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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 0-23245

PERDOCEO EDUCATION CORPORATION

(Exact name of registrant as specified in its charter)

Delaware | 36-3932190
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
231 N. Martingale Road Schaumburg, Illinois | 60173
(Address of principal executive offices) | (Zip Code)

Registrant’s telephone number, including area code: (847) 781-3600

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.01 par value |  | PRDO |  | Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☒ |  | Accelerated filer | ☐
Non-accelerated filer |  | ☐ |  | Smaller reporting company | ☐
Emerging growth company |  | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

Number of shares of registrant’s common stock, par value $0.01, outstanding as of August 2, 2021: 70,082,105

PERDOCEO EDUCATION CORPORATION

FORM 10-Q

TABLE OF CONTENTS

|  | Page
PART I—FINANCIAL INFORMATION |
Item 1. | Financial Statements |
| Condensed Consolidated Balance Sheets | 1
| Condensed Consolidated Statements of Income (Unaudited) | 2
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) | 2
| Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) | 3
| Condensed Consolidated Statements of Cash Flows (Unaudited) | 4
| Notes to Unaudited Condensed Consolidated Financial Statements | 5
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 27
Item 4. | Controls and Procedures | 27
PART II—OTHER INFORMATION |
Item 1. | Legal Proceedings | 29
Item 1A. | Risk Factors | 29
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29
Item 6. | Exhibits | 29
SIGNATURES | 31

PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

|  | June 30, |  |  | December 31, |
(In Thousands, Except Share and Per Share Amounts) |  | 2021 |  |  | 2020 |
ASSETS |  | (unaudited) |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash and cash equivalents, unrestricted |  | $ | 87,343 |  |  | $ | 105,684 |
Restricted cash |  |  | 4,000 |  |  |  | 4,000 |
Total cash, cash equivalents and restricted cash |  |  | 91,343 |  |  |  | 109,684 |
Short-term investments |  |  | 389,310 |  |  |  | 300,676 |
Total cash and cash equivalents, restricted cash and short-term investments |  |  | 480,653 |  |  |  | 410,360 |
Student receivables, gross |  |  | 91,457 |  |  |  | 84,599 |
Allowance for credit losses |  |  | (39,775 | ) |  |  | (39,917 | )
Student receivables, net |  |  | 51,682 |  |  |  | 44,682 |
Receivables, other |  |  | 2,568 |  |  |  | 2,873 |
Prepaid expenses |  |  | 10,986 |  |  |  | 8,209 |
Inventories |  |  | 619 |  |  |  | 596 |
Other current assets |  |  | 2,637 |  |  |  | 341 |
Total current assets |  |  | 549,145 |  |  |  | 467,061 |
NON-CURRENT ASSETS: |  |  |  |  |  |  |  |
Property and equipment, net of accumulated depreciation of $107,628 and $101,380 as of June 30, 2021 and December 31, 2020, respectively |  |  | 24,807 |  |  |  | 27,761 |
Right of use asset, net |  |  | 40,821 |  |  |  | 44,773 |
Goodwill |  |  | 118,312 |  |  |  | 118,312 |
Intangible assets, net of amortization of $5,844 and $4,178 as of June 30, 2021 and December 31, 2020, respectively |  |  | 13,856 |  |  |  | 15,522 |
Student receivables, gross |  |  | 4,568 |  |  |  | 3,533 |
Allowance for credit losses |  |  | (3,101 | ) |  |  | (2,230 | )
Student receivables, net |  |  | 1,467 |  |  |  | 1,303 |
Deferred income tax assets, net |  |  | 31,782 |  |  |  | 40,351 |
Other assets |  |  | 6,229 |  |  |  | 6,434 |
TOTAL ASSETS |  | $ | 786,419 |  |  | $ | 721,517 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Lease liability-operating |  | $ | 9,779 |  |  | $ | 9,789 |
Accounts payable |  |  | 11,533 |  |  |  | 13,259 |
Accrued expenses: |  |  |  |  |  |  |  |
Payroll and related benefits |  |  | 19,495 |  |  |  | 22,661 |
Advertising and marketing costs |  |  | 11,615 |  |  |  | 10,249 |
Income taxes |  |  | 1,522 |  |  |  | 1,402 |
Other |  |  | 18,614 |  |  |  | 11,921 |
Deferred revenue |  |  | 45,214 |  |  |  | 34,534 |
Total current liabilities |  |  | 117,772 |  |  |  | 103,815 |
NON-CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Lease liability-operating |  |  | 40,565 |  |  |  | 43,405 |
Other liabilities |  |  | 14,470 |  |  |  | 18,390 |
Total non-current liabilities |  |  | 55,035 |  |  |  | 61,795 |
STOCKHOLDERS' EQUITY: |  |  |  |  |  |  |  |
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued or outstanding |  |  | - |  |  |  | - |
Common stock, $0.01 par value; 300,000,000 shares authorized; 87,884,843 and 87,264,910 shares issued, 70,082,105 and 70,062,364 shares outstanding as of June 30, 2021 and December 31, 2020, respectively |  |  | 879 |  |  |  | 873 |
Additional paid-in capital |  |  | 666,470 |  |  |  | 658,423 |
Accumulated other comprehensive income |  |  | 20 |  |  |  | 364 |
Retained earnings |  |  | 199,737 |  |  |  | 142,335 |
Treasury stock, at cost; 17,802,738 and 17,202,546 shares as of June 30, 2021 and December 31, 2020, respectively |  |  | (253,494 | ) |  |  | (246,088 | )
Total stockholders' equity |  |  | 613,612 |  |  |  | 555,907 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |  | $ | 786,419 |  |  | $ | 721,517 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
(In Thousands, Except Per Share Amounts) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
REVENUE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tuition and fees |  | $ | 174,804 |  |  | $ | 175,499 |  |  | $ | 357,635 |  |  | $ | 345,893 |
Other |  |  | 735 |  |  |  | 536 |  |  |  | 1,542 |  |  |  | 1,136 |
Total revenue |  |  | 175,539 |  |  |  | 176,035 |  |  |  | 359,177 |  |  |  | 347,029 |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Educational services and facilities |  |  | 28,532 |  |  |  | 28,676 |  |  |  | 57,506 |  |  |  | 55,587 |
General and administrative |  |  | 107,132 |  |  |  | 105,840 |  |  |  | 217,177 |  |  |  | 209,369 |
Depreciation and amortization |  |  | 3,913 |  |  |  | 4,151 |  |  |  | 7,915 |  |  |  | 6,790 |
Asset impairment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 612 |
Total operating expenses |  |  | 139,577 |  |  |  | 138,667 |  |  |  | 282,598 |  |  |  | 272,358 |
Operating income |  |  | 35,962 |  |  |  | 37,368 |  |  |  | 76,579 |  |  |  | 74,671 |
OTHER INCOME: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 322 |  |  |  | 1,011 |  |  |  | 681 |  |  |  | 2,498 |
Interest expense |  |  | (280 | ) |  |  | (43 | ) |  |  | (389 | ) |  |  | (84 | )
Miscellaneous (expense) income |  |  | (35 | ) |  |  | 125 |  |  |  | 107 |  |  |  | 112 |
Total other income |  |  | 7 |  |  |  | 1,093 |  |  |  | 399 |  |  |  | 2,526 |
PRETAX INCOME |  |  | 35,969 |  |  |  | 38,461 |  |  |  | 76,978 |  |  |  | 77,197 |
Provision for income taxes |  |  | 9,319 |  |  |  | 10,272 |  |  |  | 19,564 |  |  |  | 19,876 |
INCOME FROM CONTINUING OPERATIONS |  |  | 26,650 |  |  |  | 28,189 |  |  |  | 57,414 |  |  |  | 57,321 |
LOSS FROM DISCONTINUED OPERATIONS, net of tax |  |  | (1 | ) |  |  | (22 | ) |  |  | (12 | ) |  |  | (48 | )
NET INCOME |  |  | 26,649 |  |  |  | 28,167 |  |  |  | 57,402 |  |  |  | 57,273 |
NET INCOME PER SHARE - BASIC: |  | $ | 0.38 |  |  | $ | 0.41 |  |  | $ | 0.82 |  |  | $ | 0.82 |
NET INCOME PER SHARE - DILUTED: |  | $ | 0.37 |  |  | $ | 0.40 |  |  | $ | 0.80 |  |  | $ | 0.80 |
WEIGHTED AVERAGE SHARES OUTSTANDING: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 70,299 |  |  |  | 69,094 |  |  |  | 70,224 |  |  |  | 69,467 |
Diluted |  |  | 71,679 |  |  |  | 70,900 |  |  |  | 71,616 |  |  |  | 71,350 |

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
(In Thousands) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
NET INCOME |  | $ | 26,649 |  |  | $ | 28,167 |  |  | $ | 57,402 |  |  | $ | 57,273 |
OTHER COMPREHENSIVE INCOME (LOSS), net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | 28 |  |  |  | 53 |  |  |  | (101 | ) |  |  | 5 |
Unrealized (loss) gain on investments |  |  | (22 | ) |  |  | 1,431 |  |  |  | (243 | ) |  |  | 592 |
Total other comprehensive income (loss) |  |  | 6 |  |  |  | 1,484 |  |  |  | (344 | ) |  |  | 597 |
COMPREHENSIVE INCOME |  | $ | 26,655 |  |  | $ | 29,651 |  |  | $ | 57,058 |  |  | $ | 57,870 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

|  | Common Stock |  |  | Treasury Stock |  |  |  |  |  |  | Accumulated Other |  |  |  |  |  |  |  |  |
(In Thousands) |  | Issued Shares |  |  | $0.01 Par Value |  |  | Purchased Shares |  |  | Cost |  |  | Additional Paid-in Capital |  |  | Comprehensive Income (Loss) |  |  | Retained Earnings |  |  | Total |
BALANCE, April 1, 2021 |  |  | 87,795 |  |  | $ | 878 |  |  |  | (17,363 | ) |  | $ | (248,120 | ) |  | $ | 662,485 |  |  | $ | 14 |  |  | $ | 173,088 |  |  | $ | 588,345 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 26,649 |  |  |  | 26,649 |
Foreign currency translation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 28 |  |  |  | - |  |  |  | 28 |
Unrealized loss on investments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (22 | ) |  |  | - |  |  |  | (22 | )
Treasury stock purchased |  |  | - |  |  |  | - |  |  |  | (440 | ) |  |  | (5,372 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,372 | )
Share-based compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,677 |  |  |  | - |  |  |  | - |  |  |  | 3,677 |
Common stock issued |  |  | 90 |  |  |  | 1 |  |  |  | - |  |  |  | (2 | ) |  |  | 308 |  |  |  | - |  |  |  | - |  |  |  | 307 |
BALANCE, June 30, 2021 |  |  | 87,885 |  |  | $ | 879 |  |  |  | (17,803 | ) |  | $ | (253,494 | ) |  | $ | 666,470 |  |  | $ | 20 |  |  | $ | 199,737 |  |  | $ | 613,612 |
|  | Common Stock |  |  | Treasury Stock |  |  |  |  |  |  | Accumulated Other |  |  |  |  |  |  |  |  |
(In Thousands) |  | Issued Shares |  |  | $0.01 Par Value |  |  | Purchased Shares |  |  | Cost |  |  | Additional Paid-in Capital |  |  | Comprehensive Income (Loss) |  |  | Retained Earnings |  |  | Total |
BALANCE, April 1, 2020 |  |  | 86,209 |  |  | $ | 862 |  |  |  | (17,148 | ) |  | $ | (245,311 | ) |  | $ | 642,958 |  |  | $ | (543 | ) |  | $ | 47,177 |  |  | $ | 445,143 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 28,167 |  |  |  | 28,167 |
Foreign currency translation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 53 |  |  |  | - |  |  |  | 53 |
Unrealized gain on investments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,431 |  |  |  | - |  |  |  | 1,431 |
Share-based compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,291 |  |  |  | - |  |  |  | - |  |  |  | 3,291 |
Common stock issued |  |  | 70 |  |  |  | 1 |  |  |  | - |  |  |  | (2 | ) |  |  | 600 |  |  |  | - |  |  |  | - |  |  |  | 599 |
BALANCE, June 30, 2020 |  |  | 86,279 |  |  | $ | 863 |  |  |  | (17,148 | ) |  | $ | (245,313 | ) |  | $ | 646,849 |  |  | $ | 941 |  |  | $ | 75,344 |  |  | $ | 478,684 |
|  | Common Stock |  |  | Treasury Stock |  |  |  |  |  |  | Accumulated Other |  |  |  |  |  |  |  |  |
(In Thousands) |  | Issued Shares |  |  | $0.01 Par Value |  |  | Purchased Shares |  |  | Cost |  |  | Additional Paid-in Capital |  |  | Comprehensive Income (Loss) |  |  | Retained Earnings |  |  | Total |
BALANCE, January 1, 2021 |  |  | 87,265 |  |  | $ | 873 |  |  |  | (17,203 | ) |  | $ | (246,088 | ) |  | $ | 658,423 |  |  | $ | 364 |  |  | $ | 142,335 |  |  | $ | 555,907 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 57,402 |  |  |  | 57,402 |
Foreign currency translation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (101 | ) |  |  | - |  |  |  | (101 | )
Unrealized loss on investments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (243 | ) |  |  | - |  |  |  | (243 | )
Treasury stock purchased |  |  | - |  |  |  | - |  |  |  | (440 | ) |  |  | (5,372 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,372 | )
Share-based compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,430 |  |  |  | - |  |  |  | - |  |  |  | 7,430 |
Common stock issued |  |  | 620 |  |  |  | 6 |  |  |  | (160 | ) |  |  | (2,034 | ) |  |  | 617 |  |  |  | - |  |  |  | - |  |  |  | (1,411 | )
BALANCE, June 30, 2021 |  |  | 87,885 |  |  | $ | 879 |  |  |  | (17,803 | ) |  | $ | (253,494 | ) |  | $ | 666,470 |  |  | $ | 20 |  |  | $ | 199,737 |  |  | $ | 613,612 |
|  | Common Stock |  |  | Treasury Stock |  |  |  |  |  |  | Accumulated Other |  |  |  |  |  |  |  |  |
(In Thousands) |  | Issued Shares |  |  | $0.01 Par Value |  |  | Purchased Shares |  |  | Cost |  |  | Additional Paid-in Capital |  |  | Comprehensive Income |  |  | Retained Earnings |  |  | Total |
BALANCE, January 1, 2020 |  |  | 85,953 |  |  | $ | 860 |  |  |  | (15,802 | ) |  | $ | (227,315 | ) |  | $ | 639,335 |  |  | $ | 344 |  |  | $ | 18,071 |  |  | $ | 431,295 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 57,273 |  |  |  | 57,273 |
Foreign currency translation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5 |  |  |  | - |  |  |  | 5 |
Unrealized gain on investments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 592 |  |  |  | - |  |  |  | 592 |
Treasury stock purchased |  |  | - |  |  |  | - |  |  |  | (1,284 | ) |  |  | (17,309 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (17,309 | )
Share-based compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,503 |  |  |  | - |  |  |  | - |  |  |  | 6,503 |
Common stock issued |  |  | 326 |  |  |  | 3 |  |  |  | (62 | ) |  |  | (689 | ) |  |  | 1,011 |  |  |  | - |  |  |  | - |  |  |  | 325 |
BALANCE, June 30, 2020 |  |  | 86,279 |  |  | $ | 863 |  |  |  | (17,148 | ) |  | $ | (245,313 | ) |  | $ | 646,849 |  |  | $ | 941 |  |  | $ | 75,344 |  |  | $ | 478,684 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|  | For the Year to Date Ended June 30, |
(In Thousands) |  | 2021 |  |  | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net income |  | $ | 57,402 |  |  | $ | 57,273 |
Adjustments to reconcile net income to net |  |  |  |  |  |  |  |
cash provided by operating activities: |  |  |  |  |  |  |  |
Asset impairment |  |  | - |  |  |  | 612 |
Depreciation and amortization expense |  |  | 7,915 |  |  |  | 6,790 |
Bad debt expense |  |  | 26,168 |  |  |  | 25,187 |
Compensation expense related to share-based awards |  |  | 7,430 |  |  |  | 6,503 |
Deferred income taxes |  |  | 8,569 |  |  |  | 19,262 |
Changes in operating assets and liabilities |  |  | (24,739 | ) |  |  | (10,263 | )
Net cash provided by operating activities |  |  | 82,745 |  |  |  | 105,364 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Purchases of available-for-sale investments |  |  | (218,437 | ) |  |  | (209,846 | )
Sales of available-for-sale investments |  |  | 127,193 |  |  |  | 145,819 |
Purchases of property and equipment |  |  | (3,059 | ) |  |  | (3,439 | )
Business acquisition |  |  | - |  |  |  | (34,065 | )
Net cash used in investing activities |  |  | (94,303 | ) |  |  | (101,531 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Issuance of common stock |  |  | 623 |  |  |  | 1,014 |
Purchase of treasury stock |  |  | (5,372 | ) |  |  | (17,309 | )
Payments of employee tax associated with stock compensation |  |  | (2,034 | ) |  |  | (689 | )
Net cash used in financing activities |  |  | (6,783 | ) |  |  | (16,984 | )
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |  |  | (18,341 | ) |  |  | (13,151 | )
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period |  |  | 109,684 |  |  |  | 108,687 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period |  | $ | 91,343 |  |  | $ | 95,536 |
Supplemental non-cash disclosure: |  |  |  |  |  |  |  |
Amounts placed in escrow during the period to secure indemnification obligations from business acquisition |  | $ | - |  |  | $ | 4,000 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

PERDOCEO EDUCATION CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE COMPANY

Perdoceo’s 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.

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “Perdoceo” and “PEC” refer to Perdoceo Education Corporation and our wholly-owned subsidiaries.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the quarter and year to date ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021.

The unaudited condensed consolidated financial statements presented herein include the accounts of Perdoceo Education Corporation and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

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.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting guidance adopted in 2021

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions, including the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this ASU also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax and requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For all public business entities, ASU 2019-12 is effective for annual periods and interim periods beginning after December 15, 2020. We have evaluated and adopted this guidance effective January 1, 2021. The adoption did not significantly impact the presentation of our financial condition, results of operations and disclosures.

5

4. FINANCIAL INSTRUMENTS

Investments consist of the following as of June 30, 2021 and December 31, 2020 (dollars in thousands):

|  | June 30, 2021 |
|  |  |  |  |  | Gross Unrealized |  |  |  |  |
|  | Cost |  |  | Gain |  |  | (Loss) |  |  | Fair Value |
Short-term investments (available for sale): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds |  | $ | 138 |  |  | $ | - |  |  | $ | - |  |  | $ | 138 |
Non-governmental debt securities |  |  | 386,509 |  |  |  | 81 |  |  |  | (164 | ) |  |  | 386,426 |
Treasury and federal agencies |  |  | 2,746 |  |  |  | 1 |  |  |  | (1 | ) |  |  | 2,746 |
Total short-term investments (available for sale) |  | $ | 389,393 |  |  | $ | 82 |  |  | $ | (165 | ) |  | $ | 389,310 |

|  | December 31, 2020 |
|  |  |  |  |  | Gross Unrealized |  |  |  |  |
|  | Cost |  |  | Gain |  |  | (Loss) |  |  | Fair Value |
Short-term investments (available for sale): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds |  | $ | 139 |  |  | $ | 1 |  |  | $ | - |  |  | $ | 140 |
Non-governmental debt securities |  |  | 288,578 |  |  |  | 331 |  |  |  | (176 | ) |  |  | 288,733 |
Treasury and federal agencies |  |  | 11,799 |  |  |  | 6 |  |  |  | (2 | ) |  |  | 11,803 |
Total short-term investments (available for sale) |  | $ | 300,516 |  |  | $ | 338 |  |  | $ | (178 | ) |  | $ | 300,676 |

In the table above, unrealized holding gains (losses) relate to short-term investments that have been in a continuous unrealized gain (loss) position for less than one year.

Our non-governmental debt securities primarily consist of commercial paper and certificates of deposit. Our treasury and federal agencies primarily consist of U.S. Treasury bills and federal home loan debt securities. We do not intend to sell our investments in these securities prior to maturity and it is not likely that we will be required to sell these investments before recovery of the amortized cost basis.

Fair Value Measurements

FASB ASC Topic 820 – Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2021, we held investments that are required to be measured at fair value on a recurring basis. These investments (available for sale) consist of municipal bonds, non-governmental debt securities and treasury and federal agencies securities. Available for sale securities included in Level 2 are estimated based on observable inputs other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

All of our available for sale investments were measured under Level 2 as of June 30, 2021 and December 31, 2020. Additionally, money market funds of $38.2 million and $1.7 million included within cash and cash equivalents on our condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, respectively, were measured under Level 1 and certificates of deposit, commercial paper and treasury bills of $5.1 million included within cash and cash equivalents on our condensed consolidated balance sheets as of December 31, 2020 were measured under Level 2.

Equity Method Investment

Our investment in an equity affiliate, which is recorded within other noncurrent assets on our condensed consolidated balance sheets, represents an international investment in a private company. As of June 30, 2021, our investment in an equity affiliate equated to a 30.7%, or $3.2 million, non-controlling interest in CCKF, a Dublin-based educational technology company providing intelligent systems to power the delivery of individualized and personalized learning.

During the quarters ended June 30, 2021 and 2020, we recorded less than $0.1 million of loss and approximately $0.1 million of gain, respectively, and during the years to date ended June 30, 2021 and 2020, we recorded approximately $0.2 million of gain and $0.1 million of gain, respectively, related to our proportionate investment in CCKF within miscellaneous (expense) income on our unaudited condensed consolidated statements of income.

6

We make periodic operating maintenance payments related to proprietary rights that we use in our intellipath® personalized learning technology. The total fees paid during the quarters and years to date ended June 30, 2021 and 2020 were as follows (dollars in thousands):

| Maintenance Fee Payments |
For the quarter ended June 30, 2021 | $ | 436 |
For the quarter ended June 30, 2020 (1) | $ | - |
For the year to date ended June 30, 2021 | $ | 859 |
For the year to date ended June 30, 2020 (1) | $ | 1,443 |

________________________

(1)During the first quarter of 2020, the Company prepaid maintenance payments for the full year 2020, of which approximately $0.4 million and $0.8 million was recognized as expense for the quarter and year to date ended June 30, 2020, respectively.

Credit Agreement

On December 27, 2018, the Company; its wholly-owned subsidiary, CEC Educational Services, LLC; and the subsidiary guarantors thereunder, entered into a credit agreement with BMO Harris Bank N.A. (“BMO Harris”), in its capacities as the sole lender, the letter of credit issuer thereunder and the administrative agent for the lenders which from time to time may be parties to the credit agreement. The credit agreement provides the Company with the benefit of a $50.0 million revolving credit facility and is scheduled to mature on January 20, 2022. The loans and letter of credit obligations under the credit agreement are required to be 100% secured with cash and marketable securities deposited with the bank. As of June 30, 2021 and December 31, 2020, there were no outstanding borrowings under the revolving credit facility.

5. REVENUE RECOGNITION

Disaggregation of Revenue

The following tables disaggregate our revenue by major source for the quarters and years to date ended June 30, 2021 and 2020 (dollars in thousands):

|  | For the Quarter Ended June 30, 2021 |  |  | For the Quarter Ended June 30, 2020 |
|  | CTU |  |  | AIU |  |  | Corporate and Other(3) |  |  | Total |  |  | CTU |  |  | AIU |  |  | Corporate and Other(3) |  |  | Total |
Tuition |  | $ | 95,723 |  |  | $ | 70,123 |  |  | $ | - |  |  | $ | 165,846 |  |  | $ | 94,204 |  |  | $ | 73,004 |  |  | $ | - |  |  | $ | 167,208 |
Technology fees |  |  | 5,530 |  |  |  | 2,873 |  |  |  | - |  |  |  | 8,403 |  |  |  | 5,162 |  |  |  | 2,633 |  |  |  | - |  |  |  | 7,795 |
Other miscellaneous fees(1) |  |  | 389 |  |  |  | 166 |  |  |  | - |  |  |  | 555 |  |  |  | 323 |  |  |  | 173 |  |  |  | - |  |  |  | 496 |
Total tuition and fees |  |  | 101,642 |  |  |  | 73,162 |  |  |  | - |  |  |  | 174,804 |  |  |  | 99,689 |  |  |  | 75,810 |  |  |  | - |  |  |  | 175,499 |
Other revenue(2) |  |  | 393 |  |  |  | 61 |  |  |  | 281 |  |  |  | 735 |  |  |  | 504 |  |  |  | 25 |  |  |  | 7 |  |  |  | 536 |
Total revenue |  | $ | 102,035 |  |  | $ | 73,223 |  |  | $ | 281 |  |  | $ | 175,539 |  |  | $ | 100,193 |  |  | $ | 75,835 |  |  | $ | 7 |  |  | $ | 176,035 |
|  | For the Year to Date Ended June 30, 2021 |  |  | For the Year to Date Ended June 30, 2020 |
|  | CTU |  |  | AIU |  |  | Corporate and Other(3) |  |  | Total |  |  | CTU |  |  | AIU |  |  | Corporate and Other(3) |  |  | Total |
Tuition |  | $ | 195,328 |  |  | $ | 144,621 |  |  | $ | - |  |  | $ | 339,949 |  |  | $ | 191,755 |  |  | $ | 137,549 |  |  | $ | - |  |  | $ | 329,304 |
Technology fees |  |  | 11,013 |  |  |  | 5,668 |  |  |  | - |  |  |  | 16,681 |  |  |  | 10,282 |  |  |  | 5,290 |  |  |  | - |  |  |  | 15,572 |
Other miscellaneous fees(1) |  |  | 681 |  |  |  | 324 |  |  |  | - |  |  |  | 1,005 |  |  |  | 695 |  |  |  | 322 |  |  |  | - |  |  |  | 1,017 |
Total tuition and fees |  |  | 207,022 |  |  |  | 150,613 |  |  |  | - |  |  |  | 357,635 |  |  |  | 202,732 |  |  |  | 143,161 |  |  |  | - |  |  |  | 345,893 |
Other revenue(2) |  |  | 835 |  |  |  | 87 |  |  |  | 620 |  |  |  | 1,542 |  |  |  | 1,049 |  |  |  | 70 |  |  |  | 17 |  |  |  | 1,136 |
Total revenue |  | $ | 207,857 |  |  | $ | 150,700 |  |  | $ | 620 |  |  | $ | 359,177 |  |  | $ | 203,781 |  |  | $ | 143,231 |  |  | $ | 17 |  |  | $ | 347,029 |

__________________

| (1) | Other miscellaneous fees include student activity fees and graduation fees.

| (2) | Other revenue primarily includes contract training revenue and miscellaneous non-student related revenue.

| (3) | Revenue recorded within Corporate and Other relates to miscellaneous non-student related revenue.

Performance Obligations

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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. Our universities charge tuition and fees at varying amounts, depending on the university, the type of program and specific curriculum. Our universities bill students a single charge that covers tuition, fees and required program materials, 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 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 to students. These fees are earned over the applicable term and are not considered separate performance obligations.

Other revenue, which consists of contract training revenue, bookstore sales and miscellaneous non-student related revenue, is billed and recognized as goods are delivered or services are performed. Contract training revenue results from individual training courses that are stand-alone courses and not part of a degree or certificate program. Bookstore sales are primarily initiated by the student and are not included in the enrollment agreement at the onset of a student’s entrance to the institution. These types of sales constitute a separate performance obligation from classroom instruction.

Our institutions’ academic year is generally at least 30 weeks in length but varies both by institution and program of study and is divided by academic terms. Academic terms are determined by regulatory requirements mandated by the federal government and/or applicable accrediting body, which also vary by university and program. Academic terms are determined by start dates, which vary by university and program and are generally 8-12 weeks in length.

Contract Assets

For each term, the portion of tuition and fee payments received from students but not yet earned is recorded as deferred revenue and reported as a current liability on our condensed consolidated balance sheets, as we expect to earn these revenues within the next year. A contract asset is recorded for each student for the current term for which they are enrolled for the amount charged for the current term that has not yet been received as payment and to which we do not have the unconditional right to receive payment because the student has not reached the point in the student’s current academic term at which the amount billed is no longer refundable to the student. On a student by student basis, the contract asset is offset against the deferred revenue balance for the current term and the net deferred revenue balance is reflected within current liabilities on our condensed consolidated balance sheets. For AIU’s Trident programs, students are billed as they register for courses, including courses related to future terms. Any billings for future terms would meet the definition of a contract asset as we do not have the unconditional right to receive payment as the academic term has not yet started. Contract assets related to future terms are offset against the deferred revenue associated with the respective future term.

Due to the short-term nature of our academic terms, the contract asset balance which exists at the beginning of each quarter will no longer be a contract asset at the end of that quarter, with the exception of the contract assets associated with future terms. The decrease in contract asset balances are a result of one of the following: it becomes a student receivable balance once a student reaches the point in a student’s academic term where the amount billed is no longer refundable to the student; a refund is made to withdrawn students for the portion entitled to be refunded under each institutions’ refund policy; we receive funds to apply against the contract asset balance; or a student makes a change to the number of classes they are enrolled in which may cause an adjustment to their previously billed amount. As of the end of each quarter, a new contract asset is determined on a student by student basis based on the most recently started term and a student’s progress within that term as compared to the date at which the student is no longer entitled to a refund under each institution’s refund policy. Contract assets associated with future terms remain as contract assets until the academic term begins and the student reaches the point in that academic term that they are no longer entitled to a refund.

The amount of deferred revenue balances which are being offset with contract assets balances as of June 30, 2021 and December 31, 2020 were as follows (dollars in thousands):

|  | As of |
|  | June 30, 2021 |  |  | December 31, 2020 |
Gross deferred revenue |  | $ | 121,467 |  |  | $ | 85,402 |
Gross contract assets |  |  | (76,253 | ) |  |  | (50,868 | )
Deferred revenue, net |  | $ | 45,214 |  |  | $ | 34,534 |

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Deferred Revenue

Changes in our deferred revenue balances for the quarters and years to date ended June 30, 2021 and 2020 were as follows (dollars in thousands):

|  | For the Quarter Ended June 30, 2021 |  |  | For the Quarter Ended June 30, 2020 |
|  | CTU |  |  | AIU |  |  | Total |  |  | CTU |  |  | AIU |  |  | Total |
Gross deferred revenue, April 1 |  | $ | 25,136 |  |  | $ | 32,886 |  |  | $ | 58,022 |  |  | $ | 27,986 |  |  | $ | 28,934 |  |  | $ | 56,920 |
Revenue earned from prior balances |  |  | (22,814 | ) |  |  | (26,977 | ) |  |  | (49,791 | ) |  |  | (25,238 | ) |  |  | (22,929 | ) |  |  | (48,167 | )
Billings during period(1) |  |  | 155,861 |  |  |  | 83,904 |  |  |  | 239,765 |  |  |  | 99,464 |  |  |  | 86,343 |  |  |  | 185,807 |
Revenue earned for new billings during the period |  |  | (78,828 | ) |  |  | (46,185 | ) |  |  | (125,013 | ) |  |  | (74,451 | ) |  |  | (52,881 | ) |  |  | (127,332 | )
Other adjustments |  |  | (1,537 | ) |  |  | 21 |  |  |  | (1,516 | ) |  |  | 331 |  |  |  | 258 |  |  |  | 589 |
Gross deferred revenue, June 30 |  | $ | 77,818 |  |  | $ | 43,649 |  |  | $ | 121,467 |  |  | $ | 28,092 |  |  | $ | 39,725 |  |  | $ | 67,817 |
|  | For the Year to Date Ended June 30, 2021 |  |  | For the Year to Date Ended June 30, 2020 |
|  | CTU |  |  | AIU |  |  | Total |  |  | CTU |  |  | AIU |  |  | Total |
Gross deferred revenue, January 1 |  | $ | 28,522 |  |  | $ | 56,880 |  |  | $ | 85,402 |  |  | $ | 27,845 |  |  | $ | 35,359 |  |  | $ | 63,204 |
Business acquisition, beginning balance |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 13,395 |  |  |  | 13,395 |
Revenue earned from prior balances |  |  | (25,698 | ) |  |  | (44,809 | ) |  |  | (70,507 | ) |  |  | (24,367 | ) |  |  | (39,533 | ) |  |  | (63,900 | )
Billings during period(1) |  |  | 257,645 |  |  |  | 136,465 |  |  |  | 394,110 |  |  |  | 202,508 |  |  |  | 132,991 |  |  |  | 335,499 |
Revenue earned for new billings during the period |  |  | (181,324 | ) |  |  | (105,804 | ) |  |  | (287,128 | ) |  |  | (178,365 | ) |  |  | (103,628 | ) |  |  | (281,993 | )
Other adjustments |  |  | (1,327 | ) |  |  | 917 |  |  |  | (410 | ) |  |  | 471 |  |  |  | 1,141 |  |  |  | 1,612 |
Gross deferred revenue, June 30 |  | $ | 77,818 |  |  | $ | 43,649 |  |  | $ | 121,467 |  |  | $ | 28,092 |  |  | $ | 39,725 |  |  | $ | 67,817 |

______________

| 1) | Billings during period includes adjustments for prior billings.

Cash Receipts

Our students pay for their costs through a variety of funding sources, including federal loan and grant programs, institutional payment plans, employer reimbursement, Veterans’ Administration and other military funding and grants, private and institutional scholarships and cash payments. Cash receipts from government related sources are typically received during the current academic term. We typically receive funds after the end of an academic term for students who receive employer reimbursements. Students who have not applied for any type of financial aid generally set up a payment plan with the university and make payments on a monthly basis per the terms of the payment plan.

If a student withdraws from one of our universities prior to the completion of the academic term, we refund the portion of tuition and fees already paid that, pursuant to our refund policy and applicable federal and state law and accrediting agency standards, we are not entitled to retain. Generally, the amount to be refunded to a student is calculated based upon the percent of the term attended and the amount of tuition and fees paid by the student as of their withdrawal date. In certain circumstances, we have recognized revenue for students who have withdrawn that we are not entitled to retain. We have estimated a reserve for these limited circumstances based on historical evidence in the amount of $2.3 million as of June 30, 2021 and December 31, 2020. Students are typically entitled to a partial refund until approximately halfway through their term. Pursuant to each university’s policy, once a student reaches the point in the term where no refund is given, the student would not have a refund due if withdrawing from the university subsequent to that date.

Management reassesses collectability when a student withdraws from the university and has unpaid tuition charges for the current term which the university is entitled to retain per the applicable refund policy. Such unpaid charges do not meet the threshold of reasonably collectible and are recognized as revenue in accordance with ASC Topic 606 when cash is received and the contract is terminated and neither party has further performance obligations. We have no remaining performance obligations for students who have withdrawn from our universities, and once the refund calculation is performed and funds are returned to the student, if applicable under our refund policy, no further consideration is due back to the student. We recognized $0.5 million and $0.3 million of revenue for the quarters ended June 30, 2021 and 2020, respectively, and $0.9 million and $0.6 million for the years to date ended June 30, 2021 and 2020, respectively, for payments received from withdrawn students.

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6. STUDENT RECEIVABLES

Student receivables represent funds owed to us in exchange for the educational services provided to a student. Student receivables are reflected net of an allowance for credit losses at the end of the reporting period. Student receivables, net, are reflected on our condensed consolidated balance sheets as components of both current and non-current assets. We do not charge interest or fees on any of our payment plans.

Our students pay for their costs through a variety of funding sources, including federal loan and grant programs, institutional payment plans, employer reimbursement, Veterans’ Administration and other military funding and grants, private and institutional scholarships and cash payments. Cash receipts from government related sources are typically received during the current academic term. We typically receive funds after the end of an academic term for students who receive employer reimbursements. Students who have not applied for any type of financial aid generally set up a payment plan with the institution and make payments on a monthly basis per the terms of the payment plan. For those balances that are not received during the academic term, the balance is typically due within the current academic year which is approximately 30 weeks in length. Generally, a student receivable balance is written off once a student is out of school and it reaches greater than 90 days past due.

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 trend analysis and comparing estimated and actual performance.

We have an immaterial amount of student receivables that are due greater than 12 months from the date of our condensed consolidated balance sheets. As of June 30, 2021 and December 31, 2020, the amount of non-current student receivables under payment plans that are longer than 12 months in duration, net of allowance for credit losses, was $1.5 million and $1.3 million, respectively.

Allowance for Credit Losses

We define student receivables as a portfolio segment under ASC Topic 326 – Financial Instruments – Credit Losses. Changes in our current and non-current allowance for credit losses related to our student receivable portfolio in accordance with the guidance under ASU 2016-13 for the quarters and years to date ended June 30, 2021 and 2020 were as follows (dollars in thousands):

|  | For the quarter ended June 30, |  |  | For the year to date ended June 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Balance, beginning of period |  | $ | 43,785 |  |  | $ | 36,095 |  |  | $ | 42,147 |  |  | $ | 31,964 |
Beginning balance related to business acquisition |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,174 |
Provision for credit losses |  |  | 12,448 |  |  |  | 12,325 |  |  |  | 26,172 |  |  |  | 25,187 |
Amounts written-off |  |  | (14,253 | ) |  |  | (10,133 | ) |  |  | (27,320 | ) |  |  | (21,734 | )
Recoveries |  |  | 896 |  |  |  | 757 |  |  |  | 1,877 |  |  |  | 1,453 |
Balance, end of period |  | $ | 42,876 |  |  | $ | 39,044 |  |  | $ | 42,876 |  |  | $ | 39,044 |

Fair Value Measurements

The carrying amount reported in our condensed consolidated balance sheets for the current portion of student receivables approximates fair value because of the nature of these financial instruments as they generally have short maturity periods. It is not practicable to estimate the fair value of the non-current portion of student receivables, since observable market data is not readily available, and no reasonable estimation methodology exists.

7. LEASES

We lease most of our administrative and educational facilities under non-cancelable operating leases expiring at various dates through 2032. Lease terms generally range from five to ten years with one to four renewal options for extended terms. In most cases, we are required to make additional payments under facility operating leases for taxes, insurance and other operating expenses incurred during the operating lease period, which are typically variable in nature.

We determine if a contract contains a lease when the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Upon identification and commencement of a lease, we establish a right of use (“ROU”) asset and a lease liability.

Quantitative information related to leases is presented in the following table (dollars in thousands):

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| For the Quarter Ended June 30, 2021 |  | For the Year to Date Ended June 30, 2021 |
Lease expenses (1) |  |  |  |  |  |
Fixed lease expenses - operating | $ | 2,806 |  | $ | 5,821 |
Variable lease expenses - operating |  | 1,239 |  |  | 2,752 |
Sublease income |  | (335 | ) |  | (834 | )
Total lease expenses | $ | 3,710 |  | $ | 7,739 |
Other information |  |  |  |  |  |
Gross operating cash flows for operating leases (2) | $ | (4,313 | ) | $ | (9,534 | )
Operating cash flows from subleases (2) | $ | 353 |  | $ | 883 |
| For the Quarter Ended June 30, 2020 |  | For the Year to Date Ended June 30, 2020 |
Lease expenses (1) |  |  |  |  |  |
Fixed lease expenses - operating | $ | 3,116 |  | $ | 6,264 |
Variable lease expenses - operating |  | 1,627 |  |  | 3,542 |
Sublease income |  | (563 | ) |  | (1,351 | )
Total lease expenses | $ | 4,180 |  | $ | 8,455 |
Other information |  |  |  |  |  |
Gross operating cash flows for operating leases (2) | $ | (5,930 | ) | $ | (12,120 | )
Operating cash flows from subleases (2) | $ | 558 |  | $ | 1,234 |
| As of June 30, 2021 |  | As of June 30, 2020 |
Weighted average remaining lease term (in months) – operating leases |  | 72 |  |  | 73 |
Weighted average discount rate – operating leases |  | 4.9 | % |  | 5.0 | %

__________________

| (1) | Lease expense and sublease income represent the amount recorded within our unaudited condensed consolidated statements of income. Variable lease amounts represent expenses recognized as incurred which are not included in the lease liability. Fixed lease expenses and sublease income are recorded on a straight-line basis over the lease term and therefore are not necessarily representative of cash payments during the same period.

| (2) | Cash flows are presented on a consolidated basis and represent cash payments for fixed and variable lease costs.

Subleases

Historically, for certain of our leased locations we have vacated the facility and have fully or partially subleased the space. As of June 30, 2021, we only have one sublease remaining with a term of 23 months, for which we remain the guarantor under the lease and therefore become the intermediate lessor. We have recognized sublease income of $0.3 million and $0.6 million for the quarters ended June 30, 2021 and 2020, respectively, and $0.8 million and $1.4 million for the years to date ended June 30, 2021 and 2020, respectively, as an offset to lease expense on our unaudited condensed consolidated statements of income.

8. CONTINGENCIES

An accrual for estimated legal fees and settlements of $2.9 million and $1.0 million at June 30, 2021 and December 31, 2020, respectively, is presented within other current liabilities on our condensed consolidated balance sheets.

We record a liability when we believe that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least quarterly, developments in our legal matters that could affect the amount of liability that was previously accrued and make adjustments as further information develops, circumstances change or contingencies are resolved. Significant judgment is required to determine both probability and the estimated amount. We may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (1) if the damages sought are indeterminate; (2) if the proceedings are in early stages; (3) if there is uncertainty as to the outcome of pending appeals, motions or settlements; (4) if there are significant factual issues to be determined or resolved; and (5) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.

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W e receive informal requests from state attorneys general and other government agencies relating to specific complaints they have received from students or former students which seek information about the student, our programs and other matters relating to our activities in the relevant state. These requests can be broad and time consuming to respond to, and there is a risk that they could expand and/or lead to a formal inquiry or investigation into our practices in a particular state. We are subject to a variety of other claims, lawsuits, arbitrations and investigations that arise from time to time out of the conduct of our business, including, but not limited to, matters involving prospective students, students or graduates, alleged violations of the Telephone Consumer Protection Act, both individually and on behalf of a putative class, and employment matters. Periodically matters arise that we consider outside the scope of ordinary routine litigation incidental to our business. While w e currently believe that these matters, individually or in aggregate, will not have a material adverse impact on our financial position, cash flows or results of operations, these matters are subject to inherent uncertainties, and management’s view of these matters may change in the future. Were an unfavorable final outcome to occur in any one or more of these matters, there exists the possibility of a material adverse impact on our business, reputation, financial position and cash flows.

9. INCOME TAXES

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which we operate and the ongoing development of tax planning strategies during the year. In addition, our provision for income taxes can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The following is a summary of our provision for income taxes and effective tax rate from continuing operations:

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
(Dollars in Thousands) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Pretax income |  | $ | 35,969 |  |  | $ | 38,461 |  |  | $ | 76,978 |  |  | $ | 77,197 |
Provision for income taxes |  | $ | 9,319 |  |  | $ | 10,272 |  |  | $ | 19,564 |  |  | $ | 19,876 |
Effective rate |  |  | 25.9 | % |  |  | 26.7 | % |  |  | 25.4 | % |  |  | 25.7 | %

As of December 31, 2020, a valuation allowance of $29.0 million was maintained with respect to our foreign tax credits not supported by an Overall Domestic Loss (“ODL”) account balance and state net operating losses. After considering both positive and negative evidence related to the realization of the deferred tax assets, we have determined that it is necessary to continue to maintain a $29.0 million valuation allowance against our non-ODL supported foreign tax credits and state net operating losses as of June 30, 2021.

The effective tax rate for the quarter and year to date ended June 30, 2021 was impacted by the tax 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 tax effect of stock-based compensation and the release of previously recorded tax reserves. The effect of these discrete items increased the effective tax rate for the quarter by 0.3% and decreased the year to date rate by 0.8%.

We estimate that it is reasonably possible that the gross liability for unrecognized tax benefits for a variety of uncertain tax positions will decrease by up to $1.6 million in the next twelve months as a result of the completion of various tax audits currently in process and the expiration of the statute of limitations in several jurisdictions. The income tax rate for the quarter and year to date ended June 30, 2021 does not take into account the possible reduction of the liability for unrecognized tax benefits. The impact of a reduction to the liability will be treated as a discrete item in the period the reduction occurs. We recognize interest and penalties related to unrecognized tax benefits in tax expense. As of June 30, 2021, we had accrued $1.8 million as an estimate for reasonably possible interest and accrued penalties.

Our tax returns are routinely examined by federal, state and local tax authorities and these audits are at various stages of completion at any given time. The Internal Revenue Service has completed its examination of our U.S. income tax returns through our tax year ended December 31, 2014.

10. SHARE-BASED COMPENSATION

Overview

The Perdoceo Education Corporation Amended and Restated 2016 Incentive Compensation Plan (the “2016 Plan”) became effective (as the Career Education Corporation 2016 Incentive Compensation Plan) on May 24, 2016, and the amendment and restatement of the 2016 Plan became effective on June 3, 2021, upon its approval by the Company’s stockholders. Under the 2016 Plan, Perdoceo may grant to eligible participants awards of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock, performance units, annual incentive awards, and substitute awards, which generally may be settled in cash or

12

shares of our common stock. The vesting of all types of awards is subject to possible acceleration in certain circumstances. If a plan participant terminates employment for any reason other than by death or disability during the vesting period, the right to unvested awards is generally forfeited.

Restricted Stock Units

For the quarters ended June 30, 2021 and 2020, the Company granted less than 0.1 million restricted stock units in each period which are not “performance-based” and which have a grant-date fair value of approximately $0.8 million and $0.9 million, respectively. For the years to date ended June 30, 2021 and 2020, the Company granted approximately 0.4 million and 0.3 million restricted stock units, respectively, which are not “performance-based” and which have a grant-date fair value of approximately $4.4 million for each period.

For the years to date ended June 30, 2021 and 2020, the Company granted approximately 0.4 million and 0.3 million restricted stock units, respectively, which are “performance-based” and which have a grant-date fair value of approximately $4.2 million and $3.9 million, respectively. There were no “performance-based” restricted stock units granted during the quarters ended June 30, 2021 and 2020. The performance-based restricted stock units are subject to performance conditions which are determined at the time of grant and typically cover a three-year performance period. These performance conditions may result in all units being forfeited even if the requisite service period is met.

All restricted stock units granted in 2020 and 2021 are to be settled in shares of our common stock.

Stock Options

There were no stock options granted during each of the quarters or years to date ended June 30, 2021 and 2020.

Share-Based Compensation Expense

Total share-based compensation expense for the quarters and years to date ended June 30, 2021 and 2020 for all types of awards was as follows (dollars in thousands):

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
Award Type |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Stock options |  | $ | 96 |  |  | $ | 293 |  |  | $ | 256 |  |  | $ | 698 |
Restricted stock units settled in stock |  |  | 3,577 |  |  |  | 2,994 |  |  |  | 7,165 |  |  |  | 5,797 |
Restricted stock units settled in cash |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (240 | )
Total share-based compensation expense |  | $ | 3,673 |  |  | $ | 3,287 |  |  | $ | 7,421 |  |  | $ | 6,255 |

As of June 30, 2021, we estimate that compensation expense of approximately $21.0 million will be recognized over the next four years for all unvested share-based awards that have been granted to participants. This amount excludes any estimates of forfeitures.

11. STOCK REPURCHASE PROGRAM

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 the Company’s outstanding common stock. 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. Repurchases will be made in open market transactions, including block purchases, conducted in accordance with Rule 10b-18 under the Exchange Act as well as may be made pursuant to trading plans established under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The stock repurchase program does not obligate the Company to purchase shares and the Company may, in its discretion, begin, suspend or terminate repurchases at any time, without any prior notice. The program expires on December 31, 2021 and replaced all prior stock repurchase programs authorized by the Board of Directors.

During the quarter and year to date ended June 30, 2021, we repurchased 0.4 million shares of our common stock for approximately $5.4 million at an average price of $12.23 per share, and repurchased 1.3 million shares of our common stock for approximately $17.3 million at an average price of $13.48 per share during the year to date ended June 30, 2020. As of June 30, 2021, approximately $22.9 million was available under our authorized stock repurchase program to repurchase outstanding shares of our common stock. Shares of stock repurchased under the program are held as treasury shares. These repurchased shares have reduced the weighted average number of shares of common stock outstanding for basic and diluted earnings per share calculations.

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12. WEIGHTED AVERAGE COMMON SHARES

Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock Method and reflects the additional shares that would be outstanding if dilutive stock options were exercised and restricted stock units were settled for common shares during the period.

The weighted average number of common shares used to compute basic and diluted net income per share for the quarters and years to date ended June 30, 2021 and 2020 were as follows (shares in thousands):

| For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Basic common shares outstanding |  | 70,299 |  |  |  | 69,094 |  |  |  | 70,224 |  |  |  | 69,467 |
Common stock equivalents |  | 1,380 |  |  |  | 1,806 |  |  |  | 1,392 |  |  |  | 1,883 |
Diluted common shares outstanding |  | 71,679 |  |  |  | 70,900 |  |  |  | 71,616 |  |  |  | 71,350 |

For the quarters and years to date ended June 30, 2021 and 2020, certain unexercised stock option awards are excluded from our computations of diluted earnings per share, as these shares were out-of-the-money and their effect would have been anti-dilutive. The anti-dilutive options that were excluded from our computations of diluted earnings per share were 0.4 million and 0.6 million shares for the quarters ended June 30, 2021 and 2020, respectively, and 0.4 million and 0.6 million shares for the years to date ended June 30, 2021 and 2020, respectively.

13. SEGMENT REPORTING

Our segments are determined in accordance with FASB ASC Topic 280—Segment Reporting and are based upon how the Company analyzes performance and makes decisions. Each segment is comprised of an accredited postsecondary education institution that offers a variety of academic programs. These segments are organized by key market segments and to enhance brand focus within each segment to more effectively execute our business plan. As of June 30, 2021, our two segments are:

| ♦ | Colorado Technical University (CTU) is committed to providing industry-relevant higher education to a diverse student population through innovative technology and experienced faculty, enabling the pursuit of personal and professional goals. CTU is focused on serving adult, non-traditional students seeking career advancement, as well as the employer’s needs for a well-educated workforce. The university offers academic programs in the career-oriented disciplines of business and management, nursing, healthcare management, computer science, engineering, information systems and technology, project management, cybersecurity and criminal justice. Students pursue their degrees through fully-online programs, local campuses and blended formats, which combine campus-based and online education. As of June 30, 2021, students enrolled at CTU represented approximately 62% of our total student enrollments. Approximately 95% of CTU’s students are enrolled in programs offered fully online. CTU’s campus-based and blended-format students are currently pursuing their education solely through CTU’s online platform as a result of the COVID-19 pandemic.

| ♦ | The American InterContinental University System (AIU) is comprised of two universities: American InterContinental University and Trident University International (“Trident” or “TUI”). AIU is committed to providing quality and accessible higher education opportunities for a diverse student population, including adult and other non-traditional learners and the military community. AIU places emphasis on the educational, professional and personal growth of each student, and pursues this aim with a commitment to institutional integrity and ethics. AIU offers academic programs in the career-oriented disciplines of business studies, information technologies, education, health sciences and criminal justice. Students pursue their degrees through fully-online programs, local campuses and blended formats, which combine campus-based and online education. As of June 30, 2021, students enrolled at AIU represented approximately 38% of our total student enrollments. Approximately 97% of AIU’s students are enrolled in programs offered fully online. A majority of AIU’s campus-based and blended-format students are currently pursuing their education solely through AIU’s online platform as a result of the COVID-19 pandemic.

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Summary financial information by reporting segment is as follows (dollars in thousands):

|  | For the Quarter Ended June 30, |
|  | Revenue |  |  | Operating Income (Loss) |
|  | 2021 |  |  | % of Total |  |  | 2020 |  |  | % of Total |  |  | 2021 |  |  | 2020 |
CTU |  | $ | 102,035 |  |  |  | 58.1 | % |  | $ | 100,193 |  |  |  | 56.9 | % |  | $ | 35,398 |  |  | $ | 33,076 |
AIU |  |  | 73,223 |  |  |  | 41.7 | % |  |  | 75,835 |  |  |  | 43.1 | % |  |  | 9,218 |  |  |  | 10,476 |
Corporate and Other (1) |  |  | 281 |  |  |  | 0.2 | % |  |  | 7 |  |  |  | 0.0 | % |  |  | (8,654 | ) |  |  | (6,184 | )
Total |  | $ | 175,539 |  |  |  | 100.0 | % |  | $ | 176,035 |  |  |  | 100.0 | % |  | $ | 35,962 |  |  | $ | 37,368 |

|  | For the Year to Date Ended June 30, |
|  | Revenue |  |  | Operating Income (Loss) |
|  | 2021 |  |  | % of Total |  |  | 2020 |  |  | % of Total |  |  | 2021 |  |  | 2020 |
CTU |  | $ | 207,857 |  |  |  | 57.9 | % |  | $ | 203,781 |  |  |  | 58.7 | % |  | $ | 71,541 |  |  | $ | 67,695 |
AIU (2) |  |  | 150,700 |  |  |  | 42.0 | % |  |  | 143,231 |  |  |  | 41.3 | % |  |  | 20,541 |  |  |  | 19,852 |
Corporate and Other (1) |  |  | 620 |  |  |  | 0.1 | % |  |  | 17 |  |  |  | 0.0 | % |  |  | (15,503 | ) |  |  | (12,876 | )
Total |  | $ | 359,177 |  |  |  | 100.0 | % |  | $ | 347,029 |  |  |  | 100.0 | % |  | $ | 76,579 |  |  | $ | 74,671 |

|  | Total Assets as of (3) |
|  | June 30, 2021 |  |  | December 31, 2020 |
CTU |  | $ | 113,450 |  |  | $ | 96,922 |
AIU |  |  | 146,863 |  |  |  | 141,602 |
Corporate and Other (1) |  |  | 526,106 |  |  |  | 482,993 |
Total |  | $ | 786,419 |  |  | $ | 721,517 |

(1) | Corporate and Other includes results of operations and total assets for closed campuses.

(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 period of activity for Trident.

(3) | Total assets do not include intercompany receivable or payable activity between institutions and corporate and investments in subsidiaries.

14. SUBSEQUENT EVENT

On August 2, 2021, the Company acquired substantially all of the assets of DigitalCrafts. Launched in 2015, DigitalCrafts has helped provide individuals an opportunity in the technology area through reskilling and upskilling courses within the areas of web development, web design and cybersecurity. The acquisition of DigitalCrafts fits well with our overall objective of extending the breadth of our academic program offerings while diversifying revenue away from federal student financial aid funding.

The initial cash consideration for the acquisition of $16.25 million was funded with the Company’s available cash balances on the date of acquisition and is subject to a working capital adjustment. In addition, a post-closing contingent consideration payment of up to $2.5 million is expected to be paid in early 2024 based upon the level of achievement of certain financial metrics.

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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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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.

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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 en vironment 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.

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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):

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
Adjusted Operating Income |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 (5) |
Operating income |  | $ | 35,962 |  |  | $ | 37,368 |  |  | $ | 76,579 |  |  | $ | 74,671 |
Depreciation and amortization (1) |  |  | 3,913 |  |  |  | 4,151 |  |  |  | 7,915 |  |  |  | 6,790 |
Legal fee expense related to certain matters (2) |  |  | 2,416 |  |  |  | 22 |  |  |  | 2,658 |  |  |  | 163 |
Adjusted Operating Income (4) |  | $ | 42,291 |  |  | $ | 41,541 |  |  | $ | 87,152 |  |  | $ | 81,624 |
|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
Adjusted Earnings Per Diluted Share |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 (5) |
Reported Earnings Per Diluted Share |  | $ | 0.37 |  |  | $ | 0.40 |  |  | $ | 0.80 |  |  | $ | 0.80 |
Pre-tax adjustments included in operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization for acquired intangible assets (1) |  |  | 0.01 |  |  |  | 0.02 |  |  |  | 0.02 |  |  |  | 0.02 |
Legal fee expense related to certain matters (2) |  |  | 0.04 |  |  |  | - |  |  |  | 0.04 |  |  |  | - |
Total pre-tax adjustments |  | $ | 0.05 |  |  | $ | 0.02 |  |  | $ | 0.06 |  |  | $ | 0.02 |
Tax effect of adjustments (3) |  |  | (0.01 | ) |  |  | (0.01 | ) |  |  | (0.01 | ) |  |  | (0.01 | )
Total adjustments after tax |  |  | 0.04 |  |  |  | 0.01 |  |  |  | 0.05 |  |  |  | 0.01 |
Adjusted Earnings Per Diluted Share (4) |  | $ | 0.41 |  |  | $ | 0.41 |  |  | $ | 0.85 |  |  | $ | 0.81 |

(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

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Negotiated Rulemaki ng. 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 stakeho lder 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.

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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):

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
|  |  | 2021 |  |  | % of Total Revenue |  |  |  | 2020 |  |  | % of Total Revenue |  |  | 2021 vs 2020 % Change |  |  |  | 2021 |  |  | % of Total Revenue |  |  |  | 2020 |  |  | % of Total Revenue |  |  | 2021 vs 2020 % Change |
TOTAL REVENUE |  | $ | 175,539 |  |  |  |  |  |  | $ | 176,035 |  |  |  |  |  |  |  | -0.3 | % |  | $ | 359,177 |  |  |  |  |  |  | $ | 347,029 |  |  |  |  |  |  |  | 3.5 | %
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Educational services and facilities (1) |  |  | 28,532 |  |  |  | 16.3 | % |  |  | 28,676 |  |  |  | 16.3 | % |  |  | -0.5 | % |  |  | 57,506 |  |  |  | 16.0 | % |  |  | 55,587 |  |  |  | 16.0 | % |  |  | 3.5 | %
General and administrative: (2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Advertising and marketing |  |  | 35,442 |  |  |  | 20.2 | % |  |  | 34,962 |  |  |  | 19.9 | % |  |  | 1.4 | % |  |  | 72,236 |  |  |  | 20.1 | % |  |  | 70,019 |  |  |  | 20.2 | % |  |  | 3.2 | %
Admissions |  |  | 25,188 |  |  |  | 14.3 | % |  |  | 24,668 |  |  |  | 14.0 | % |  |  | 2.1 | % |  |  | 51,028 |  |  |  | 14.2 | % |  |  | 49,361 |  |  |  | 14.2 | % |  |  | 3.4 | %
Administrative |  |  | 34,054 |  |  |  | 19.4 | % |  |  | 33,885 |  |  |  | 19.2 | % |  |  | 0.5 | % |  |  | 67,741 |  |  |  | 18.9 | % |  |  | 64,802 |  |  |  | 18.7 | % |  |  | 4.5 | %
Bad debt |  |  | 12,448 |  |  |  | 7.1 | % |  |  | 12,325 |  |  |  | 7.0 | % |  |  | 1.0 | % |  |  | 26,172 |  |  |  | 7.3 | % |  |  | 25,187 |  |  |  | 7.3 | % |  |  | 3.9 | %
Total general and administrative expense |  |  | 107,132 |  |  |  | 61.0 | % |  |  | 105,840 |  |  |  | 60.1 | % |  |  | 1.2 | % |  |  | 217,177 |  |  |  | 60.5 | % |  |  | 209,369 |  |  |  | 60.3 | % |  |  | 3.7 | %
Depreciation and amortization |  |  | 3,913 |  |  |  | 2.2 | % |  |  | 4,151 |  |  |  | 2.4 | % |  |  | -5.7 | % |  |  | 7,915 |  |  |  | 2.2 | % |  |  | 6,790 |  |  |  | 2.0 | % |  |  | 16.6 | %
Asset impairment |  |  | - |  |  |  | 0.0 | % |  |  | - |  |  |  | 0.0 | % |  | NM |  |  |  | - |  |  |  | 0.0 | % |  |  | 612 |  |  |  | 0.2 | % |  | NM |
OPERATING INCOME |  |  | 35,962 |  |  |  | 20.5 | % |  |  | 37,368 |  |  |  | 21.2 | % |  |  | -3.8 | % |  |  | 76,579 |  |  |  | 21.3 | % |  |  | 74,671 |  |  |  | 21.5 | % |  |  | 2.6 | %
PRETAX INCOME |  |  | 35,969 |  |  |  | 20.5 | % |  |  | 38,461 |  |  |  | 21.8 | % |  |  | -6.5 | % |  |  | 76,978 |  |  |  | 21.4 | % |  |  | 77,197 |  |  |  | 22.2 | % |  |  | -0.3 | %
PROVISION FOR INCOME TAXES |  |  | 9,319 |  |  |  | 5.3 | % |  |  | 10,272 |  |  |  | 5.8 | % |  |  | -9.3 | % |  |  | 19,564 |  |  |  | 5.4 | % |  |  | 19,876 |  |  |  | 5.7 | % |  |  | -1.6 | %
Effective tax rate |  |  | 25.9 | % |  |  |  |  |  |  | 26.7 | % |  |  |  |  |  |  |  |  |  |  | 25.4 | % |  |  |  |  |  |  | 25.7 | % |  |  |  |  |  |  |  |
INCOME FROM CONTINUING OPERATIONS |  |  | 26,650 |  |  |  | 15.2 | % |  |  | 28,189 |  |  |  | 16.0 | % |  |  | -5.5 | % |  |  | 57,414 |  |  |  | 16.0 | % |  |  | 57,321 |  |  |  | 16.5 | % |  |  | 0.2 | %
LOSS FROM DISCONTINUED OPERATIONS, net of tax |  |  | (1 | ) |  |  | 0.0 | % |  |  | (22 | ) |  |  | 0.0 | % |  |  | -95.5 | % |  |  | (12 | ) |  |  | 0.0 | % |  |  | (48 | ) |  |  | 0.0 | % |  |  | -75.0 | %
NET INCOME |  | $ | 26,649 |  |  |  | 15.2 | % |  | $ | 28,167 |  |  |  | 16.0 | % |  |  | -5.4 | % |  | $ | 57,402 |  |  |  | 16.0 | % |  | $ | 57,273 |  |  |  | 16.5 | % |  |  | 0.2 | %

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

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

Revenue

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)

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
|  |  | 2021 |  |  |  | 2020 |  |  | 2021 vs 2020 % Change |  |  |  | 2021 |  |  |  | 2020 |  |  | 2021 vs 2020 % Change |
Educational services and facilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Academics & student related |  | $ | 23,800 |  |  | $ | 23,201 |  |  | 2.6% |  |  | $ | 47,633 |  |  | $ | 44,713 |  |  | 6.5% |
Occupancy |  |  | 4,732 |  |  |  | 5,475 |  |  | -13.6% |  |  |  | 9,873 |  |  |  | 10,874 |  |  | -9.2% |
Total educational services and facilities |  | $ | 28,532 |  |  | $ | 28,676 |  |  | -0.5% |  |  | $ | 57,506 |  |  | $ | 55,587 |  |  | 3.5% |

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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)

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
|  |  | 2021 |  |  |  | 2020 |  |  | 2021 vs 2020 % Change |  |  |  | 2021 |  |  |  | 2020 |  |  | 2021 vs 2020 % Change |
General and administrative: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Advertising and marketing |  | $ | 35,442 |  |  | $ | 34,962 |  |  | 1.4% |  |  | $ | 72,236 |  |  | $ | 70,019 |  |  | 3.2% |
Admissions |  |  | 25,188 |  |  |  | 24,668 |  |  | 2.1% |  |  |  | 51,028 |  |  |  | 49,361 |  |  | 3.4% |
Administrative |  |  | 34,054 |  |  |  | 33,885 |  |  | 0.5% |  |  |  | 67,741 |  |  |  | 64,802 |  |  | 4.5% |
Bad debt |  |  | 12,448 |  |  |  | 12,325 |  |  | 1.0% |  |  |  | 26,172 |  |  |  | 25,187 |  |  | 3.9% |
Total general and administrative expense |  | $ | 107,132 |  |  | $ | 105,840 |  |  | 1.2% |  |  | $ | 217,177 |  |  | $ | 209,369 |  |  | 3.7% |

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):

|  | For the Quarter Ended June 30, |  |  | For the Year to Date Ended June 30, |
|  |  | 2021 |  |  | % of Segment Revenue |  |  |  | 2020 |  |  | % of Segment Revenue |  |  | 2021 vs 2020 % Change |  |  |  | 2021 |  |  | % of Segment Revenue |  |  |  | 2020 |  |  | % of Segment Revenue |  |  | 2021 vs 2020 % Change |
Bad debt expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CTU |  | $ | 5,757 |  |  |  | 5.6 | % |  | $ | 5,955 |  |  |  | 5.9 | % |  |  | -3.3 | % |  | $ | 12,080 |  |  |  | 5.8 | % |  | $ | 12,638 |  |  |  | 6.2 | % |  |  | -4.4 | %
AIU |  |  | 6,710 |  |  |  | 9.2 | % |  |  | 6,393 |  |  |  | 8.4 | % |  |  | 5.0 | % |  |  | 14,125 |  |  |  | 9.4 | % |  |  | 12,594 |  |  |  | 8.8 | % |  |  | 12.2 | %
Corporate and Other |  |  | (19 | ) |  | NM |  |  |  | (23 | ) |  | NM |  |  | NM |  |  |  | (33 | ) |  | NM |  |  |  | (45 | ) |  | NM |  |  | NM |
Total bad debt expense |  | $ | 12,448 |  |  |  | 7.1 | % |  | $ | 12,325 |  |  |  | 7.0 | % |  |  | 1.0 | % |  | $ | 26,172 |  |  |  | 7.3 | % |  | $ | 25,187 |  |  |  | 7.3 | % |  |  | 3.9 | %

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

22

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):

|  | For the Quarter Ended June 30, |
|  | REVENUE |  |  | OPERATING INCOME (LOSS) |  |  | OPERATING MARGIN |
|  |  | 2021 |  |  |  | 2020 |  |  | % Change |  |  |  | 2021 |  |  |  | 2020 |  |  | % Change |  |  |  | 2021 |  |  |  | 2020 |
REVENUE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CTU |  | $ | 102,035 |  |  | $ | 100,193 |  |  |  | 1.8 | % |  | $ | 35,398 |  |  | $ | 33,076 |  |  |  | 7.0 | % |  |  | 34.7 | % |  |  | 33.0 | %
AIU |  |  | 73,223 |  |  |  | 75,835 |  |  |  | -3.4 | % |  |  | 9,218 |  |  |  | 10,476 |  |  |  | -12.0 | % |  |  | 12.6 | % |  |  | 13.8 | %
Corporate and other (1) |  |  | 281 |  |  |  | 7 |  |  | NM |  |  |  | (8,654 | ) |  |  | (6,184 | ) |  |  | 39.9 | % |  | NM |  |  | NM |
Total |  | $ | 175,539 |  |  | $ | 176,035 |  |  |  | -0.3 | % |  | $ | 35,962 |  |  | $ | 37,368 |  |  |  | -3.8 | % |  |  | 20.5 | % |  |  | 21.2 | %

|  | For the Year to Date Ended June 30, |
|  | REVENUE |  |  | OPERATING INCOME (LOSS) |  |  | OPERATING MARGIN |
|  |  | 2021 |  |  |  | 2020 |  |  | % Change |  |  |  | 2021 |  |  |  | 2020 |  |  | % Change |  |  |  | 2021 |  |  |  | 2020 |
REVENUE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CTU |  | $ | 207,857 |  |  | $ | 203,781 |  |  |  | 2.0 | % |  | $ | 71,541 |  |  | $ | 67,695 |  |  |  | 5.7 | % |  |  | 34.4 | % |  |  | 33.2 | %
AIU (2) |  |  | 150,700 |  |  |  | 143,231 |  |  |  | 5.2 | % |  |  | 20,541 |  |  |  | 19,852 |  |  |  | 3.5 | % |  |  | 13.6 | % |  |  | 13.9 | %
Corporate and other (1) |  |  | 620 |  |  |  | 17 |  |  | NM |  |  |  | (15,503 | ) |  |  | (12,876 | ) |  | NM |  |  | NM |  |  | NM |
Total |  | $ | 359,177 |  |  | $ | 347,029 |  |  |  | 3.5 | % |  | $ | 76,579 |  |  | $ | 74,671 |  |  |  | 2.6 | % |  |  | 21.3 | % |  |  | 21.5 | %

23

_________________

(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.

|  | TOTAL STUDENT ENROLLMENTS |
|  | At June 30, |
|  |  | 2021 |  |  |  | 2020 |  |  | % Change |
CTU |  |  | 26,600 |  |  |  | 23,300 |  |  |  | 14.2 | %
AIU |  |  | 16,500 |  |  |  | 16,800 |  |  |  | -1.8 | %
Total |  |  | 43,100 |  |  |  | 40,100 |  |  |  | 7.5 | %

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.

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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

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grant programs, private loans and grants, institutional payment plans, private and institutional scholarships and cash payments. For the year to date ended June 3 0, 20 2 1, 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):

|  | June 30, |  |  | December 31, |  |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |  |  |  |  |
Total cash and cash equivalents, restricted cash and short-term investments |  | $ | 480,653 |  |  | $ | 410,360 |  |  |  | 17 | %
NON-CURRENT ASSETS: |  |  |  |  |  |  |  |  |  |  |  |
Deferred income tax assets, net |  |  | 31,782 |  |  |  | 40,351 |  |  |  | -21 | %
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |
Accrued expenses - other |  |  | 18,614 |  |  |  | 11,921 |  |  |  | 56 | %
Deferred revenue |  |  | 45,214 |  |  |  | 34,534 |  |  |  | 31 | %
NON-CURRENT LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 14,470 |  |  |  | 18,390 |  |  |  | -21 | %

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.

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

ITEM 4. CONTROLS AND PROCEDURES

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

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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.

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PART II – OTHER INFORMATION

Item 1. | Legal Proceedings

Note 8 “Contingencies” to our unaudited condensed consolidated financial statements is incorporated herein by reference.

Item 1A. | Risk Factors

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.

Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds

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 the Company’s outstanding common stock. See Note 11 “Stock Repurchase Program” to our unaudited condensed consolidated financial statements for further information.

The following table sets forth information regarding purchases made by us of shares of our common stock on a monthly basis during the year to date ended June 30, 2021:

Issuer Purchases of Equity Securities

Period |  | Total Number of Shares Purchased (1) |  |  | Average Price Paid per Share |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  |  | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 28,231,593 |
January 1, 2021—January 31, 2021 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 28,231,593 |
February 1, 2021—February 28, 2021 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 28,231,593 |
March 1, 2021—March 31, 2021 |  |  | 159,989 |  |  |  | 12.70 |  |  |  | - |  |  |  | 28,231,593 |
April 1, 2021—April 30, 2021 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 28,231,593 |
May 1, 2021—May 31, 2021 |  |  | 273,578 |  |  |  | 12.06 |  |  |  | 273,578 |  |  |  | 24,927,010 |
June 1, 2021—June 30, 2021 |  |  | 166,625 |  |  |  | 12.45 |  |  |  | 166,474 |  |  |  | 22,850,626 |
Total |  |  | 600,192 |  |  |  |  |  |  |  | 440,052 |  |  |  |  |

(1) | Includes 160,140 shares delivered back to the Company for payment of withholding taxes from employees for vesting restricted stock units pursuant to the terms of the Perdoceo Education Corporation Amended and Restated 2016 Incentive Compensation Plan.

(2) | On November 4, 2019, the Board of Directors of the Company approved a stock repurchase program of up to $50.0 million which expires December 31, 2021.

Item 6. | Exhibits

The exhibits required to be filed by Item 601 of Regulation S-K are listed in the “Exhibit Index,” which is attached hereto and incorporated by reference herein.

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|  | INDEX TO EXHIBITS |  |
Exhibit Number |  | Exhibit |  | Incorporated by Reference to:
*10.1 |  | Perdoceo Education Corporation Amended and Restated 2016 Incentive Compensation Plan |  | Exhibit 10.1 to our Form 8-K filed on June 8, 2021
+31.1 |  | Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |  |
+31.2 |  | Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |  |
+32.1 |  | Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |  |
+32.2 |  | Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |  |
+101.INS |  | Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |  |
+101.SCH |  | Inline XBRL Taxonomy Extension Schema Document |  |
+101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document |  |
+101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document |  |
+101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document |  |
+101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document |  |
+104 |  | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included in Exhibit 101) |  |
|  | ____ |  |
|  | * Management contract or compensatory plan or arrangement required to be filed as an Exhibit on this Form 10-Q. |  |
|  | +Filed herewith. |  |

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| PERDOCEO EDUCATION CORPORATION
Date: August 5, 2021 | By: |  | /s/ TODD S. NELSON
|  |  | Todd S. Nelson President and Chief Executive Officer (Principal Executive Officer)
Date: August 5, 2021 | By: |  | /s/ ASHISH R. GHIA
|  |  | Ashish R. Ghia Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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