PERDOCEO EDUCATION Corp: Form 10-Q for the period ended Jun 30, 2021

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, 2020 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 which may continue to be impacted by the global COVID-19 pandemic.

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 (“AIU”) – provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. 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 AIU continue to show innovation in higher education, advancing personalized learning technologies like their intellipath® 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 March 2, 2020, the Company acquired substantially all of the assets of Trident University International (“Trident University”), an accredited university offering online undergraduate, master’s and doctoral programs with a strong focus on graduate programs. Trident University’s operations were brought within the AIU segment, preserving the “Trident” name and programs as part of American InterContinental University’s operations. Results of operations related to the acquisition of substantially all of the assets of Trident University (the “Trident acquisition”) are included in the consolidated financial statements from the date of acquisition. Effective November 5, 2020, AIU implemented a university system model, the American InterContinental University System, which is comprised of two universities: American InterContinental University and Trident University International (“Trident” or “TUI”). The system structure provides a new framework for American InterContinental University and Trident to continue to serve their unique student populations while benefitting from one university system.

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 AIU. These segments are organized by key market segments and to enhance brand focus within each segment to more effectively execute our business plan.

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.

The current Presidential and Department administrations, as well as Congress, are likely to pursue 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 and Risk Factors in our 2021 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.

2021 Second Quarter Overview

Our financial results for the second quarter ended June 30, 2021 (“current quarter”) reflected a decrease in revenue and operating income as compared to the prior year quarter due to a decrease in student enrollments discussed further below. The financial results include the Trident acquisition commencing on the March 2, 2020 date of acquisition and therefore the quarter ended June 30, 2020 reflects a full comparable quarter of financial results for Trident.

The results for the current quarter reflected our ability to adapt well to a changing environment, while keeping student experiences, retention and academic outcomes at the forefront of our operations. We believe the prolonged pandemic and its resulting social distancing practices and safety measures, as well as the macro-economic and governmental response, has impacted overall student engagement. While prospective student interest remains in line with our recent experience, during the current quarter some students began deferring their decision to begin classes and there has been an increase in current students taking a pause from their academic programs. Based on what we are seeing so far going into the traditional back to school months, we believe this change in student behavior may be temporary and was impacted by a better than expected opening of the economy and the various stimulus packages supporting it. However, additional time is needed to assess the impact of the evolving pandemic environment on student behavior.

Total student enrollments increased 7.5% at June 30, 2021 as compared to June 30, 2020, with CTU increasing by 14.2% and AIU decreasing by 1.8%. The increase in total student enrollments for CTU was due to the timing impact of the academic calendar redesign, as the current year to date reflects five session start dates as compared to only four in the comparative prior year period.

The decrease in total student enrollments for AIU at June 30, 2021 as compared to June 30, 2020 was driven by a decrease in total student enrollments at Trident, partially offset with a total student enrollment increase at American InterContinental University. We believe Trident’s total student enrollment decline was a result of the decrease associated with their military-affiliated student population due to a change in the Army education administration portal and related technical challenges along with reduced opportunities for in-person marketing activities at military installations as a result of the prolonged pandemic. We believe these issues may be temporary and have recently begun seeing an increase in military events and in-person activities. Overall, we believe Trident has transitioned into our organization well and complements AIU. The Trident acquisition expanded and diversified our academic program offerings and also allowed us to internally develop a framework for integrating acquisitions as we continue to evaluate inorganic opportunities.

We believe investments in technology and student-serving functions have positively impacted student experiences and student learning. Both CTU and AIU continued to leverage data analytics and technology to enhance the effectiveness of their services to students. Technology investments in machine learning and data analytics were mostly a continuation from previous quarters as we expanded their use across various student serving processes. Additionally, we are evaluating a redesign of our digital intranet tools and technology that are utilized by our teams to serve and educate students through their academic life cycle. We believe that continuing to refine these internet-based student platforms will further enhance the student experience, especially for our non-traditional adult learners, while driving further efficiencies within the business.

With respect to the COVID-19 pandemic, while we have experienced some impacts to student enrollments during the current quarter, we have not experienced any material disruptions to our business operations to date. Our strong balance sheet and technology infrastructure provide us with the ability to adapt our operations in response to fluctuations in enrollment trends. While we continue to monitor for future impacts of a potential worsening of global economic conditions on our university operations, we are also monitoring for changes in prospective student interest or student engagement levels as a result of changes in social distancing requirements and the U.S. economy.

Financial Highlights

Revenue for the second quarter ended June 30, 2021 decreased $0.5 million or 0.3% as compared to the prior year quarter, reflecting revenue growth at CTU which was more than offset with a revenue decline at AIU as a result of the enrollment results discussed above. Operating income for the current quarter decreased to $36.0 million as compared to operating income of $37.4 million for the prior year quarter. The decrease in operating income was primarily due to increased legal fees and advertising and marketing expenses to support the launch of the new workforce development training programs at Trident partially offset with operating efficiencies gained by reallocating resources across various student-serving functions.

Revenue within our CTU segment increased $1.8 million or 1.8% for the second quarter of 2021 as compared to the prior year quarter due to more revenue-earning days in the current quarter as compared to the prior year quarter as a result of the timing impact of CTU’s academic calendar redesign. Operating income for CTU increased by $2.3 million to $35.4 million for the current quarter as compared to operating income of $33.1 million for the prior year quarter driven by the increase in revenue.

Revenue within our AIU segment decreased $2.6 million or 3.4% for the second quarter of 2021 as compared to the prior year quarter due to the enrollment decrease discussed above. Operating income for AIU decreased by $1.3 million to $9.2 million for the current quarter as compared to the prior year quarter driven by an increase in advertising and marketing expenses to support the launch of the new workforce development training programs at Trident as lower administration, academics and admissions expenses partially offset the revenue decline for the current quarter.

Within our Corporate and Other category, operating loss of $8.7 million increased from $6.2 million in the prior year quarter as the reduction in operating losses associated with closed campuses was offset with increased legal fee expenses related to loan forgiveness applications submitted to the Department by former students. We expect an increase in legal fees as compared to the prior year periods for the remainder of 2021.

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 $42.3 million for the current quarter as compared to $41.5 million in the prior year quarter. The improvement was partially due to operating efficiencies gained by reallocating resources across various student-serving functions as well as administrative expenses, which, when excluding the adjusting item for legal fees related to certain matters, were lower as compared to the prior year quarter.

Beginning in 2021, we no longer adjust operating income or earnings per diluted share for expenses related to vacated facilities at closed campuses as these expenses are expected to be immaterial. Additionally, the Company began adjusting for legal fee expense related to acquisitions and responses to the Department related to borrower defense to repayment applications from former students during the second quarter of 2021. The Company believes that these expenses are not reflective of underlying operating performance. The prior period amounts were recast for these items to maintain comparability to 2021 non-GAAP measures.

Adjusted operating income and adjusted earnings per diluted share for the quarters and years to date ended June 30, 2021 and 2020 is presented below (dollars in thousands, unless otherwise noted):

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

(2) Legal fee expense related to acquisitions and responses to the Department related to borrower defense to repayment applications from former students.

(3) The tax effect of adjustments was calculated by multiplying the pre-tax adjustment with a tax rate of 25.0%. This tax rate is intended to reflect federal and state taxable jurisdictions as well as the nature of the adjustments. There is no tax effect applied to the adjustment related to the release of the valuation allowance as this is an adjustment for income tax.

(4) Beginning in 2021, the Company no longer adjusts operating income or earnings per diluted share for expenses related to vacated facilities at closed campuses as these expenses are expected to be immaterial. Additionally, the Company began adjusting for legal fee expense related to acquisitions and responses to the Department related to borrower defense to repayment applications from former students during the second quarter of 2021. The Company believes that these expenses are not reflective of underlying operating performance. Prior period amounts were recast for these items to maintain comparability.

(5) AIU’s results of operations include the Trident acquisition commencing on the March 2, 2020 date of acquisition and therefore the year to date ended June 30, 2020 does not reflect six months of results for Trident.

Regulatory Updates

Negotiated Rulemaking. On May 24, 2021, the Department issued a press release announcing a series of public hearings to allow stakeholders to offer comments on potential issues to be addressed in future negotiated rulemakings. These hearings were held on June 21, 23 and 24, 2021, and the Department also permitted additional comments to be made outside the formal hearing process due to extensive stakeholder interest in the hearings. In its announcement, the Department provided a broad list of potential topics for new rulemaking for stakeholders to comment on, including:

• Borrower defense to repayment
• Certification procedures for participation in federal financial aid programs
• Change of ownership and change in control of institutions of higher education
• Closed school loan discharge
• Discharges for false certification of student eligibility
• Financial responsibility for participating institutions of higher education, such as events that indicate heightened financial risk
• Gainful employment
• Income-contingent loan repayment plans
• Mandatory pre-dispute arbitration and prohibition of class action lawsuit provisions in institutions’ enrollment agreements
• Standards of administrative capability

Additionally, the Department invited stakeholders to comment on additional areas for regulation that might improve outcomes for students. Following these hearings, we expect the Department to convene multiple negotiated rulemaking committees to consider modifying regulations in the areas above, as well as modifications to the 90-10 Rule to implement legislation enacted in March 2021. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – 2021 First Quarter Overview – Regulatory Updates,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 for a brief overview of this recent legislation impacting the 90-10 Rule.

Pursuant to the negotiated rulemaking process, the Department, through a series of meetings, works to develop a notice of proposed rulemaking in collaboration with representatives of the parties who will be affected significantly by the regulations. If a rulemaking committee is able to reach a consensus on its area, then the agreed upon proposal is submitted for public comment as the proposed regulation, and the final regulation typically aligns closely with the agreed upon proposal. If a rule-making committee is not able to reach consensus, then the Department will publish its recommended regulatory changes in a notice of proposed rulemaking for public comment, and after the public comment period expires it must publish the final regulation. In all cases, publication of final regulations in the Federal Register must occur on or before November 1 for the regulations to be effective for the next federal student financial aid award year, which begins July 1 of the following year. Negotiated rulemaking committees convened in recent years generally have not reached consensus, resulting in the Department having significant latitude in formulating regulations. 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, 2020 for more information about the risks and uncertainties relating to our highly regulated industry and potential regulatory changes.

Borrower Defense to Repayment. In May 2021, the Department notified the Company that the Department has several thousand borrower defense applications that make claims regarding the Company’s institutions, including institutions that have ceased operations. As part of the initial fact-finding process, the Department will send individual student claims to the Company and allow the institutions the opportunity to submit responses to the borrower defense applications. We have begun to receive these claims and are reviewing and compiling the individual facts of each to submit responses to the Department for its review. A large majority of the claims received involve institutions or campuses that have ceased operations and, in some cases, involve students who attended over 25 years ago. Based on our review to date, we anticipate that the responses will indicate that we believe the applications fail to establish a valid borrower defense and the Department should therefore deny them. However, the outcome of the Department’s evaluation of each of these applications is uncertain. See Item 1, “Business – Student Financial Aid and Related Federal Regulation – Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations – Borrower Defense to Repayment,” and 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, 2020 for more information about the borrower defense to repayment regulations.

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 June 30, 2021 and 2020 (dollars in thousands):

(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

Current quarter revenue decreased slightly by 0.3% or $0.5 million compared to the prior year quarter, while current year to date revenue increased 3.5% or $12.1 million compared to the prior year period. The current quarter decrease is driven by a $2.6 million decline in revenue within AIU which was only partially offset with an increase of $1.8 million within CTU. The current year to date revenue includes six months of results related to the Trident acquisition as compared to only four months in the prior year to date. Additionally, the current year to date increase was positively impacted by total student enrollment growth for CTU at June 30, 2021 compared to June 30, 2020.

Educational Services and Facilities Expense (dollars in thousands)

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The educational services and facilities expense for the current quarter remained relatively flat as compared to the prior year quarter. The educational services and facilities expense for the current year to date increased by 3.5% or $1.9 million as compared to the prior year period. Academics and student related costs increased by 6.5% or $2.9 million for the current year to date as compared to the prior year period, primarily as a result of the Trident acquisition. Partially offsetting the year to date increase in academics and student related costs were decreases in occupancy expenses of 9.2% or $1.0 million as compared to the prior year period. The improvement within occupancy expenses was primarily driven by the remote work environment as a result of the pandemic and decreased expenses associated with our closed campuses.

General and Administrative Expense (dollars in thousands)

General and administrative expense increased by 1.2% or $1.3 million and 3.7% or $7.8 million for the current quarter and year to date, respectively, as compared to the prior year periods, driven by increases within all expense categories for both comparative periods.

Advertising and marketing expense increased by 1.4% or $0.5 million and 3.2% or $2.2 million for the current quarter and year to date, respectively, as compared to the prior year periods, due to increased spending related to the workforce development training programs at Trident for the current quarter as well as to identify prospective student interest and to support total student enrollment growth for the current year to date.

Admissions expense increased by 2.1% or $0.5 million and 3.4% or $1.7 million for the current quarter and year to date, respectively, as compared to the prior year periods. The current quarter and year to date increase was impacted by higher employee expenses and, for the current year to date, six months of expense related to the Trident acquisition as compared to only four months in the prior year to date.

Administrative expense increased by 0.5% or $0.2 million and 4.5% or $2.9 million for the current quarter and year to date, respectively, as compared to the prior year periods primarily driven by increased legal fees within Corporate and Other.

Bad debt expense incurred by each of our segments during the quarters and years to date ended June 30, 2021 and 2020 was as follows (dollars in thousands):

Bad debt expense increased by 1.0% or $0.1 million and 3.9% or $1.0 million for the current quarter and year to date, respectively, as compared to the prior year periods. Bad debt as a percentage of revenue remained relatively flat for the current quarter and year to date as compared to the prior year periods. AIU’s increase as a percentage of revenue of 80 basis point and 60 basis points for the current quarter and year to date, respectively, was offset with CTU’s decrease as a percentage of revenue of 30 basis points and 40 basis points, respectively.

We regularly monitor our reserve rates, which includes a review of our analysis of historical student receivable collectability which we update quarterly based on the most recent data available, along with current known factors which we believe could affect future collectability of our student receivables, including 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 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

Current quarter operating income decreased by 3.8% or $1.4 million as compared to the prior year period and increased by 2.6% or $1.9 million for the current year to date as compared to the prior year period. The current quarter decrease was primarily driven by increased legal fees and advertising and marketing expenses to support the launch of the new workforce development training programs at Trident partially offset with operating efficiencies gained by reallocating resources across various student-serving functions. The current year to date increase was driven by increased revenue within both CTU and AIU as compared to the prior year period, which was partially offset with increased expenses within all general and administrative expense categories as well as investments in student-serving functions. Depreciation and amortization expense also increased for the current year to date as compared to the prior year to date as a result of increased investments in technology initiatives and the Trident acquisition.

Provision for Income Taxes

For the quarter and year to date ended June 30, 2021, we recorded a provision for income taxes of $9.3 million reflecting an effective tax rate of 25.9% and $19.6 million reflecting an effective tax rate of 25.4%, respectively, as compared to a provision for income taxes of $10.3 million reflecting an effective tax rate of 26.7% and $19.9 million reflecting an effective tax rate of 25.7% for the respective prior year periods.

The effective tax rate for the quarter and year to date ended June 30, 2021 was impacted by the effect of stock-based compensation and the release of previously recorded tax reserves. The effect of these discrete items decreased the effective tax rate for the quarter and year to date by 0.4% and 0.7%, respectively. The effective tax rate for the quarter and year to date ended June 30, 2020 was impacted by the effect of stock-based compensation and the release of previously recorded tax reserves, which increased the effective tax rate for the quarter by 0.3% and decreased the year to date effective tax rate by 0.8%. For the full year 2021, we expect our effective tax rate to be between 26.0% and 26.5%.

SEGMENT RESULTS OF OPERATIONS

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

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(1) Results of operations for closed campuses are included within Corporate and Other.

(2) AIU’s revenue and operating income for the year to date ended June 30, 2020 include results of operations related to Trident from the March 2, 2020 date of acquisition and therefore do not reflect a full six months of activity for Trident.

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. Total student enrollments do not include learners participating in our workforce development training programs due to the short-term nature of these programs.

Beginning in the first quarter of 2021, we redesigned CTU’s academic calendar to strategically place breaks between sessions and provide more opportunities for students to continue with their academic programs. We believe this redesign may improve student experiences and engagement. CTU’s academic calendar redesign, along with the previous academic calendar redesign at AIU, may impact the comparability of revenue-earning days and enrollment days as well as new enrollment results between periods and new enrollment results may not be reflective of operating performance and enrollment growth. As a result, we no longer report new student enrollment results and focus our discussions on total student enrollments.

CTU. Current quarter and year to date revenue increased by 1.8% or $1.8 million and 2.0% or $4.1 million, respectively, as compared to the prior year periods. CTU experienced an increase in total student enrollment of 14.2% at June 30, 2021 as compared to June 30, 2020. CTU’s academic calendar redesign positively impacted the total student enrollments at June 30, 2021.

Current quarter and year to date operating income for CTU increased by 7.0% or $2.3 million and 5.7% or $3.8 million, respectively, as compared to the prior year periods, driven by the increase in revenue discussed above as well as efficiencies within operating processes, which improved operating margin by 170 basis points and 120 basis points for the current quarter and year to date, respectively, as compared to the prior year periods. Partially offsetting the revenue growth and efficiencies within operating processes were increased expense within admissions, advertising and marketing and academics for the current quarter and year to date as compared to the respective prior year periods.

AIU. Current quarter revenue decreased by 3.4% or $2.6 million as compared to the prior year period and increased by 5.2% or $7.5 million for the year to date as compared to the prior year period. The current quarter decrease reflects lower total student enrollments at June 30, 2021 as compared to June 30, 2020, due to a decrease in student enrollments at Trident. Trident focuses on serving students from the military-affiliated population and the prolonged pandemic has had an impact on enrollments from the military as a result of reduced opportunities for in-person marketing activities at military installations as well as technical challenges associated with a change in the Army education administration portal. The current year to date increase benefitted from six months of revenue related to Trident as compared to four months in the prior year period.

Current quarter operating income for AIU decreased by 12.0% or $1.3 million as compared to the prior year period and increased by 3.5% or $0.7 million for the current year to date as compared to the prior year period. The current quarter decrease was primarily driven by advertising and marketing expenses to support the launch of the new workforce development training programs at Trident as lower administration, academics and admissions expenses partially offset the revenue decline for the current quarter. The current year to date increase was primarily driven by the increase in revenue discussed above, which was partially offset with increases in academics, admissions, advertising and marketing and bad debt expense categories due, in part, to the Trident acquisition which has six months of operating expenses during the current year to date as compared to four months in the prior year period.

Corporate and Other. This category includes unallocated costs that are incurred on behalf of the entire company and remaining expenses associated with closed campuses. Total Corporate and Other operating loss for the current quarter and year to date increased 39.9% or $2.5 million and 20.4% or $2.6 million, respectively, as compared to the prior year periods, primarily as a result of increased legal fee expense which more than offset the decreased operating losses associated with our closed campuses.

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, 2020. 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, 2020 also includes a discussion of these and other significant accounting policies, and Note 3 "Recent Accounting Pronouncements" in this Form 10-Q describes accounting policies adopted in 2021.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of June 30, 2021, cash, cash equivalents, restricted cash and available-for-sale short-term investments (“cash balances”) totaled $480.7 million. Restricted cash as of June 30, 2021 was $4.0 million and relates to amounts held in an escrow account to secure post-closing indemnification obligations of the seller pursuant to the Trident acquisition. 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 2021. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, our working capital needs, capital expenditures and lease commitments through at least the next 12 months primarily with cash generated by operations and existing cash balances.

Our credit agreement allows us to borrow up to a maximum amount of $50.0 million and is scheduled to mature on January 20, 2022. The credit agreement contains customary affirmative, negative and financial maintenance covenants, including a requirement to maintain a balance of cash, cash equivalents and marketable securities in our domestic accounts with the bank of at least $50.0 million at all times. Amounts borrowed under the credit agreement are required to be 100% secured with deposits of cash and marketable securities with the bank. Under the credit agreement, the Company’s ability to make restricted payments, including payments in connection with an acquisition or a repurchase of shares of our common stock, is subject to limitations. Taking into consideration restricted payments already made by the Company during the term of the credit agreement, as of June 30, 2021, the Company may make up to an additional $179.0 million of restricted payments through January 20, 2022.

We maintain a balanced capital allocation strategy that focuses on maintaining a strong balance sheet and adequate liquidity, while (i) prudently investing in organic growth projects at our universities, such as student-serving initiatives and new academic program development, and (ii) evaluating diverse strategies to enhance stockholder value, including acquisitions of quality educational institutions or programs 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 November 4, 2019, the Board of Directors of the Company approved a stock repurchase program which authorizes the Company to repurchase up to $50.0 million of our common stock from time to time depending on market conditions and other considerations. The program expires on December 31, 2021. Since the November 4, 2019 inception date, the Company repurchased approximately 2.0 million shares for $27.1 million, of which approximately 0.4 million shares were repurchased for $5.4 million during the quarter ended June 30, 2021.

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, 2020.

Sources and Uses of Cash

Operating Cash Flows

During the years to date ended June 30, 2021 and 2020, net cash flows provided by operating activities totaled $82.7 million and $105.4 million, respectively. The decrease in cash flows provided by operating activities for the current year to date as compared to the prior year to date was primarily due to the timing impact of Title IV funding received in the prior year to date that would have historically been received in the fourth quarter of 2019 as well as income tax payments made during the current year to date as compared to no income tax payments in the prior year period. Partially offsetting these items are six months of cash flow during 2021 for the Trident acquisition as compared to only four months in the prior year to date.

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 June 30, 2021, approximately 81% of our institutions’ aggregate cash receipts from tuition payments came from Title IV Program funding as compared to 80% for the full year of 2020. 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, 2020.

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 June 30, 2021 and 2020, net cash flows used in investing activities totaled $94.3 million and $101.5 million, respectively. The prior year period included a payment of $34.1 million for the Trident acquisition.

Purchases and Sales of Available-for-Sale Investments. Purchases and sales of available-for-sale investments resulted in a net cash outflow of $91.2 million and $64.0 million for the years to date ended June 30, 2021 and 2020, respectively.

Capital Expenditures. Capital expenditures decreased to $3.1 million for the year to date ended June 30, 2021 as compared to $3.4 million for the year to date ended June 30, 2020. Capital expenditures represented approximately 1.0% of total revenue for each of the years to date ended June 30, 2021 and 2020. For the full year 2021, we expect capital expenditures to be approximately 2.0% of revenue.

Financing Cash Flows

During the years to date ended June 30, 2021 and 2020, net cash flows used in financing activities totaled $6.8 million and $17.0 million, respectively. Payments to repurchase shares of our common stock were $5.4 million for the year to date ended June 30, 2021 and $17.3 million for the year to date ended June 30, 2020.

Payments of employee tax associated with stock compensation. Payments of employee tax associated with stock compensation were $2.0 million and $0.7 million for the years to date ended June 30, 2021 and 2020, respectively.

Changes in Financial Position

Selected condensed consolidated balance sheet account changes from December 31, 2020 to June 30, 2021 were as follows (dollars in thousands):

Total cash and cash equivalents, restricted cash and short-term investments: The increase is primarily driven by cash provided by operating activities as a result of the increase in total revenue within CTU and AIU during the current year to date period.

Deferred income tax assets, net: The decrease reflects the usage of deferred tax assets associated with the offset of income taxes payable.

Accrued expenses other: The increase is primarily related to the reclassification of $4.0 million of escrow liability related to the Trident acquisition from long term to short term as well as an increased accrual for legal fees as of June 30, 2021.

Deferred revenue: The increase is primarily related to the timing impact of the academic calendar redesign at CTU.

Other liabilities: The decrease is primarily related to the reclassification of $4.0 million of escrow liability related to the Trident acquisition from long term to short term.

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 June 30, 2021, 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.

Any outstanding borrowings under our revolving credit facility bear annual interest at fluctuating rates under either the Base Rate Loan or as determined by the London Interbank Offered Rate (“LIBOR”) for the relevant currency, plus the applicable rate based on the type of loan. Under the credit agreement, if LIBOR cannot be determined or an announcement is made about a specific date after which LIBOR will no longer be used for determining interest rates for loans, an alternative to LIBOR or a mechanism to establish an alternate rate is specified. As of June 30, 2021, we had no outstanding borrowings under this facility.

Our financial instruments are recorded at their fair values as of June 30, 2021 and December 31, 2020. 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.

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 June 30, 2021, 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 June 30, 2021 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, 2020, which was filed with the Securities and Exchange Commission on February 24, 2021.