value while supporting and enhancing the academic value of our institutions.

On January 27, 2022, the Board of Directors of the Company approved a new stock repurchase program for up to $50.0 million which commenced March 1, 2022 and expires September 30, 2023. The timing of purchases and the number of shares repurchased under the program will be determined by the Company’s management and will depend on a variety of factors including stock price, trading volume and other general market and economic conditions, its assessment of alternative uses of capital, regulatory requirements and other factors. Share repurchases will remain a part of our capital allocation strategy. Since the March 1, 2022 inception date, the Company repurchased approximately 2.1 million shares for $23.1 million, of which approximately 0.6 million shares were repurchased for $7.4 million during the quarter ended September 30, 2022.

On September 8, 2021, the Company and the subsidiary guarantors thereunder entered into a credit agreement with Wintrust Bank N.A. (“*Wintrust”*), in its capacities as the sole lead arranger, sole bookrunner, administrative agent and letter of credit issuer for the lenders from time to time parties thereto. The credit agreement provides the Company with the benefit of a $125.0 million senior secured revolving credit facility. The $125.0 million revolving credit facility under the credit agreement is scheduled to mature on September 8, 2024. So long as no default has occurred and other conditions have been met, the Company may request an increase in the aggregate commitment in an amount not to exceed $50.0 million. The loans and letter of credit obligations under the credit agreement are secured by substantially all assets of the Company and the subsidiary guarantors.

The credit agreement and the ancillary documents executed in connection therewith contain customary affirmative, negative and financial maintenance covenants. The Company is required to maintain unrestricted cash, cash equivalents and short-term investments in domestic accounts in an amount at least equal to the aggregate loan commitments then in effect. Acquisitions to be undertaken by the Company must meet certain criteria, and the Company’s ability to make restricted payments, including payments in connection with a repurchase of shares of our common stock, is subject to an aggregate maximum of $100.0 million per fiscal year. Upon the occurrence of certain regulatory events or if the Company’s unrestricted cash, cash equivalents and short term investments are less than 125% of the aggregate amount of the loan commitments then in effect, the Company is required to maintain cash in a segregated, restricted account in an amount not less than the aggregate loan commitments then in effect. The credit agreement also contains customary representations and warranties, events of default, and rights and remedies upon the occurrence of any event of default thereunder, including rights to accelerate the loans, terminate the commitments and realize upon the collateral securing the obligations under the credit agreement. As of September 30, 2022, there were no amounts outstanding under the revolving credit facility.

The discussion above reflects management’s expectations regarding liquidity; however, as a result of the significance of the Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV funds that our students are eligible to receive or any impact on timing or our ability to receive Title IV Program funds, or any requirement to post a significant letter of credit to the Department, may have a significant impact on our operations and our financial condition. In addition, our financial performance is dependent on the level of student enrollments which could be impacted by external factors. See Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2021.

### Sources and Uses of Cash

### Operating Cash Flows

During the years to date ended September 30, 2022 and 2021, net cash flows provided by operating activities totaled $107.6 million and $144.2 million, respectively. The decrease in net cash flows provided by operating activities for the current year to date as compared to the prior year to date was primarily driven by lower revenue at both CTU and AIUS along with a timing impact of the academic calendar redesign and the related cash collections.

Our primary source of cash flows from operating activities is tuition collected from our students. Our students derive the ability to pay tuition costs through the use of a variety of funding sources, including, among others, federal loan and grant programs, state grant programs, private loans and grants, institutional payment plans, private and institutional scholarships and cash payments. For the year to date ended September 30, 2022, approximately 79% of our institutions’ aggregate cash receipts from tuition payments came from Title IV Program funding as compared to 81% for the full year of 2021. This percentage differs from the Title IV Program percentage calculated under the 90-10 Rule due to the treatment of certain funding types and certain student level limitations on what and how much to count as prescribed under the rule.

For further discussion of Title IV Program funding and other funding sources for our students, see Item 1, “Business - Student Financial Aid and Related Federal Regulation,” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Our primary uses of cash to support our operating activities include, among other things, cash paid and benefits provided to our employees for services, to vendors for products and services, to lessors for rents and operating costs related to leased facilities, to suppliers for textbooks and other institution supplies, and to federal, state and local governments for income and other taxes.

### Investing Cash Flows

During the years to date ended September 30, 2022, net cash flows used in investing activities totaled $255.7 million compared to net cash flows provided by investing activities of $24.3 million for the prior year to date.

*Purchases and Sales of Available-for-Sale Investments.* Purchases and sales of available-for-sale investments resulted in a net cash outflow of $207.6 million for the current year to date as compared to net cash inflow of $87.5 million for the prior year to date.

*Business acquisitions*. During the year to date ended September 30, 2022, the Company completed the CalSouthern acquisition for a purchase price of $40.0 million, of which $1.0 million was set aside in an escrow account pursuant to the purchase agreement. The prior year to date includes $56.9 million for payments related to the DigitalCrafts and Hippo acquisitions.

*Capital Expenditures.* Capital expenditures increased to $9.1 million for the year to date ended September 30, 2022 as compared to $6.3 million for the year to date ended September 30, 2021. Capital expenditures represented approximately 1.8% and 1.2% of total revenue for the years to date ended September 30, 2022 and 2021, respectively. For the full year 2022, we expect capital expenditures to be approximately 2% of revenue.

### Financing Cash Flows

During the years to date ended September 30, 2022 and 2021, net cash flows used in financing activities totaled $27.8 million and $6.6 million, respectively. Payments to repurchase shares of our common stock were $23.1 million for the year to date ended September 30, 2022 and $5.4 million for the year to date ended September 30, 2021. The current year to date includes a $4.0 million payment to release the escrow associated with the Trident acquisition.

*Payments of employee tax associated with stock compensation.* Payments of employee tax associated with stock compensation were $1.6 million and $2.0 million for the years to date ended September 30, 2022 and 2021, respectively.

### Changes in Financial Position

Selected condensed consolidated balance sheet account changes from December 31, 2021 to September 30, 2022 were as follows (dollars in thousands):

| ASSETS NON-CURRENT ASSETS: | September 30, 2022 | December 31, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Goodwill | 184,135 | 162,579 | 13% |
| Intangibles assets, net | 44,262 | 32,208 | 37% |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |  |
| **CURRENT LIABILITIES:** |  |  |  |
| Income taxes | 8,082 | 211 | 3730% |
| Deferred revenue | 61,978 | 70,613 | -12% |
| **STOCKHOLDERS' EQUITY** |  |  |  |
| Treasury stock | (301,624) | (276,895) | 9% |

*Goodwill:* The increase in goodwill is attributable to the CalSouthern acquisition.

*Intangibles assets, net:* The increase in intangibles assets is attributable to the CalSouthern acquisition.

*Income taxes:* The increase primarily relates to amounts owed with respect to estimated payments of federal and state income tax for 2022.

*Deferred revenue:* The decrease is primarily related to the timing impact of the academic terms within CTU and AIUS, partially offset with balances associated with the CalSouthern acquisition during the current quarter.

*Treasury stock:* The increase is primarily driven by the repurchase of 2.1 million shares of our common stock for $23.1 million during the current year to date.

## Market risk

As filed, 2,016 characters.

We are exposed to financial market risks, primarily changes in interest rates. We use various techniques to manage our interest rate risk. We have no derivative financial instruments or derivative commodity instruments, and believe the risk related to cash equivalents and available for sale investments is limited due to the adherence to our investment policy, which focuses on capital preservation and liquidity. In addition, we use asset managers who conduct initial and ongoing credit analysis on our investment portfolio and monitor that investments are in compliance with our investment policy. Despite the investment risk mitigation strategies we employ, we may incur investment losses as a result of unusual and unpredictable market developments and may experience reduced investment earnings if the yields on investments deemed to be low risk remain low or decline.

### Interest Rate Exposure

Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell investments that have declined in market value due to changes in interest rates. At September 30, 2022, a 10% increase or decrease in interest rates applicable to our investments or borrowings would not have a material impact on our future earnings, fair values or cash flows.

Under the credit agreement, outstanding principal amounts bear annual interest at a fluctuating rate equal to 1.0% less than the administrative agent’s prime commercial rate, subject to a 3.0% minimum rate. A higher rate may apply to late payments or if any event of default exists. As of September 30, 2022, we had no outstanding borrowings under this facility.

Our financial instruments are recorded at their fair values as of September 30, 2022 and December 31, 2021. We believe that the exposure of our consolidated financial position and results of operations and cash flows to adverse changes in interest rates applicable to our investments or borrowings is not significant.

## Controls and procedures

As filed, 3,234 characters.

### Evaluation of Disclosure Controls and Procedures

We completed an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q (“*Report”*) under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “*Exchange Act”*). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Report was recorded, processed, summarized and reported within the time periods specified in the rules and forms provided by the U.S. Securities and Exchange Commission (“*SEC”*), and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on the Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

## Risk factors

As filed, 337 characters.

In addition to the information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, Item 1A “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on February 24, 2022.

Filed Nov 7, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-022632. Last ingested by Listed: Nov 5, 2026, 16:27 ET. No prices; not investment advice.