PERDOCEO EDUCATION Corp (PRDO) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion below contains “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 Part I of this Annual Report on Form 10-K 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.

As used in this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “the Company,” “Perdoceo” and “PEC” refer to Perdoceo Education Corporation and our wholly-owned subsidiaries. The terms “institution” and “university” refer to an individual, branded, for-profit educational institution, owned by us and including its campus locations. The term “campus” refers to an individual main or branch campus operated by one of our institutions.

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 consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. 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:

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Overview

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Consolidated Results of Operations

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Segment Results of Operations

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Summary of Critical Accounting Policies and Estimates

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Liquidity, Financial Position and Capital Resources

OVERVIEW

Perdoceo’s accredited academic institutions offer a quality postsecondary education to a diverse student population, with fully online, campus-based and hybrid learning programs. The Company’s academic institutions – Colorado Technical University (“CTU”), the American InterContinental University System (“AIUS” or “AIU System”) and University of St. Augustine for Health Sciences ("USAHS") – 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. USAHS is among the nation's reputable universities offering graduate health sciences degrees, primarily in physical therapy, occupational therapy, speech language therapy and nursing, as well as continuing education programs. Perdoceo's academic 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 three reporting segments: CTU, AIUS and USAHS.

See Note 18 “Segment Reporting” for a description of each of our current reporting segments along with revenues, operating income and total assets by reporting segment.

Regulatory Environment and Political Uncertainty

As indicated in “Scrutiny of the For-Profit Postsecondary Education Sector” section, the for-profit industry is scrutinized by various policymakers, agencies and interest groups. Congressional hearings and roundtable discussions were previously held regarding certain 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

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colleges and universities. Many of the most highly criticized institutions have been closed now for several years. See “Scrutiny of the For-Profit Postsecondary Education Sector” for additional information on this matter.

The November 2024 federal elections resulted in a new President and Congress. We cannot predict the actions that the new Administration or Congress may take or their effect on the higher education sector. The new Congress or Administration may delay, block, modify, or eliminate certain Title IV and other regulations applicable to higher education institutions. In addition, the new Administration may interpret, apply, and enforce Title IV and other regulations in a manner different from current Department guidance and practice. We expect to continue to need to operate nimbly, making necessary changes to the extent possible to comply with new rules or interpretations as well as new interpretations of existing rules.

We encourage you to review Item 1, “Business,” and Item 1A, “Risk Factors,” to learn more about our highly regulated industry and related risks and uncertainties.

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 operating expenses which are not 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 Review

During the year ended December 31, 2024 ("current year"), our academic institutions continued to execute on our goal of changing lives through education and preparing learners for job skills necessary in today’s world. The positive student enrollment results we experienced as of the end of the current year demonstrated the execution on our strategy of prioritizing student experiences and academic outcomes, that we believe, will support sustainable and responsible growth.

On December 2, 2024, the Company completed the acquisition of the University of St. Augustine for Health Sciences ("USAHS"). USAHS is among the nation's reputable universities offering graduate health sciences degrees, primarily in physical therapy, occupational therapy, speech language therapy and nursing, as well as continuing education programs. Founded in 1979, USAHS educates students through its network of campuses in San Marcos, California; St. Augustine and Miami, Florida; and Austin and Dallas, Texas and through its online programs. This strategic acquisition allows us to diversify and significantly expand our academic offerings into the health sciences field, broadening our reach and community impact.

Total student enrollments increased 20.0% at December 31, 2024 as compared to December 31, 2023, with both CTU and AIUS contributing to this increase, along with the USAHS acquisition. CTU's total student enrollments increased 8.1% as compared to the prior year end, driven by student enrollment growth within our corporate engagement programs as well as continued improvement in prospective student interest levels, student retention and student engagement. Total student enrollments increased 11.8% at AIUS for the current year end as compared to the prior year end as AIUS' total student enrollment comparability had continued to improve through the current year since reverting to normalized levels of operations at the end of 2023.

We remain focused on further enhancing and supporting student retention and engagement, while making selective investments in student technology, including exploring AI based solutions, and leveraging data analytics to identify and engage with prospective students who are most likely to succeed at one of our academic institutions. We also continued to experience increased efficiencies within our student enrollment and onboarding processes that have been supported by the use of data analytics and technology and we have increased training and development within our admissions and enrollment teams. Lastly, we remained focused on investing in and improving processes that support our corporate engagement programs.

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We expect the high levels of student retention and student engagement we experienced in 2024, as well as the prospective student interest experienced in the latter half of 2024, to continue into 2025. While we may see quarterly variability in revenue and student enrollment trends, our assumption is that the impact from the Department student loan initiatives that have ended or are expected to change or end in 2025 will mostly be offset with organic improvements in student retention, student engagement and higher levels of prospective student interest for our academic programs, including growth in corporate engagements. Full year revenue is expected to be higher for 2025 primarily due to the USAHS acquisition as well as growth in revenue and student enrollments within CTU and AIUS.

Financial Highlights

Revenue for the current year decreased by 4.0% or $28.7 million as compared to the prior year, resulting from a decrease in revenue for CTU of 2.6% or $12.0 million and a decrease for AIUS of 11.1% or $26.8 million, which more than offset the revenue of $10.0 million from the USAHS acquisition in December of 2024. The decrease in revenue at CTU was mainly due to simplification of professional development program offerings. Excluding the impact from the simplification of professional development program offerings, 2024 revenue at CTU experienced organic growth. Strong underlying student retention and engagement and an increase in student enrollment from corporate engagements fully offset the negative impact of fewer revenue-earning days during the full year and resulted in this organic revenue growth. The decrease within AIUS was driven by a lag impact on revenue through the first three quarters of 2024 of the operational changes undertaken during 2023, which more than offset the revenue growth in the fourth quarter of 2024 for AIUS.

Operating income for the current year increased to $174.3 million as compared to operating income of $150.4 million in the prior year. The increase in operating income for the current year was a result of decreased operating expenses, primarily in the areas of administrative, asset impairment, admissions and academics expenses, which more than offset the decrease in revenue during the current year as compared to the prior year.

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. Adjusted operating income was $192.2 million for the current year as compared to $174.9 million for the prior year. Adjusted operating income for the years ended December 31, 2024 and 2023 is presented below (dollars in thousands, unless otherwise noted):

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(1)
Legal fee expense associated with (i) responses to 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

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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 years ended December 31, 2024 and 2023 (dollars in thousands), including comparisons of our year-over-year performance between these years. Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of our results for the year ended December 31, 2022, as well as the year-over-year comparison of our 2023 financial performance to 2022.

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(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.

Year Ended December 31, 2024 as Compared to the Year Ended December 31, 2023

Revenue

Revenue for the year ended December 31, 2024 ("current year") decreased 4.0%, or $28.7 million, primarily due to decreases in revenue from both CTU and AIUS. The decline at AIUS was attributed to the delayed impact on revenue through the first three quarters of 2024 from operational changes made in the previous year. Typically, total student enrollment balances at the end of any given quarter have a delayed effect on revenue in the following quarter. CTU’s decline was driven by adjustments to our professional development program offerings. The current year's revenue benefited from the acquisition completed on December 2, 2024, which was not included in the full comparative period of the prior year.

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Educational Services and Facilities Expense (dollars in thousands)

Educational services and facilities expense for the current year decreased by 7.3% or $9.5 million as compared to the prior year, supported by improvements in both academics and student related costs and occupancy expenses, compared to the prior year.

Academics and student related costs decreased by 6.5% or $7.8 million as compared to the prior year, primarily due to operational changes made related to simplification of professional development offerings. Occupancy expenses for the current year improved by 16.1% or $1.7 million as compared to the prior year, driven by ongoing optimization of leased space.

General and Administrative Expense (dollars in thousands)

The general and administrative expense for the current year decreased by 7.8% or $31.0 million, compared to the prior year. The decrease was primarily driven by lower administrative, admissions and advertising and marketing expenses.

Administrative expense for the current year decreased by 11.9% or $20.3 million as compared to the prior year, primarily driven by operational efficiencies within our academic institutions and decreased legal fees within Corporate and Other for the current year.

Admissions expense decreased by 10.5% or $9.6 million as compared to the prior year. The current year improvement was primarily driven by decreased expenses within both CTU and AIUS as a result of operational changes made during the prior year.

The advertising and marketing expense for the current year decreased by 1.6% or $1.6 million as compared to the prior year, which was driven by adjustments made to our marketing processes to identify prospective student interest.

Bad debt expense incurred by each of our segments during the years ended December 31, 2024, 2023 and 2022 was as follows (dollars in thousands):

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(1) USAHS includes results of operations starting from the acquisition date on December 2, 2024.

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Bad debt expense remained relatively consistent with a slight increase of 1.5% or $0.5 million for the current year as compared to the prior year. 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 for the current year increased by 15.8% or $23.8 million as compared to the prior year. The current year improvement was supported by lower operating expenses across most categories which more than offset the decrease in revenue as compared to the prior year. Additionally, asset impairment expense decreased by $9.8 million as compared to the prior year which benefited the current year comparison.

Provision for Income Taxes

For the year ended December 31, 2024, we recorded a tax provision of $53.9 million, resulting in an effective tax rate of 26.7% as compared to a tax provision of $44.5 million, with an effective rate of 23.1% for the prior year. The prior year provision includes a $4.5 million favorable adjustment related to the tax benefits associated with a previously disclosed prior year ordinary loss attributable to the stock of a worthless subsidiary, which decreased the 2023 effective tax rate by 2.4%.

For the full year 2025, we expect our effective tax rate to be between 25.5% and 26.5%.

SEGMENT RESULTS OF OPERATIONS

The summary of segment financial information below should be referenced in connection with a review of the following discussion of our segment results from operations for the years ended December 31, 2024 and 2023 (dollars in thousands), including comparisons of our year-over-year performance between these years. Please refer to Part II Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of our results for the year ended December 31, 2022, as well as the year-over-year comparison of our 2023 financial performance to 2022.

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(1)
CTU includes results of operations from Coding Dojo beginning on the acquisition date of December 1, 2022.

(2)
AIUS includes results of operations from CalSouthern beginning on the acquisition date of July 1, 2022.

(3)
USAHS includes results of operations beginning on the acquisition date of December 2, 2024.

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______________________

(1)
Perdoceo completed the acquisition of USAHS on December 2, 2024.

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 of the most recent academic term. Total student enrollments do not include learners participating in: a) non-degree seeking and professional development programs, and b) degree seeking, non-Title IV, self-paced programs at our universities.

Year Ended December 31, 2024 as Compared to the Year Ended December 31, 2023

CTU. Revenue for the current year decreased by 2.6% or $12.0 million as compared to the prior year. This decline was mainly due to simplification of professional development program offerings at CTU. Excluding the impact from the simplification of professional development program offerings, 2024 revenue at CTU experienced organic growth. Strong underlying student retention and engagement and an increase in student enrollment from corporate engagements fully offset the negative impact of fewer revenue-earning days during the full year and resulted in this organic revenue growth. CTU's total student enrollments increased by 8.1% as of December 31, 2024 as compared to December 31, 2023. This increase was driven by student enrollment growth within our corporate engagement programs as well as continued improvement in prospective student interest levels, student retention and student engagement. 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 year operating income for CTU increased by 18.9% or $27.3 million as compared to the prior year. The improvement in operating income was driven by lower operating expenses across most categories, partially due to right-sizing of the cost structure to align with more simplified professional development offerings, which more than offset the declines in revenue.

AIUS. Revenue for the current year decreased by 11.1% or $26.8 million as compared to the prior year. This decline was driven by a lag impact through the first three quarters of 2024 from the operational changes made during the latter half of 2023. AIUS' total student enrollments increased by 11.8% as of December 31, 2024 as compared to December 31, 2023. This increase was primarily driven by the return to normalized operating levels starting in late 2023, which contributed to increasing student enrollments throughout 2024.

Current year operating income for AIUS decreased by 20.1% or $9.1 million as compared to the prior year, driven by the revenue decline mentioned above which was only partially offset with decreased operating expenses.

USAHS. Revenue for the current year was approximately $10.0 million starting from the acquisition date of December 2, 2024. USAHS reported an operating loss of approximately $2.6 million for the fourth quarter partially driven by amortization expense associated with acquired intangible assets.

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 year improved by 21.4% or $8.3 million as compared to the prior year, primarily as a result of lower legal expenses.

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have identified the accounting policies and estimates listed below as those that we believe require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties. This section should be read in conjunction with Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements which includes a discussion of these and other significant accounting policies.

Revenue Recognition

Description: Our revenue, which is derived primarily from academic programs taught to students who attend our universities, is generally segregated into two categories: (1) tuition and fees, and (2) other. Tuition and fees represent costs to our students for educational services provided by our universities and are reflected net of scholarships and tuition discounts. Our universities charge tuition and fees at varying amounts and bill students a single charge that covers tuition, certain fees and required program materials,

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such as textbooks and supplies, which we treat as a single performance obligation. Generally, we bill student tuition at the beginning of each academic term for our degree programs and recognize the tuition as revenue on a straight-line basis over the academic term. As part of a student’s course of instruction, certain fees, such as technology fees and graduation fees, are billed separately to students. These fees are generally earned over the applicable term and are not considered separate performance obligations. We generally bill student tuition upon enrollment for our non-degree professional development programs and recognize the tuition as revenue on a straight-line basis over the length of the offering.

Assumptions and judgment: Revenue recognition includes assumptions and significant judgments including determination of the appropriate portfolios to assess for meeting the criteria to recognize revenue under ASC Topic 606 as well as the assessment of collectability. We analyze revenue recognition on a portfolio approach under ASC Topic 606. Significant judgment is used in determining the appropriate portfolios to assess for meeting the criteria to recognize revenue under ASC Topic 606. We have determined that all of our students can be grouped into one portfolio. Based on our past experience, students at different universities, in different programs or with different funding all behave similarly. Enrollment agreements all contain similar terms, refund policies are similar across all institutions and students work with the university to obtain some type of funding, for example, Title IV Program funds, Veterans Administration funds, military funding, employer tuition assistance or self-pay. We have significant historical data for our students which allows us to analyze collectability. We do not expect that revenue earned for the portfolio is significantly different as compared to revenue that would be earned if we were to assess each student contract separately.

Significant judgment is also required to assess collectability, particularly as it relates to students seeking funding under Title IV Programs. Because students are required to provide documentation, and in some cases extensive documentation, to the Department to be eligible and approved for funding, the timeframe for this process can sometimes span between 90 to 120 days. We monitor the progress of students through the eligibility and approval process and assess collectability for the portfolio each reporting period to monitor that the collectability threshold is met.

These assumptions and significant judgments are based upon our interpretation of accounting guidance and historical experience. Although management believes these assumptions and significant judgments to be reasonable, actual amounts may differ if historical experience is not reflective of future results.

Impact if actual results differ from assumptions and judgment: If actual performance is not consistent with historical experience in regards to our assessment of collectability, our revenue recognition may be materially different than what was originally recorded.

Allowance for Credit Losses

Description: We extend unsecured credit to a portion of the students who are enrolled at our academic institutions for tuition and certain other educational costs. Based upon past experience and judgment, we establish an allowance for credit losses with respect to student receivables which we estimate will ultimately not be collectible. As such, our results from operations only reflect the amount of revenue that is estimated to be reasonably collectible. Our standard student receivable allowance is based on an estimate of lifetime expected credit losses for student receivables. Our estimation methodology considers a number of quantitative and qualitative factors that, based on our collection experience, we believe have an impact on our repayment risk and ability to collect student receivables. Changes in the trends in any of these factors may impact our estimate of the allowance for credit losses. These factors include, but are not limited to: internal repayment history, changes in the current economic, legislative or regulatory environments, internal cash collection forecasts and the ability to complete the federal financial aid process with the student. These factors are monitored and assessed on a regular basis. Overall, our allowance estimation process for student receivables is validated by trending analysis and comparing estimated and actual performance.

Assumptions and judgment: Management makes a range of assumptions to determine what is believed to be the appropriate level of allowance for credit losses. Management determines a reasonable and supportable forecast based on the expectation of future conditions over a supportable forecast period as described above, as well as qualitative adjustments based on current and future conditions that may not be fully captured in the historical modeling factors described above. All of these estimates are susceptible to significant change.

Impact if actual results differ from assumptions and judgment: We monitor our collections and write-off experience to assess whether or not adjustments to our allowance percentage estimates are necessary. Changes in trends in any of the factors that we believe impact the collection of our student receivables, as noted above, or modifications to our collection practices, and other related policies may impact our estimate of our allowance for credit losses and our results from operations.

A one percentage point change in our allowance for credit losses as a percentage of gross earned student receivables as of December 31, 2024 would have resulted in a change in pretax income of $0.7 million during the year then ended.

Because a substantial portion of our revenue is derived from Title IV Programs, any legislative or regulatory action that significantly reduces the funding available under Title IV Programs, or the ability of our students or institutions to participate in Title IV Programs, would likely have a material impact on the realizability of our receivables.

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Goodwill Impairment

Description: Goodwill represents the excess of cost over fair market value of identifiable net assets acquired through business purchases. Goodwill often involves estimates based on third-party valuations, or internal valuations based on discounted cash flow analyses or other valuation techniques. Under ASC Topic 350, we review goodwill for impairment on an annual basis or when an event or other circumstances change that would more likely than not reduce the fair value of the asset below its carrying value, by applying a fair-value-based test. In making this assessment we assess qualitative factors to determine whether it is more-likely-than-not the fair value of the goodwill is less than its carrying amount. If we conclude based on the qualitative assessment that goodwill may be impaired, we then perform a quantitative one-step impairment test, and an impairment loss would be recognized for the excess of the carrying value over the fair value of the goodwill. Any subsequent increases in goodwill would not be recognized on the consolidated financial statements.

Assumptions and judgment: During the current year, we performed a qualitative assessment for the annual review of goodwill balances for impairment. Management first considered events and circumstances, including business trends and current operating performance, that may affect the fair value of the reporting unit to determine whether it was necessary to perform the quantitative impairment test. Management focused on the significant inputs utilized in the most recent quantitative assessment and any events or circumstances that could affect the significant inputs, including, but not limited to, financial performance compared with actual and projected results of relevant prior periods, legal, regulatory, contractual, competitive, economic, political, business or other factors, and industry and market considerations, such as a deteriorating operating environment or increased competition.

When performing a quantitative assessment for the annual review of goodwill balances for impairment, we estimate the fair value of each of our reporting units based on projected future operating results and cash flows, market assumptions and/or comparative market multiple methods. Determining fair value requires significant estimates and assumptions based on an evaluation of a number of factors, such as marketplace participants, relative market share, new student interest, student retention, future expansion or contraction expectations, amount and timing of future cash flows and the discount rate applied to the cash flows. Projected future operating results and cash flows used for valuation purposes do reflect improvements relative to recent historical periods with respect to, among other things, modest revenue growth and operating margins. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, historically projected operating results and cash flows have not always been achieved. The failure of one of our reporting units to achieve projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit below its carrying value and result in the recognition of a goodwill impairment charge. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. In addition to cash flow estimates, our valuations are sensitive to the rate used to discount cash flows and future growth assumptions. These assumptions could be adversely impacted by certain of the risks discussed in Item 1A, “Risk Factors,” in this Annual Report on Form 10-K.

Impact if actual results differ from assumptions and judgment: Changes in these qualitative and quantitative factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the fair value of our reporting units in relation to their respective carrying values of goodwill and could result in an impairment loss affecting our consolidated financial statements as a whole. Generally, an impairment loss would reduce our net income for the reporting period being presented, and proportionally reduce the value of the assets and equity reflected on our balance sheet.

We did not record any goodwill impairment charges during the years ended December 31, 2024 and 2023, and have $258.0 million and $241.2 million of goodwill as of December 31, 2024 and 2023, respectively.

Income Taxes

Description: We are subject to the income tax laws of the U.S. and various state, local and foreign jurisdictions. These tax laws are complex and subject to interpretation. As a result, significant judgments and interpretations are required in determining our income tax provisions (benefits) and evaluating our uncertain tax positions.

We account for income taxes in accordance with FASB ASC Topic 740 – Income Taxes. Topic 740 requires the recognition of deferred income tax assets and liabilities based upon the income tax consequences of temporary differences between financial reporting and income tax reporting by applying enacted statutory income tax rates applicable to future years to differences between the financial statement carrying amounts and the income tax basis of existing assets and liabilities. Topic 740 also requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred income tax asset will not be realized.

Assumptions and judgment: In establishing a provision for income tax expense or a liability for an uncertain tax position, we must make judgments and interpretations about the application of inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws

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may be subject to review/adjudication by the court systems in the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.

Impact if actual results differ from assumptions and judgment: Although we believe the judgments and estimates used are reasonable, actual results could differ and we may be exposed to changes in tax liability that could be material. To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would result in an increase in our effective income tax rate.

Business Combinations

Description: We account for business combinations in accordance with FASB ASC Topic 805 – Business Combinations. Paragraph 805-20-30-1 states that the acquirer shall measure the identifiable assets acquired and the liabilities assumed in the acquiree at their acquisition date fair values.

Assumptions and judgment: Allocating the purchase price for a business combination requires the Company to identify and estimate the fair values of various assets acquired and liabilities assumed. Management is responsible for determining the appropriate valuation model and estimated fair values, and in doing so, considers a number of factors, including information provided by an outside valuation advisor. Management bases the fair value of assets, including identifiable intangible assets acquired and liabilities assumed, on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The inputs and assumptions used in the valuations are considered level 3 inputs.

Impact if actual results differ from assumptions and judgment: Changes in any qualitative and quantitative factors, could have a significant impact on the fair value of acquired assets and liabilities assumed and could result in a change to the purchase accounting and any future expense associated with acquired assets.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of December 31, 2024, cash, cash equivalents, restricted cash and available-for-sale short-term investments (“cash balances”) totaled $591.5 million. Restricted cash as of December 31, 2024 was $22.6 million and primarily relates to a letter of credit USAHS is required to maintain with the Department of Education. 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 generated cash in 2024 as a result of improved operating performance and expect to continue to do so in 2025. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, our working capital needs, capital expenditures, lease commitments and quarterly dividends payments 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, as well as real estate updates, 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.”

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Sources and Uses of Cash

Operating Cash Flows

During the years ended December 31, 2024 and 2023, net cash flows provided by operating activities totaled $161.6 million and $112.0 million, respectively. The increase in cash flow from operations as compared to the prior year is primarily driven by the increase in operating income as compared to the prior year as well as a negative working capital timing impact on the prior year operating cash flows.

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 years ended December 31, 2024 and 2023, approximately 77% and 76% of our institutions’ aggregate cash receipts from tuition payments came from Title IV Program funding. 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.”

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 ended December 31, 2024 and 2023, net cash flows used in investing activities totaled $107.8 million and $88.5 million, respectively.

Purchases and Sales of Available-for-Sale Investments. Purchases and sales of available-for-sale investments resulted in a net cash inflow of $34.6 million for the year ended December 31, 2024 as compared to a net cash outflow of $76.1 million for the year ended December 31, 2023.

Business acquisition. For the year ended December 31, 2024, the Company completed the USAHS acquisition and made total initial cash payments of $137.8 million.

Capital Expenditures. Capital expenditures decreased to $4.6 million for the year ended December 31, 2024 as compared to $6.4 million for the year ended December 31, 2023. Capital expenditures represented approximately 0.7% and 0.9% of revenue for the years ended December 31, 2024 and 2023, respectively. For the year ending December 31, 2025, we expect capital expenditures to be approximately 2.0% of revenue.

Financing Cash Flows

During the years ended December 31, 2024 and 2023, net cash flows used in financing activities totaled $41.1 million and $23.4 million, respectively.

Payments of employee tax associated with stock compensation. Payments of employee tax associated with stock compensation were $3.4 million for the year ended December 31, 2024 and $2.2 million for the year ended December 31, 2023.

Repurchase of stock. During the year ended December 31, 2024, we repurchased 0.4 million shares of our common stock for approximately $6.8 million at an average price of $17.60 per share as compared to 0.5 million shares of common stock repurchased for $8.3 million at an average price of $15.38 per share for the year ended December 31, 2023. Repurchases of stock during 2024 and 2023 were funded by cash generated from operating activities and existing cash balances. See Part II, Item 5 for more information.

Release of cash held in escrow. During the years ended December 31, 2024 and 2023, we released $0.3 million and $1.0 million of escrow associated with acquisitions.

Payments of cash dividends and dividend equivalents. During the years ended December 31, 2024 and 2023, the Company made dividend payments of $31.7 million and $14.4 million, respectively.

Principal payments for finance leases and failed sale leaseback. During the year ended December 31, 2024, the Company made payments of $0.4 million for finance leases and $0.7 million for a failed sale leaseback, both related to the acquisition of USAHS.

Contractual Obligations

As of December 31, 2024, future minimum cash payments due under contractual obligations for our non-cancelable operating and finance lease arrangements were $74.4 million and $18.5 million, respectively. Of these amounts, approximately $11.1 million for

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operating leases and $6.3 million for finance leases are due within the next 12 months. Lastly, undiscounted future rental payments associated with a build to suit arrangement that is reflected as construction financing as of December 31, 2024 amount to $158.4 million over the 25 year lease term. Payments will begin upon lease commencement in January 2025. These future minimum cash payments reflect base rent and other fixed lease-related costs identified in the lease agreements but excludes variable costs such as common area maintenance payments and taxes, as these amounts are undeterminable at this time and may vary based on future circumstances. We lease most of our administrative and educational facilities under non-cancelable operating leases expiring at various dates through 2049.

As of December 31, 2024, we were not a party to any off-balance sheet financing or contingent payment arrangements, nor do we have any unconsolidated subsidiaries.

Changes in Financial Position – December 31, 2024 Compared to December 31, 2023

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

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(1) The increases in these assets and liability categories are driven by the USAHS acquisition.

Cash, cash equivalents, restricted cash and short-term investments. The decrease in total cash, cash equivalents, restricted cash and short-term investments is primarily due to payments associated with a business acquisition and dividend payments, which were mostly offset with cash from operations.

Recent Accounting Pronouncements

See Note 4 “Recent Accounting Pronouncements” to our consolidated financial statements for a discussion of recent accounting pronouncements that may affect us.