PERDOCEO EDUCATION Corp: Form 10-Q for the period ended Sep 30, 2024

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, 2023 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 or our ability to market to and contact prospective students;
• 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 terms of any potential changes to or conditions imposed on our continued participation in the Title IV programs under new program participation agreements, the new 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;
• the final outcome of various legal challenges to the Department's loan discharge and forgiveness efforts;
• rulemaking or changing interpretations of existing regulations, guidance or historical practices 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 key employers, veterans and other military personnel;
• increased competition;
• our ability to pay dividends on our common stock and execute our stock repurchase program;
• 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 accredited academic institutions offer a quality postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. The Company’s academic institutions – Colorado Technical University (“CTU”) and the American InterContinental University System (“AIUS” or “AIU System”) – provide degree programs from the associate through doctoral level as well as non-degree seeking and professional development programs. Our academic institutions 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 intellipath® learning platform and using data analytics and technology to serve and educate students while enhancing overall learning and academic experiences. Perdoceo's institutions are committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

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 Consumer Financial Protection Bureau, the Federal Trade Commission, state attorneys general, consumer advocacy groups and the media have all scrutinized the for-profit postsecondary education sector. Congressional hearings and roundtable discussions were held regarding various aspects of the education industry, including issues surrounding student debt as well as publicly reported student outcomes that may be used as part of an institution’s recruiting and admissions practices, 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 Department, the Department of Defense and the Department of Veterans Affairs and its state approving agencies to take action to limit or terminate the participation of institutions such as ours in existing tuition assistance programs. In several cases, these groups have received significant financial support from third parties critical of our sector and have aligned on messaging that negatively impacts our sector during policy and rulemaking discussions. In addition, the current administration has made student loan forgiveness one of its top domestic policy objectives, and it has been aggressively pursued by the Department in cooperation with special interest groups, other federal agencies, state attorneys general and others. These groups collectively have focused efforts relating to student debt forgiveness on for-profit colleges and universities, encouraging loan discharge applications and complaints by former students.

We continue to see one of the most challenging operating environments in recent memory as the Department has undertaken a complete overhaul of almost all of the major regulatory requirements associated with our participation in Title IV Programs and which disproportionally negatively impact the for-profit postsecondary education sector. Additionally, a number of the Department’s regulatory initiatives are explicitly targeted at negatively impacting the proprietary sector of education. In many cases the new regulatory requirements are unclear, require further clarification as to their interpretation or applicability or are subject or will be subject to legal challenges. We expect to continue to need to operate nimbly in this uncertain environment, making necessary changes to the extent possible to comply with the myriad of new vague or unclear rules or interpretations as well as new interpretations of existing rules. For example, in 2023, we materially reduced prospective student enrollment, marketing and outreach processes at AIUS during the year to limit the volume of new federal funding that the institution would receive and to preserve available funding for existing students under the Department’s new 90-10 Rule. Any actions that limit our participation 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 2024 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. We believe the items we are adjusting for are not normal operating expenses reflective of our underlying business. 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.

2024 Third Quarter Overview

During the third quarter ended September 30, 2024 ("current quarter"), we continued to experience high levels of student retention and engagement at both CTU and AIUS, with student retention remaining at multi-year highs. Our faculty and student support teams remain dedicated to educating and serving our students, and we anticipate that student retention should continue to trend at these levels through the remainder of 2024.

Total student enrollments increased 11.0% at September 30, 2024 as compared to September 30, 2023, with both academic institutions contributing to this increase. CTU's total student enrollments increased 13.6% as compared to the prior year quarter end driven by student enrollment growth within our corporate engagement programs as well as a positive timing impact from the academic calendar comparability resulting in more enrollment days for the current year to date as compared to the prior year to date. Total student enrollments increased 4.0% at AIUS for the current quarter end as compared to the prior year quarter end as AIUS' total student enrollment comparability had continued to improve during the current year to date since reverting to normalized levels of operations beginning in the fourth quarter of 2023.

We view technology as a catalyst and differentiator for us and remain committed to making selective investments that deliver a more meaningful and relevant educational experience for our learners while continuing to improve the efficiency and effectiveness of our academic institutions’ student support functions. Additionally, we remained focused on investing in and improving processes that support our corporate engagement programs. Lastly, marketing and admissions spend increased during the current quarter as compared to the prior year quarter, driven by AIUS operating at normalized levels during the current year. We continue to adjust our marketing strategies to further improve our focus on identifying prospective students who are more likely to succeed at one of our universities, as well as comply with updated expectations from various federal agencies around prospective student outreach.

We expect the strong levels of student retention and engagement experienced through the current year to date, to continue through the remainder of 2024 and expect to end the year with total student enrollment growth at both of our academic institutions as of December 31, 2024. Full year revenue is expected to be lower for 2024 primarily due to the lag impact on revenue of lower beginning total student enrollments at AIUS as well as lower revenue due to simplification of our professional development offerings at CTU.

Financial Highlights

Revenue for the current quarter decreased by 5.6% or $10.1 million as compared to the prior year quarter, resulting from a decrease in revenue for CTU of 4.0% or $4.8 million and a decrease for AIUS of 9.0% or $5.3 million. The decrease in revenue at CTU was driven by changes within our professional development program offerings as well as a negative timing impact of revenue-earning days due to the academic calendar for the current quarter as compared to the prior year period. CTU's academic calendar may impact the comparability of revenue-earning days and enrollment results in any given quarter, with the impact on revenue and total student enrollments not necessarily having the same magnitude or directional impact. The decrease within AIUS was driven by a lag impact on revenue of the operational changes undertaken during 2023.

Operating income for the current quarter increased to $44.8 million as compared to operating income of $43.1 million in the prior year quarter. The increase in operating income for the current quarter was a result of decreased operating expenses, primarily in the areas of asset impairment, academics and administrative expenses, which more than offset the decrease in revenue during the current quarter as compared to the prior year quarter.

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 $48.6 million for the current quarter as compared to $47.2 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, 2024 and 2023 is presented below (dollars in thousands, unless otherwise noted):

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

(2) Non-cash gain associated with the sale of the LCB tradename in exchange for outstanding shares of Perdoceo's stock.

(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.

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, 2024 and 2023 (dollars in thousands):

(1) Educational services and facilities expense includes costs attributable to the educational activities of our campuses, 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. 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 5.6% or $10.1 million and 10.2% or $57.3 million, respectively, as compared to the prior year periods, driven by decreases in revenue within both CTU and AIUS. The decline for the current quarter and year to date was primarily driven by the lag impact on revenue due to the operational changes made at AIUS in the prior year as well as changes within our professional development program offerings at CTU. Typically, total student enrollment balances at the end of any given quarter have a lag impact on revenue in the subsequent quarter. Additionally, the current quarter and current year to date had a decrease in revenue-earning days at CTU as compared to the prior year periods due to a timing impact of the academic calendar.

Educational Services and Facilities Expense (dollars in thousands)

The educational services and facilities expense for the current quarter and year to date decreased by 15.6% or $5.2 million and 14.4% or $14.4 million, respectively, as compared to the prior year periods. Academics and student related costs decreased by 14.1% or $4.4 million and 13.1% or $12.1 million for the current quarter and year to date, respectively, as compared to the prior year periods, primarily driven by operational changes made to align with recent student enrollments trends. Occupancy expenses for the current quarter and year to date improved by 33.1% or $0.8 million and 30.5% or $2.4 million, respectively, as compared to the prior year periods, driven by the continued optimization of leased space.

General and Administrative Expense (dollars in thousands)

The general and administrative expense for the current quarter increased by 1.8% or $1.6 million and decreased by 11.4% or $34.8 million for the current year to date, as compared to the prior year periods. The current quarter increase was primarily driven by increased advertising and marketing expense, which was only partially offset with a decrease in admissions and administrative expenses. The year to date improvement was driven by decreases within all expense categories as compared to comparative prior year period.

Advertising and marketing expense for the current quarter increased by 18.6% or $4.2 million and decreased by 7.0% or $5.6 million for the current year to date, as compared to the prior year periods. The current quarter increase was due to increased spending within AIUS to normalized levels versus the prior year which was decreased due to the short-term operational changes. The current year to date improvement was primarily driven by adjustments made to our marketing processes to identify prospective student interest.

Admissions expense for the current quarter and year to date decreased by 5.5% or $1.2 million and 13.7% or $9.6 million, respectively, as compared to the prior year periods. Admissions expense for the current quarter decreased within CTU, which more than offset the increase within AIUS as a result of the return to normalized operating levels. The current year to date improvement was primarily driven by decreased expenses within both CTU and AIUS as a result of the operational changes made during the prior year.

The administrative expense for the current quarter and year to date decreased by 6.2% or $2.5 million and 11.3% or $14.5 million, respectively, as compared to the prior year periods, primarily driven by operational efficiencies within our academic institutions and decreased legal fees within Corporate and Other for the year to date period.

Bad debt expense incurred by each of our segments during the quarters and years to date ended September 30, 2024 and 2023 was as follows (dollars in thousands):

Bad debt expense for the current quarter increased by 15.0% or $1.1 million and decreased by 19.4% or $5.2 million for the current year to date, as compared to the prior year periods. 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. We continue to expect quarterly fluctuations in bad debt expense.

Operating Income

Operating income increased by 4.0% or $1.7 million and 1.9% or $2.6 million for the current quarter and year to date, respectively, as compared to the prior year periods. The current quarter improvement was benefitted by lower academics, admissions and administrative expenses which more than offset the decrease in revenue as compared to the prior year quarter. The year to date improvement was supported by lower operating expenses across all categories which more than offset the decrease in revenue as compared to the prior year period. The current quarter and year to date also included lower asset impairment charges of $7.4 million and $6.2 million, respectively, as compared to the comparative prior year periods.

Provision for Income Taxes

For the quarter and year to date ended September 30, 2024, we recorded a provision for income taxes of $14.1 million reflecting an effective tax rate of 26.9% and $42.1 million reflecting an effective tax rate of 26.6%, respectively, as compared to a provision for income taxes of $6.8 million reflecting an effective tax rate of 14.1% and $39.3 million reflecting an effective tax rate of 23.1% for the respective prior year periods.

The effective tax rate for the quarter and year to date ended September 30, 2024 reflects federal tax credits claimed for the 2023 tax return, which decreased the effective tax rate for the quarter and year to date by 0.4% and 0.1%, respectively. Additionally, the tax effect of stock-based compensation and the release of previously recorded tax reserves reduced the effective tax rate for the quarter and year to date ended September 30, 2024 by 0.2% and 1.4%, respectively. The effective tax rate for the quarter and year to date ended September 30, 2023 was primarily impacted by a $4.5 million favorable discrete adjustment related to the recognition of the tax benefits associated with a previously disclosed prior year ordinary loss attributable to the stock of a worthless subsidiary, which decreased the effective tax rate for the quarter and year to date by 9.3% and 2.6%, respectively. The effective tax rate for the quarter and year to date ended September 30, 2023 reflects federal and state tax credits claimed for the 2022 tax return, which decreased the effective tax rate for the quarter and year to date by 0.6% and 0.2%, respectively. Additionally, the tax effect of stock-based compensation and the release of other previously recorded tax reserves reduced the effective tax rate for the quarter and year to date ended September 30, 2023 by 0.2% and 0.6%, respectively.

For the full year 2024, we expect our effective tax rate to be between 26.0% and 27.0%.

SEGMENT RESULTS OF OPERATIONS

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

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 participating in class related activities during the previous two weeks. Total student enrollments do not include learners pursuing: a) non-degree seeking and professional development programs, and b) degree seeking, non-Title IV, self-paced programs at our universities.

CTU. Current quarter and year to date revenue decreased by 4.0% or $4.8 million and 6.1% or $22.2 million, respectively, as compared to the prior year periods. The decrease was primarily driven by changes within the professional development program offerings at CTU as well as a negative timing impact of revenue-earning days due to the academic calendar for the current quarter and year to date as compared to the prior year periods. CTU experienced total student enrollment growth of 13.6% at September 30, 2024 as compared to the prior year quarter end which was driven by growth in student enrollments from corporate engagement programs as well as a positive timing impact of the academic calendar on enrollment days. CTU's academic calendar may impact the comparability of revenue-earning days and enrollment results in any given quarter, with the impact on revenue and total student enrollments not necessarily having the same magnitude or directional impact.

Current quarter and year to date operating income for CTU increased by 28.1% or $9.7 million and 8.9% or $10.6 million, respectively, as compared to the prior year periods. The improvement in operating income was primarily supported by lower academics and admissions expenses as well as right-sizing of the cost structure to align with more simplified professional development offerings, which more than offset the declines in revenue. The current quarter and year to date also included lower asset impairment charges of $7.4 million and $6.2 million, respectively, as compared to the comparative prior year periods.

AIUS. Current quarter and year to date revenue decreased by 9.0% or $5.3 million and 17.8% or $35.0 million, respectively, as compared to the prior year periods. The decreases were driven by a lag impact from the operational changes made during the latter half of 2023. AIUS' experienced total student enrollment growth of 4.0% at September 30, 2024 as compared to the prior year quarter end as the return to normalized operating levels in the fourth quarter of 2023 contributed to increased student enrollments.

Current quarter and year to date operating income for AIUS decreased by 41.9% or $6.5 million and 30.0% or $13.4 million, respectively, as compared to the prior year periods, driven by the decrease in revenue discussed above.

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 increased by 20.6% or $1.4 million as compared to the prior year quarter primarily driven by acquisition costs and increased legal fees for the current quarter. The year to date operating loss improved by 18.6% or $5.4 million as compared to the prior year period primarily as a result of lower legal expenses.

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, 2023. 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, 2023 also includes a discussion of these and other significant accounting policies.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of September 30, 2024, cash, cash equivalents, restricted cash and available-for-sale short-term investments (“cash balances”) totaled $722.6 million. 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 2024. 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, quarterly dividends payments and pending acquisition 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, quarterly dividend payments 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 February 20, 2024, the Board of Directors of the Company approved a new stock repurchase program for up to $50.0 million which commenced March 1, 2024 and expires September 30, 2025. The new stock repurchase program replaced the previous stock repurchase program. 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.

The Board of Directors approved the aforementioned stock repurchase programs believing it advantageous to the Company and its stockholders to repurchase shares of the Company’s common stock from time to time at prices below what the Board of Directors believed to be the intrinsic value of the Company’s common stock.

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, 2023.

Sources and Uses of Cash

Operating Cash Flows

During the years to date ended September 30, 2024 and 2023, net cash flows provided by operating activities totaled $144.0 million and $98.8 million, respectively. The increase 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 timing of working capital payments and Title IV cash drawdowns, as well as certain compensation-related payments.

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 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, 2023.

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 year to date ended September 30, 2024, net cash flows provided by investing activities totaled $7.3 million compared to net cash flows used in investing activities of $31.2 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 inflow of $10.3 million for the current year to date as compared to a net cash outflow of $26.4 million for the prior year to date.

Capital Expenditures. Capital expenditures decreased to $3.0 million for the year to date ended September 30, 2024 as compared to $4.8 million for the year to date ended September 30, 2023. For the full year 2024, we expect capital expenditures to be approximately 1.0% of revenue.

Financing Cash Flows

During the years to date ended September 30, 2024 and 2023, net cash flows used in financing activities totaled $31.5 million and $12.4 million, respectively. Payments to repurchase shares of our common stock were $6.8 million for the year to date ended September 30, 2024 and $2.7 million for the year to date ended September 30, 2023.

Payments of employee tax associated with stock compensation. Payments of employee tax associated with stock compensation were $3.4 million and $2.2 million for the years to date ended September 30, 2024 and 2023, respectively.

Payments of cash dividends and dividend equivalents. During the years to date ended September 30, 2024 and 2023, the Company made dividend payments of $23.2 million and $7.2 million, respectively.

Changes in Financial Position

Selected condensed consolidated balance sheet account changes from December 31, 2023 to September 30, 2024 were as follows (dollars in thousands):

25

Right of use asset, net: The decrease is driven by recurring amortization of remaining ROU assets as well as impairment of certain leased assets which the Company made the decision to vacate during the current year to date.

Income taxes: The increase primarily relates to amounts owed with respect to estimated payments of federal and state income tax for 2024.

Deferred revenue: The increase is primarily related to the timing impact of the academic terms within CTU and AIUS along with an increase in total student enrollments.

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 analyses 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, 2024, a 10% increase or decrease in interest rates applicable to our investments would not have a material impact on our future earnings, fair values or cash flows.

Our financial instruments are recorded at their fair values as of September 30, 2024 and December 31, 2023. 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 is not significant.

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, 2024, 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, 2024 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.

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, 2023, which was filed with the Securities and Exchange Commission on February 21, 2024.