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Table of Contents
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 September 30, 2023
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 No. 0-21039
Strategic Education, Inc.
(Exact name of registrant as specified in this charter)

Maryland |  | 52-1975978
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
2303 Dulles Station Boulevard |  |
Herndon, | VA |  | 20171
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code: (703) 561-1600
Securities Registered Pursuant to Section 12(b) of the Exchange Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.01 par value |  | STRA |  | 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 ☒
As of October 20, 2023, there were outstanding 24,415,845 shares of Common Stock, par value $0.01 per share, of the Registrant.
1

Table of Contents
STRATEGIC EDUCATION, INC.
INDEX
FORM 10-Q

PART I — FINANCIAL INFORMATION |
| Item 1. | Financial Statements |
|  | Unaudited Condensed Consolidated Balance Sheets at December 31, 2022 and September 30, 2023 | 3
|  | Unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2023 | 4
|  | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2023 | 4
|  | Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2023 | 5
|  | Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2023 | 7
|  | Notes to Unaudited Condensed Consolidated Financial Statements | 8
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 37
| Item 4. | Controls and Procedures | 38
PART II — OTHER INFORMATION |
| Item 1. | Legal Proceedings | 39
| Item 1A. | Risk Factors | 39
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41
| Item 3. | Defaults Upon Senior Securities | 41
| Item 4. | Mine Safety Disclosures | 41
| Item 5. | Other Information | 41
| Item 6. | Exhibits | 41
SIGNATURES | 42

2

Table of Contents
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

| December 31, 2022 |  | September 30, 2023
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 213,667 |  |  | $ | 167,707 |
Marketable securities | 9,156 |  |  | 28,960 |
Tuition receivable, net | 62,953 |  |  | 97,429 |
Income taxes receivable | — |  |  | 7,850 |
Other current assets | 43,285 |  |  | 48,689 |
Total current assets | 329,061 |  |  | 350,635 |
Property and equipment, net | 132,845 |  |  | 117,872 |
Right-of-use lease assets | 125,248 |  |  | 110,789 |
Marketable securities, non-current | 13,123 |  |  | 1,914 |
Intangible assets, net | 260,541 |  |  | 249,514 |
Goodwill | 1,251,277 |  |  | 1,228,431 |
Other assets | 49,652 |  |  | 54,945 |
Total assets | $ | 2,161,747 |  |  | $ | 2,114,100 |
LIABILITIES & STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable and accrued expenses | $ | 90,588 |  |  | $ | 102,122 |
Income taxes payable | 6,989 |  |  | — |
Contract liabilities | 88,488 |  |  | 140,248 |
Lease liabilities | 23,879 |  |  | 23,121 |
Total current liabilities | 209,944 |  |  | 265,491 |
Long-term debt | 101,396 |  |  | 61,247 |
Deferred income tax liabilities | 34,605 |  |  | 28,254 |
Lease liabilities, non-current | 134,006 |  |  | 121,395 |
Other long-term liabilities | 46,006 |  |  | 42,959 |
Total liabilities | 525,957 |  |  | 519,346 |
Commitments and contingencies |  |  |
Stockholders’ equity: |  |  |
Common stock, par value $0.01; 32,000,000 shares authorized; 24,402,891 and 24,419,092 shares issued and outstanding at December 31, 2022 and September 30, 2023, respectively | 244 |  |  | 244 |
Additional paid-in capital | 1,510,924 |  |  | 1,513,023 |
Accumulated other comprehensive loss | (35,068) |  |  | (62,878) |
Retained earnings | 159,690 |  |  | 144,365 |
Total stockholders’ equity | 1,635,790 |  |  | 1,594,754 |
Total liabilities and stockholders’ equity | $ | 2,161,747 |  |  | $ | 2,114,100 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

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STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Revenues | $ | 263,123 |  |  | $ | 285,936 |  |  | $ | 795,542 |  |  | $ | 830,222 |
Costs and expenses: |  |  |  |  |  |  |
Instructional and support costs | 153,162 |  |  | 155,735 |  |  | 445,154 |  |  | 470,152 |
General and administration | 97,753 |  |  | 97,598 |  |  | 289,259 |  |  | 292,066 |
Amortization of intangible assets | 3,522 |  |  | 3,382 |  |  | 10,954 |  |  | 10,364 |
Merger and integration costs | 269 |  |  | 330 |  |  | 933 |  |  | 1,335 |
Restructuring costs | 610 |  |  | 3,262 |  |  | 6,129 |  |  | 15,208 |
Total costs and expenses | 255,316 |  |  | 260,307 |  |  | 752,429 |  |  | 789,125 |
Income from operations | 7,807 |  |  | 25,629 |  |  | 43,113 |  |  | 41,097 |
Other income (expense) | (262) |  |  | 842 |  |  | (1,133) |  |  | 4,411 |
Income before income taxes | 7,545 |  |  | 26,471 |  |  | 41,980 |  |  | 45,508 |
Provision for income taxes | 1,453 |  |  | 8,012 |  |  | 13,639 |  |  | 14,846 |
Net income | $ | 6,092 |  |  | $ | 18,459 |  |  | $ | 28,341 |  |  | $ | 30,662 |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 0.26 |  |  | $ | 0.79 |  |  | $ | 1.19 |  |  | $ | 1.31 |
Diluted | $ | 0.25 |  |  | $ | 0.77 |  |  | $ | 1.18 |  |  | $ | 1.28 |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 23,550 |  |  | 23,365 |  |  | 23,765 |  |  | 23,415 |
Diluted | 23,902 |  |  | 23,870 |  |  | 24,026 |  |  | 23,952 |

STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Net income | $ | 6,092 |  |  | $ | 18,459 |  |  | $ | 28,341 |  |  | $ | 30,662 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Foreign currency translation adjustment | (38,171) |  |  | (11,891) |  |  | (74,677) |  |  | (28,053) |
Unrealized gains (losses) on marketable securities, net of tax | (189) |  |  | 97 |  |  | (895) |  |  | 243 |
Comprehensive income (loss) | $ | (32,268) |  |  | $ | 6,665 |  |  | $ | (47,231) |  |  | $ | 2,852 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)

| For the three months ended September 30, 2022
| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total
| Shares |  | Par Value |  |  |  |
Balance at June 30, 2022 | 24,637,268 |  |  | $ | 246 |  |  | $ | 1,513,509 |  |  | $ | 166,175 |  |  | $ | (28,009) |  |  | $ | 1,651,921 |
Stock-based compensation | — |  |  | — |  |  | 5,605 |  |  | 7 |  |  | — |  |  | 5,612 |
Issuance of restricted stock, net | (4,138) |  |  | 1 |  |  | (91) |  |  | — |  |  | — |  |  | (90) |
Repurchase of common stock | (178,753) |  |  | (2) |  |  | (11,121) |  |  | (821) |  |  | — |  |  | (11,944) |
Common stock dividends ($0.60 per share) | — |  |  | — |  |  | — |  |  | (14,749) |  |  | — |  |  | (14,749) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (38,171) |  |  | (38,171) |
Unrealized losses on marketable securities, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (189) |  |  | (189) |
Net income | — |  |  | — |  |  | — |  |  | 6,092 |  |  | — |  |  | 6,092 |
Balance at September 30, 2022 | 24,454,377 |  |  | $ | 245 |  |  | $ | 1,507,902 |  |  | $ | 156,704 |  |  | $ | (66,369) |  |  | $ | 1,598,482 |

| For the three months ended September 30, 2023
| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total
| Shares |  | Par Value |  |  |  |
Balance at June 30, 2023 | 24,465,671 |  |  | $ | 245 |  |  | $ | 1,509,077 |  |  | $ | 140,368 |  |  | $ | (51,084) |  |  | $ | 1,598,606 |
Stock-based compensation | — |  |  | — |  |  | 3,905 |  |  | 172 |  |  | — |  |  | 4,077 |
Exercise of stock options, net | 1,382 |  |  | — |  |  | 71 |  |  | — |  |  | — |  |  | 71 |
Issuance of restricted stock, net | (47,961) |  |  | (1) |  |  | (30) |  |  | — |  |  | — |  |  | (31) |
Common stock dividends ($0.60 per share) | — |  |  | — |  |  | — |  |  | (14,634) |  |  | — |  |  | (14,634) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (11,891) |  |  | (11,891) |
Unrealized gains on marketable securities, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 97 |  |  | 97 |
Net income | — |  |  | — |  |  | — |  |  | 18,459 |  |  | — |  |  | 18,459 |
Balance at September 30, 2023 | 24,419,092 |  |  | $ | 244 |  |  | $ | 1,513,023 |  |  | $ | 144,365 |  |  | $ | (62,878) |  |  | $ | 1,594,754 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)

| For the nine months ended September 30, 2022
| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total
| Shares |  | Par Value |  |  |  |
Balance at December 31, 2021 | 24,592,098 |  |  | $ | 246 |  |  | $ | 1,529,969 |  |  | $ | 174,572 |  |  | $ | 9,203 |  |  | $ | 1,713,990 |
Stock-based compensation | — |  |  | — |  |  | 16,202 |  |  | 7 |  |  | — |  |  | 16,209 |
Issuance of restricted stock, net | 434,068 |  |  | 5 |  |  | (2,873) |  |  | — |  |  | — |  |  | (2,868) |
Repurchase of common stock | (571,789) |  |  | (6) |  |  | (35,396) |  |  | (1,514) |  |  | — |  |  | (36,916) |
Common stock dividends ($1.80 per share) | — |  |  | — |  |  | — |  |  | (44,702) |  |  | — |  |  | (44,702) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (74,677) |  |  | (74,677) |
Unrealized losses on marketable securities, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (895) |  |  | (895) |
Net income | — |  |  | — |  |  | — |  |  | 28,341 |  |  | — |  |  | 28,341 |
Balance at September 30, 2022 | 24,454,377 |  |  | $ | 245 |  |  | $ | 1,507,902 |  |  | $ | 156,704 |  |  | $ | (66,369) |  |  | $ | 1,598,482 |

| For the nine months ended September 30, 2023
| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total
| Shares |  | Par Value |  |  |  |
Balance at December 31, 2022 | 24,402,891 |  |  | $ | 244 |  |  | $ | 1,510,924 |  |  | $ | 159,690 |  |  | $ | (35,068) |  |  | $ | 1,635,790 |
Stock-based compensation | — |  |  | — |  |  | 15,030 |  |  | 172 |  |  | — |  |  | 15,202 |
Exercise of stock options, net | 2,704 |  |  | — |  |  | 126 |  |  | — |  | — |  |  | 126 |
Issuance of restricted stock, net | 142,570 |  |  | 1 |  |  | (5,051) |  |  | — |  | — |  |  | (5,050) |
Repurchase of common stock | (129,073) |  |  | (1) |  |  | (8,006) |  |  | (2,006) |  |  | — |  |  | (10,013) |
Common stock dividends ($1.80 per share) | — |  |  | — |  |  | — |  |  | (44,153) |  |  | — |  |  | (44,153) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (28,053) |  |  | (28,053) |
Unrealized gains on marketable securities, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 243 |  |  | 243 |
Net income | — |  |  | — |  |  | — |  |  | 30,662 |  |  | — |  |  | 30,662 |
Balance at September 30, 2023 | 24,419,092 |  |  | $ | 244 |  |  | $ | 1,513,023 |  |  | $ | 144,365 |  |  | $ | (62,878) |  |  | $ | 1,594,754 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

| For the nine months ended September 30,
| 2022 |  | 2023
Cash flows from operating activities: |  |  |
Net income | $ | 28,341 |  |  | $ | 30,662 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Gain on sale of property and equipment | — |  |  | (2,136) |
Amortization of deferred financing costs | 414 |  |  | 416 |
Amortization of investment discount/premium | 29 |  |  | (40) |
Depreciation and amortization | 49,193 |  |  | 44,881 |
Deferred income taxes | (9,213) |  |  | (5,947) |
Stock-based compensation | 16,209 |  |  | 15,202 |
Impairment of right-of-use lease assets | 1,185 |  |  | 5,135 |
Changes in assets and liabilities: |  |  |
Tuition receivable, net | (33,320) |  |  | (35,113) |
Other assets | 417 |  |  | (12,456) |
Accounts payable and accrued expenses | 6,768 |  |  | 11,119 |
Income taxes payable and income taxes receivable | 4,498 |  |  | (14,669) |
Contract liabilities | 65,437 |  |  | 52,836 |
Other liabilities | (5,226) |  |  | (2,717) |
Net cash provided by operating activities | 124,732 |  |  | 87,173 |
Cash flows from investing activities: |  |  |
Purchases of property and equipment | (32,508) |  |  | (27,318) |
Purchases of marketable securities | — |  |  | (16,904) |
Proceeds from marketable securities | 2,600 |  |  | 8,175 |
Proceeds from sale of property and equipment | — |  |  | 5,890 |
Proceeds from other investments | — |  |  | 457 |
Other investments | (223) |  |  | (314) |
Cash paid for acquisition, net of cash acquired | (193) |  |  | (448) |
Net cash used in investing activities | (30,324) |  |  | (30,462) |
Cash flows from financing activities: |  |  |
Common dividends paid | (44,600) |  |  | (44,139) |
Payments on long-term debt | — |  |  | (40,000) |
Net payments for stock awards | (2,973) |  |  | (4,925) |
Repurchase of common stock | (36,916) |  |  | (9,999) |
Net cash used in financing activities | (84,489) |  |  | (99,063) |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (10,729) |  |  | (3,657) |
Net decrease in cash, cash equivalents, and restricted cash | (810) |  |  | (46,009) |
Cash, cash equivalents, and restricted cash — beginning of period | 279,212 |  |  | 227,454 |
Cash, cash equivalents, and restricted cash — end of period | $ | 278,402 |  |  | $ | 181,445 |
Non-cash transactions: |  |  |
Non-cash additions to property and equipment | $ | 1,910 |  |  | $ | 2,110 |
Right-of-use lease assets obtained in exchange for operating lease liabilities | $ | 4,278 |  |  | $ | 8,329 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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STRATEGIC EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of Operations
Strategic Education, Inc. (“Strategic Education” or the “Company”), a Maryland corporation, is an education services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets. Strategic Education’s portfolio of companies is dedicated to closing the skills gap by placing adults on the most direct path between learning and employment.
The accompanying condensed consolidated financial statements and footnotes include the results of the Company’s three reportable segments: (1) U.S. Higher Education (“USHE”), which is primarily comprised of Strayer University and Capella University and is focused on providing flexible and affordable certificate and degree programs to working adults; (2) Education Technology Services, which is primarily focused on developing and maintaining relationships with employers to build employee education benefits programs; and (3) Australia/New Zealand, which through Torrens University and associated assets, provides certificate and degree programs in Australia and New Zealand. The Company’s reportable segments are discussed further in Note 15.
2. Significant Accounting Policies
Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
All information as of September 30, 2022 and 2023, and for the three and nine months ended September 30, 2022 and 2023 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows of the Company. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at that date. Certain year-to-date amounts have been reclassified to conform to the current period’s presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year.
Below is a description of the nature of the costs included in the Company’s operating expense categories.
Instructional and support costs generally contain items of expense directly attributable to activities that support students. This expense category includes salaries and benefits of faculty and academic administrators, as well as admissions and administrative personnel who support and serve student interests. Instructional and support costs also include course development costs and costs associated with delivering course content, including educational supplies, facilities, and all other physical plant and occupancy costs, with the exception of costs attributable to the corporate offices. Bad debt expense incurred on delinquent student account balances is also included in instructional and support costs.
General and administration expenses include salaries and benefits of management and employees engaged in finance, human resources, legal, regulatory compliance, marketing and other corporate functions. Also included are the costs of advertising and production of marketing materials. General and administration expense also includes the facilities occupancy and other related costs attributable to such functions.
Amortization of intangible assets consists of amortization and depreciation expense related to intangible assets and software assets acquired through the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand (“ANZ”).
Merger and integration costs include integration expenses associated with the Company’s merger with Capella Education Company and the Company’s acquisition of ANZ.
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Restructuring costs include severance and other personnel-related expenses from voluntary and involuntary employee terminations, right-of-use lease and fixed asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with the Company’s restructuring activities. See Note 4 for additional information.
Foreign Currency Translation and Transaction Gains and Losses
The United States Dollar (“USD”) is the functional currency of the Company and its subsidiaries operating in the United States. The financial statements of its foreign subsidiaries are maintained in their functional currencies. The functional currency of each of the foreign subsidiaries is the currency of the economic environment in which the subsidiary primarily does business. Financial statements of foreign subsidiaries are translated into USD using the exchange rates applicable to the dates of the financial statements. Assets and liabilities are translated into USD using the period-end spot foreign exchange rates. Income and expenses are translated at the weighted-average exchange rates in effect during the period. Equity accounts are translated at historical exchange rates. The effects of these translation adjustments are reported as a component of accumulated other comprehensive income (loss) within shareholders’ equity.
For any transaction that is in a currency different from the entity’s functional currency, the Company records a net gain or loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement date (or rate at period end, if unsettled), in the unaudited condensed consolidated statements of income.
Restricted Cash
In the United States, a significant portion of the Company’s revenues are funded by various federal and state government programs. The Company generally does not receive funds from these programs prior to the start of the corresponding academic term. The Company may be required to return certain funds for students who withdraw from a U.S. higher education institution during the academic term. The Company had approximately $1.4 million and $2.1 million of these unpaid obligations as of December 31, 2022 and September 30, 2023, respectively. In Australia and New Zealand, advance tuition payments from international students are required to be restricted until a student commences his or her course. In addition, a portion of tuition prepayments from students enrolled in a vocational education and training program are held in trust by a third party law firm to adhere to tuition protection requirements. As of December 31, 2022 and September 30, 2023, the Company had approximately $11.9 million and $11.2 million, respectively, of restricted cash related to these requirements in Australia and New Zealand. These balances are recorded as restricted cash and included in other current assets in the unaudited condensed consolidated balance sheets.
As part of conducting operations in Pennsylvania, the Company is required to maintain a “minimum protective endowment” of at least $0.5 million in an interest-bearing account as long as the Company operates its campuses in the state. The Company holds these funds in an interest-bearing account, which is included in other assets.
The following table illustrates the reconciliation of cash, cash equivalents, and restricted cash shown in the unaudited condensed consolidated statements of cash flows as of September 30, 2022 and 2023 (in thousands):

| As of September 30,
| 2022 |  | 2023
Cash and cash equivalents | $ | 262,757 |  |  | $ | 167,707 |
Restricted cash included in other current assets | 15,145 |  |  | 13,238 |
Restricted cash included in other assets | 500 |  |  | 500 |
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | 278,402 |  |  | $ | 181,445 |

Marketable Securities
Investments in marketable securities are carried at either amortized cost or fair value. Investments in marketable securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in marketable securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Management determines the appropriate designation of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. All of the Company’s marketable securities are designated as either held-to-maturity or available-for-sale.
The Company’s available-for-sale marketable securities consist of tax-exempt municipal securities and corporate debt securities, which are carried at fair value as determined by quoted market prices or other inputs either directly or indirectly observable in the marketplace for identical or similar assets, with unrealized gains and losses, net of tax, recognized as a component of accumulated
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other comprehensive income (loss) within shareholders’ equity. Management reviews the fair value of the portfolio at least quarterly, and evaluates individual securities with fair value below amortized cost at the balance sheet date for impairment. In order to determine whether there is an impairment, management evaluates whether the Company intends to sell the impaired security and whether it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis.
If management intends to sell an impaired debt security, or it is more likely than not the Company will be required to sell the security prior to recovering its amortized cost basis, an impairment is deemed to have occurred. The amount of an impairment related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings. The amount of an impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities as a component of accumulated other comprehensive income (loss) within shareholders’ equity.
The cost of securities sold is based on the specific identification method. Amortization of premiums, accretion of discounts, interest, dividend income and realized gains and losses are included in other income. The contractual maturity date of available-for-sale securities is based on the days remaining to the effective maturity. The Company classifies marketable securities as either current or non-current assets based on management’s intent with regard to usage of those funds, which is dependent upon the security’s maturity date and liquidity considerations based on current market conditions. If management intends to hold the securities for longer than one year as of the balance sheet date, they are classified as non-current.
Tuition Receivable and Allowance for Credit Losses
The Company records tuition receivable and contract liabilities for its students upon the start of the academic term or program. Tuition receivables are not collateralized; however, credit risk is minimized as a result of the diverse nature of the Company’s student bases and through the participation of the majority of the students in federally funded financial aid programs. An allowance for credit losses is established based upon historical collection rates by age of receivable and adjusted for reasonable expectations of future collection performance, net of estimated recoveries. These collection rates incorporate historical performance based on a student’s current enrollment status, likelihood of future enrollment, degree mix trends and changes in the overall economic environment. In the event that current collection trends differ from historical trends, an adjustment is made to the allowance for credit losses and bad debt expense.
The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2022 and September 30, 2023 (in thousands):

| December 31, 2022 |  | September 30, 2023
Tuition receivable | $ | 110,066 |  |  | $ | 145,775 |
Allowance for credit losses | (47,113) |  |  | (48,346) |
Tuition receivable, net | $ | 62,953 |  |  | $ | 97,429 |

Approximately $2.7 million and $2.6 million of tuition receivable, net, are included in other assets as of December 31, 2022 and September 30, 2023, respectively, because these amounts are expected to be collected after 12 months.
The following table illustrates changes in the Company’s allowance for credit losses for the three and nine months ended September 30, 2022 and 2023 (in thousands).

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Allowance for credit losses, beginning of period | $ | 43,507 |  |  | $ | 45,877 |  |  | $ | 48,783 |  |  | $ | 47,113 |
Additions charged to expense | 11,895 |  |  | 14,880 |  |  | 27,899 |  |  | 37,138 |
Write-offs, net of recoveries | (10,462) |  |  | (12,411) |  |  | (31,742) |  |  | (35,905) |
Allowance for credit losses, end of period | $ | 44,940 |  |  | $ | 48,346 |  |  | $ | 44,940 |  |  | $ | 48,346 |

Assets Held for Sale
The Company classifies assets and liabilities as held for sale (“disposal group”) when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable to be completed within one year, and the disposal group is available for immediate sale in its present condition. The Company also considers whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the
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plan will be made or that the plan will be withdrawn. The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying amount or fair value less costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Gains are not recognized until the date of sale. Assets are not depreciated or amortized while they are classified as held for sale. Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group as assets held for sale and liabilities held for sale in its unaudited condensed consolidated balance sheets.
Over the last several years, the Company has been evaluating its owned and leased real estate portfolio to identify underutilized facilities to either downsize or exit. One facility identified to be marketed for sale was an owned U.S. Higher Education campus consisting of land, buildings, and building improvements. The Company determined that it met all of the criteria to classify these assets as held for sale as of March 31, 2023. No loss was recorded as the carrying amount of the net assets was less than the fair value less costs to sell. Fair value was determined based upon the anticipated sales price of these assets.
During the second quarter of 2023, the Company sold the long-lived assets related to the owned U.S. Higher Education campus noted above and recognized a $2.1 million gain on sale, which is included in Restructuring costs on the unaudited condensed consolidated statements of income.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed in a business combination. Indefinite-lived intangible assets, which include trade names, are recorded at fair value on their acquisition date. An indefinite life was assigned to the trade names because they have the continued ability to generate cash flows indefinitely.
Goodwill and the indefinite-lived intangible assets are assessed at least annually for impairment on the first day of the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible asset below its carrying amount. The Company identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available, and management regularly reviews the operating results of those components.
Finite-lived intangible assets that are acquired in business combinations are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the asset. Finite-lived intangible assets consist of student relationships.
The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the assets exceeds the fair value of the assets.
Authorized Stock
The Company has authorized 32,000,000 shares of common stock, par value $0.01, of which 24,402,891 and 24,419,092 shares were issued and outstanding as of December 31, 2022 and September 30, 2023, respectively. The Company also has authorized 8,000,000 shares of preferred stock, none of which is issued or outstanding. Before any preferred stock may be issued in the future, the Board of Directors would need to establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and the terms or conditions of the redemption of the preferred stock.
In July 2023, the Company’s Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock. The dividend was paid on September 11, 2023.
Net Income Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options, restricted stock, and restricted stock units (“stock awards”). The dilutive effect of stock awards was determined using the treasury stock method. Under the treasury stock method, all of the following are assumed to be used to repurchase shares of the Company’s common stock: (1) the proceeds received from the exercise of stock options, and (2) the amount of compensation cost associated with the stock awards for future service not yet recognized by the Company. Stock awards are excluded from the computation of diluted earnings per share when their effect would be anti-dilutive.
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Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2023 (in thousands):

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Weighted average shares outstanding used to compute basic earnings per share | 23,550 |  |  | 23,365 |  |  | 23,765 |  |  | 23,415 |
Incremental shares issuable upon the assumed exercise of stock options | 3 |  |  | 3 |  |  | 3 |  |  | 4 |
Unvested restricted stock and restricted stock units | 349 |  |  | 502 |  |  | 258 |  |  | 533 |
Shares used to compute diluted earnings per share | 23,902 |  |  | 23,870 |  |  | 24,026 |  |  | 23,952 |
Anti-dilutive shares excluded from the diluted earnings per share calculation | 11 |  |  | 276 |  |  | 149 |  |  | 219 |

Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and all changes in the Company’s equity during a period from non-owner sources, which for the Company consists of unrealized gains and losses on available-for-sale marketable securities, net of tax, and foreign currency translation adjustments. As of December 31, 2022 and September 30, 2023, the balance of accumulated other comprehensive loss was $35.1 million, net of tax of $0.1 million, and $62.9 million, net of tax of $0.1 million, respectively. There were no reclassifications out of accumulated other comprehensive income (loss) to net income for the three and nine months ended September 30, 2022 and 2023.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period reported. The most significant management estimates include allowances for credit losses, useful lives of property and equipment and intangible assets, incremental borrowing rates, potential sublease income and vacancy periods, accrued expenses, forfeiture rates and the likelihood of achieving performance criteria for stock-based awards, value of free courses earned by students that will be redeemed in the future, valuation of goodwill and intangible assets, and the provision for income taxes. Actual results could differ from those estimates.
Recently Issued Accounting Standards Not Yet Adopted
Accounting Standards Updates recently issued by the FASB but not yet effective are not expected to have a material effect on the Company’s consolidated financial statements.
3. Revenue Recognition
The Company’s revenues primarily consist of tuition revenue arising from educational services provided in the form of classroom instruction and online courses. Tuition revenue is deferred and recognized ratably over the period of instruction, which varies depending on the course format and chosen program of study. Strayer University’s educational programs and Capella University’s GuidedPath classes typically are offered on a quarterly basis, and such periods coincide with the Company’s quarterly financial reporting periods, while Capella University’s FlexPath courses are delivered over a twelve-week subscription period. Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the calendar year.
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The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the three and nine months ended September 30, 2022 and 2023 (in thousands):

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
U.S. Higher Education Segment |  |  |  |  |  |  |
Tuition, net of discounts, grants and scholarships | $ | 177,678 |  |  | $ | 192,850 |  |  | $ | 546,407 |  |  | $ | 575,725 |
Other(1) | 7,821 |  |  | 8,978 |  |  | 24,884 |  |  | 25,677 |
Total U.S. Higher Education Segment | 185,499 |  |  | 201,828 |  |  | 571,291 |  |  | 601,402 |
Australia/New Zealand Segment |  |  |  |  |  |  |
Tuition, net of discounts, grants and scholarships | 60,238 |  |  | 61,667 |  |  | 173,621 |  |  | 165,855 |
Other(1) | 939 |  |  | 1,597 |  |  | 3,611 |  |  | 4,384 |
Total Australia/New Zealand Segment | 61,177 |  |  | 63,264 |  |  | 177,232 |  |  | 170,239 |
Education Technology Services Segment(2) | 16,447 |  |  | 20,844 |  |  | 47,019 |  |  | 58,581 |
Consolidated revenue | $ | 263,123 |  |  | $ | 285,936 |  |  | $ | 795,542 |  |  | $ | 830,222 |

_________________________________________
(1)Other revenue is primarily comprised of academic fees, sales of course materials, placement fees and other non-tuition revenue streams.
(2)Education Technology Services revenue is primarily derived from tuition revenue.
Revenues are recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods and services. The Company applies the five-step revenue model under ASC 606 to determine when revenue is earned and recognized.
Arrangements with students may have multiple performance obligations. For such arrangements, the Company allocates net tuition revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers and observable market prices. The standalone selling price of material rights to receive free classes or scholarships in the future is estimated based on class tuition prices or amounts of scholarships, and likelihood of redemption based on historical student attendance and completion behavior.
At the start of each academic term or program, a contract liability is recorded for academic services to be provided, and a tuition receivable is recorded for the portion of the tuition not paid in advance. Any cash received prior to the start of an academic term or program is recorded as a contract liability. Some students may be eligible for scholarship awards, the estimated value of which will be realized in the future and is deducted from revenue when earned, based on historical student attendance and completion behavior. Contract liabilities are recorded as a current or long-term liability in the unaudited condensed consolidated balance sheets based on when the benefit is expected to be realized.
Course materials are available to enable students to access electronically all required materials for courses in which they enroll during the quarter. Revenue derived from course materials is recognized ratably over the duration of the course as the Company provides the student with continuous access to these materials during the term. For sales of certain other course materials, the Company is considered the agent in the transaction, and as such, the Company recognizes revenue net of amounts owed to the vendor at the time of sale. Revenues also include certain academic fees recognized within the quarter of instruction, and certificate revenue and licensing revenue, which are recognized as the services are provided.
Contract Liabilities – Graduation Fund
Strayer University offers the Graduation Fund, which allows undergraduate students to earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program. Students registering in credit-bearing courses in any undergraduate degree program receive one free course for every three courses that the student successfully completes. To be eligible, students must meet all of Strayer University’s admission requirements and must be enrolled in a bachelor’s degree program. Students who have more than one consecutive term of non-attendance lose any Graduation Fund credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by Strayer University in the future.
Revenue from students participating in the Graduation Fund is recorded in accordance with ASC 606. The Company defers the value of the related performance obligation associated with the credits estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student toward earning the benefit. The Company’s estimate of the benefits that will be redeemed in the future is based on its historical experience of student persistence toward completion of a course of study within this program and similar programs. Each quarter, the Company assesses its assumptions underlying these
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estimates, and to date, any adjustments to the estimates have not been material. The amount estimated to be redeemed in the next 12 months is $19.4 million and is included as a current contract liability in the unaudited condensed consolidated balance sheets. The remainder is expected to be redeemed within two to four years.
The table below presents activity in the contract liability related to the Graduation Fund (in thousands):

| For the nine months ended September 30,
| 2022 |  | 2023
Balance at beginning of period | $ | 52,024 |  |  | $ | 46,842 |
Revenue deferred | 12,647 |  |  | 14,543 |
Benefit redeemed | (16,295) |  |  | (16,931) |
Balance at end of period | $ | 48,376 |  |  | $ | 44,454 |

Unbilled Receivables – Student Tuition
Academic materials may be shipped to certain new undergraduate students in advance of the term of enrollment. Under ASC 606, the materials represent a performance obligation to which the Company allocates revenue based on the fair value of the materials relative to the total fair value of all performance obligations in the arrangement with the student. When control of the materials passes to the student in advance of the term of enrollment, an unbilled receivable and related revenue are recorded.
Costs to Obtain a Contract
Certain commissions earned by third party international agents are considered incremental and recoverable costs of obtaining a contract with customers in the Australia/New Zealand segment. These costs are deferred and then amortized over the period of benefit which ranges from one year to two years.
4. Restructuring and Related Charges
In the third quarter of 2020, the Company began implementing a restructuring plan in an effort to reduce the ongoing operating costs of the Company to align with changes in enrollment following the COVID-19 pandemic. Under this plan, the Company incurred severance and other employee separation costs related to voluntary and involuntary employee terminations.
The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities related to the 2020 restructuring plan during the nine months ended September 30, 2022 (in thousands):

| 2020 Restructuring Plan
Balance at December 31, 2021 | $ | 1,612 |
Restructuring and other charges | 1,241 |
Payments | (2,853) |
Balance at September 30, 2022 | $ | — |

The final severance payments under the 2020 restructuring plan were made in the third quarter of 2022.
The Company also incurs severance and other employee separation costs related to voluntary and involuntary employee terminations that are not tied to a formal restructuring plan. During the three and nine months ended September 30, 2023, the Company incurred $2.9 million and $11.3 million of severance and other employee separation charges related to the elimination of certain positions. These severance and other employee separation charges are included in Restructuring costs on the unaudited condensed consolidated statements of income.
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The following details the changes in the Company's severance and other employee separation costs restructuring liabilities during the nine months ended September 30, 2023 (in thousands):

| Severance Restructuring Liability
Balance at December 31, 2022 | $ | — |
Restructuring and other charges | 11,256 |
Payments | (8,731) |
Balance at September 30, 2023(1) | $ | 2,525 |

____________________________________
(1)Restructuring liabilities are included in accounts payable and accrued expenses.
The Company has also been evaluating its owned and leased real estate portfolio, which has resulted in the consolidation and sale of underutilized facilities. The Company recorded approximately $0.1 million and $1.2 million of right-of-use lease asset charges during the three and nine months ended September 30, 2022, respectively, and approximately $5.1 million during the nine months ended September 30, 2023, related to facilities that were consolidated during the period. The Company also recorded fixed asset impairment charges of approximately $0.1 million and $2.5 million during the three and nine months ended September 30, 2022, respectively, and approximately $0.1 million and $0.4 million during the three and nine months ended September 30, 2023, respectively. During the nine months ended September 30, 2023, the Company recorded a $2.1 million gain from the sale of property and equipment of an owned campus that was previously closed. These right-of-use lease asset and fixed asset impairment charges and gains on the sale of property and equipment are included in Restructuring costs on the unaudited condensed consolidated statements of income.
5. Marketable Securities
The following is a summary of available-for-sale and held-to-maturity securities as of September 30, 2023 (in thousands):

| Amortized Cost |  | Gross Unrealized Gain |  | Gross Unrealized (Losses) |  | Estimated Fair Value
Available-for-sale securities: |  |  |  |  |  |  |
Tax-exempt municipal securities | $ | 11,654 |  |  | $ | 1 |  |  | $ | (263) |  |  | $ | 11,392 |
Corporate debt securities | 3,204 |  |  | — |  |  | (122) |  |  | 3,082 |
Total available-for sale securities | $ | 14,858 |  |  | $ | 1 |  |  | $ | (385) |  |  | $ | 14,474 |
Held-to-maturity securities: |  |  |  |  |  |  |
Term deposits | $ | 16,400 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,400 |

The following is a summary of available-for-sale securities as of December 31, 2022 (in thousands):

| Amortized Cost |  | Gross Unrealized Gain |  | Gross Unrealized (Losses) |  | Estimated Fair Value
Available-for-sale securities: |  |  |  |  |  |  |
Tax-exempt municipal securities | $ | 15,852 |  |  | $ | 2 |  |  | $ | (507) |  |  | $ | 15,347 |
Corporate debt securities | 7,140 |  |  | — |  |  | (208) |  |  | 6,932 |
Total | $ | 22,992 |  |  | $ | 2 |  |  | $ | (715) |  |  | $ | 22,279 |

The Company had no held-to-maturity securities as of December 31, 2022.
The unrealized gains and losses on the Company’s investments in corporate debt and municipal securities as of December 31, 2022 and September 30, 2023 were caused by changes in market values primarily due to interest rate changes. As of September 30, 2023, the fair value of the Company’s securities which were in an unrealized loss position for a period longer than twelve months was $13.5 million. The Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell these securities prior to the recovery of their amortized cost basis, which may be at maturity. As such, no impairment charges were recorded during the three and nine months ended September 30, 2022 and 2023. The Company has no allowance for credit losses related to its available-for-sale or held-to-maturity securities as all investments are in investment grade securities.
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The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2022 and September 30, 2023 (in thousands):

| December 31, 2022 |  | September 30, 2023
| Available-for-sale securities |  | Held-to-maturity securities |  | Available-for-sale securities |  | Held-to-maturity securities
Due within one year | $ | 9,156 |  |  | $ | — |  |  | $ | 12,560 |  |  | $ | 16,400 |
Due after one year through three years | 13,123 |  |  | — |  |  | 1,914 |  |  | — |
Total | $ | 22,279 |  |  | $ | — |  |  | $ | 14,474 |  |  | $ | 16,400 |

The following table summarizes the proceeds from the maturities and sales of available-for-sale securities for the three and nine months ended September 30, 2022 and 2023 (in thousands):

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Maturities of marketable securities | $ | 500 |  |  | $ | 3,215 |  |  | $ | 2,600 |  |  | $ | 8,175 |
Sales of marketable securities | — |  |  | — |  |  | — |  |  | — |
Total | $ | 500 |  |  | $ | 3,215 |  |  | $ | 2,600 |  |  | $ | 8,175 |

The Company did not record any gross realized gains or losses in net income during the three and nine months ended September 30, 2022 and September 30, 2023.
6. Fair Value Measurement
Assets measured at fair value on a recurring basis consist of the following as of September 30, 2023 (in thousands):

|  |  | Fair Value Measurements at Reporting Date Using
| September 30, 2023 |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets: |  |  |  |  |  |  |
Money market funds | $ | 78,308 |  |  | $ | 78,308 |  |  | $ | — |  |  | $ | — |
U.S. treasury bills | 14,915 |  |  | 14,915 |  |  | — |  |  | — |
Available-for-sale securities: |  |  |  |  |  |  |
Tax-exempt municipal securities | 11,392 |  |  | — |  |  | 11,392 |  |  | — |
Corporate debt securities | 3,082 |  |  | — |  |  | 3,082 |  |  | — |
Total assets at fair value on a recurring basis | $ | 107,697 |  |  | $ | 93,223 |  |  | $ | 14,474 |  |  | $ | — |

Assets and liabilities measured at fair value on a recurring basis consist of the following as of December 31, 2022 (in thousands):

|  |  | Fair Value Measurements at Reporting Date Using
| December 31, 2022 |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets: |  |  |  |  |  |  |
Money market funds | $ | 217 |  |  | $ | 217 |  |  | $ | — |  |  | $ | — |
Available-for-sale securities: |  |  |  |  |  |  |
Tax-exempt municipal securities | 15,347 |  |  | — |  |  | 15,347 |  |  | — |
Corporate debt securities | 6,932 |  |  | — |  |  | 6,932 |  |  | — |
Total assets at fair value on a recurring basis | $ | 22,496 |  |  | $ | 217 |  |  | $ | 22,279 |  |  | $ | — |

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The Company measures the above items on a recurring basis at fair value as follows:
•Money market funds and U.S. treasury bills – Classified in Level 1 is excess cash the Company holds in money market funds and U.S. treasury bills, which are included in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets. The Company records any net unrealized gains and losses for changes in fair value as a component of accumulated other comprehensive income (loss) in stockholders’ equity. The Company’s cash and cash equivalents and held-to-maturity securities held at December 31, 2022 and September 30, 2023 approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.
•Available-for-sale securities – Classified in Level 2 and valued using readily available pricing sources for comparable instruments utilizing observable inputs from active markets. The Company does not hold securities in inactive markets.
The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods and did not transfer assets or liabilities between levels of the fair value hierarchy during the nine months ended September 30, 2022 and 2023.
The Company acquired certain assets and entered into deferred payment arrangements with the sellers in transactions that occurred in 2011. The deferred payments were classified within Level 3 as there was no liquid market for similarly priced instruments and were valued using discounted cash flow models that encompassed significant unobservable inputs. The assumptions used to prepare the discounted cash flows included estimates for interest rates, enrollment growth, retention rates, and pricing strategies. The final payment related to the deferred payment arrangements was made in the first quarter of 2022.
Changes in the fair value of the Company’s Level 3 liabilities during the nine months ended September 30, 2022 are as follows (in thousands):

| As of September 30, 2022
Balance as of the beginning of period | $ | 658 |
Amounts paid | (658) |
Other adjustments to fair value | — |
Balance at end of period | $ | — |

7. Goodwill and Intangible Assets
Goodwill
The following table presents changes in the carrying value of goodwill by segment for the nine months ended September 30, 2023 (in thousands):

| U.S. Higher Education |  | Australia / New Zealand |  | Education Technology Services |  | Total
Balance as of December 31, 2022 | $ | 632,075 |  |  | $ | 519,202 |  |  | $ | 100,000 |  |  | $ | 1,251,277 |
Additions | — |  |  | — |  |  | — |  |  | — |
Impairments | — |  |  | — |  |  | — |  |  | — |
Currency translation adjustments | — |  |  | (22,846) |  |  | — |  |  | (22,846) |
Adjustments to prior acquisitions | — |  |  | — |  |  | — |  |  | — |
Balance as of September 30, 2023 | $ | 632,075 |  |  | $ | 496,356 |  |  | $ | 100,000 |  |  | $ | 1,228,431 |

The Company assesses goodwill at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount. No events or circumstances occurred in the three and nine months ended September 30, 2023 to indicate an impairment to goodwill at any of its segments. There were no impairment charges related to goodwill recorded during the three and nine months ended September 30, 2022 and 2023.
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Intangible Assets
The following table represents the balance of the Company’s intangible assets as of December 31, 2022 and September 30, 2023 (in thousands):

| December 31, 2022 |  | September 30, 2023
| Gross Carrying Amount |  | Accumulated Amortization |  | Net |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net
Subject to amortization |  |  |  |  |  |  |  |  |  |  |
Student relationships | $ | 200,185 |  |  | $ | (191,125) |  |  | $ | 9,060 |  |  | $ | 200,095 |  |  | $ | (199,155) |  |  | $ | 940 |
Not subject to amortization |  |  |  |  |  |  |  |  |  |  |
Trade names | 251,481 |  |  | — |  |  | 251,481 |  |  | 248,574 |  |  | — |  |  | 248,574 |
Total | $ | 451,666 |  |  | $ | (191,125) |  |  | $ | 260,541 |  |  | $ | 448,669 |  |  | $ | (199,155) |  |  | $ | 249,514 |

The Company’s finite-lived intangible assets are comprised of student relationships, which are being amortized on a straight-line basis over a three-year useful life. Straight-line amortization expense for finite-lived intangible assets reflects the pattern in which the economic benefits of the assets are consumed over their estimated useful lives. Amortization expense related to finite-lived intangible assets was $8.5 million and $8.0 million for the nine months ended September 30, 2022 and 2023, respectively.
Indefinite-lived intangible assets not subject to amortization consist of trade names. The Company assigned an indefinite useful life to its trade name intangible assets, as it is believed these assets have the ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic, or other factors to limit the useful life of the trade name intangibles.
The Company assesses indefinite-lived intangible assets at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective indefinite-lived intangible asset below its carrying amount. No events or circumstances occurred in the three and nine months ended September 30, 2023 to indicate an impairment to indefinite-lived intangible assets. There were no impairment charges related to indefinite-lived intangible assets recorded during the three and nine months ended September 30, 2022 and 2023.
8. Other Current Assets
Other current assets consist of the following as of December 31, 2022 and September 30, 2023 (in thousands):

| December 31, 2022 |  | September 30, 2023
Prepaid expenses | $ | 19,073 |  |  | $ | 23,685 |
Restricted cash | 13,287 |  |  | 13,238 |
Cloud computing arrangements | 7,859 |  |  | 7,231 |
Other | 3,066 |  |  | 4,535 |
Other current assets | $ | 43,285 |  |  | $ | 48,689 |

9. Other Assets
Other assets consist of the following as of December 31, 2022 and September 30, 2023 (in thousands):

| December 31, 2022 |  | September 30, 2023
Prepaid expenses, net of current portion | $ | 18,192 |  |  | $ | 17,321 |
Equity method investments | 13,879 |  |  | 16,175 |
Cloud computing arrangements, net of current portion | 7,507 |  |  | 12,021 |
Other investments | 3,396 |  |  | 2,806 |
Tuition receivable, net, non-current | 2,673 |  |  | 2,559 |
Other | 4,005 |  |  | 4,063 |
Other assets | $ | 49,652 |  |  | $ | 54,945 |

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Prepaid Expenses
Long-term prepaid expenses primarily relate to payments that have been made for future services to be provided after one year. In 2020, pursuant to the terms of the perpetual license agreement associated with the Jack Welch Management Institute, the Company made a final one-time cash payment of approximately $25.3 million for the right to continue to use the Jack Welch name and likeness. As of December 31, 2022 and September 30, 2023, $17.7 million and $16.5 million, respectively, of this payment is included in the prepaid expenses, net of current portion balance, as the payment is being amortized over an estimated useful life of 15 years.
Equity Method Investments
The Company holds investments in certain limited partnerships that invest in various innovative companies in the health care and education-related technology fields. The Company has commitments to invest up to an additional $2.4 million across these partnerships through 2031. The Company’s investments range from 3%-5% of any partnership’s interest and are accounted for under the equity method.
The following table illustrates changes in the Company’s limited partnership investments for the three and nine months ended September 30, 2022 and 2023 (in thousands):

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Limited partnership investments, beginning of period | $ | 14,011 |  |  | $ | 17,205 |  |  | $ | 15,582 |  |  | $ | 13,879 |
Capital contributions | — |  |  | 162 |  |  | 48 |  |  | 314 |
Pro-rata share in the net income (loss) of limited partnerships | (32) |  |  | (114) |  |  | 32 |  |  | 3,060 |
Distributions | — |  |  | (1,078) |  |  | (1,683) |  |  | (1,078) |
Limited partnership investments, end of period | $ | 13,979 |  |  | $ | 16,175 |  |  | $ | 13,979 |  |  | $ | 16,175 |

Cloud Computing Arrangements
The Company defers implementation costs incurred in cloud computing arrangements and amortizes these costs over the term of the arrangement.
Other Investments
The Company holds investments in education technology start-ups focused on transformational technologies that improve student success. These investments are accounted for at cost less impairment as they do not have readily determinable fair value.
Tuition Receivable
Non-current tuition receivable, net, represents tuition that the Company expects to collect, but not within the next 12 months.
Other
Other is comprised primarily of deferred financing costs associated with the Company’s credit facility, deferred contract costs related to commissions paid in the Australia/New Zealand segment to third party international agents, and refundable security deposits associated with the Company’s leased campus and office space.
10. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following as of December 31, 2022 and September 30, 2023 (in thousands):

| December 31, 2022 |  | September 30, 2023
Trade payables | $ | 45,826 |  |  | $ | 54,856 |
Accrued compensation and benefits | 32,608 |  |  | 36,767 |
Accrued student obligations and other | 12,154 |  |  | 10,499 |
Accounts payable and accrued expenses | $ | 90,588 |  |  | $ | 102,122 |

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11. Long-Term Debt
On November 3, 2020, the Company entered into an amended credit facility (“Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $350 million. The Amended Credit Facility provides the Company with an option, subject to obtaining additional loan commitments and satisfaction of certain conditions, to increase the commitments under the Revolving Credit Facility or establish one or more incremental term loans (each, an “Incremental Facility”) in the future in an aggregate amount of up to the sum of (x) the greater of (A) $300 million and (B) 100% of the Company’s consolidated EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation) calculated on a trailing four-quarter basis and on a pro forma basis, and (y) if such Incremental Facility is incurred in connection with a permitted acquisition or other permitted investment, any amounts so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00. In addition, the Amended Credit Facility provides for a subfacility for borrowings in certain foreign currencies in an amount equal to the U.S. dollar equivalent of $150 million. The maturity date of the Amended Credit Facility is November 3, 2025. The Company paid approximately $1.9 million in debt financing costs associated with the Amended Credit Facility, and these costs are being amortized on a straight-line basis over the five-year term of the Amended Credit Facility.
On June 13, 2023, the Company amended its Revolving Credit Facility to replace references to LIBOR with alternative benchmark rates, including Term SOFR with respect to loans denominated in U.S. dollars, beginning on June 30, 2023. There were no other significant changes to the Revolving Credit Facility related to the amendment.
Borrowings under the Revolving Credit Facility bear interest at a per annum rate equal to Term SOFR or a base rate, plus a margin ranging from 1.50% to 2.00% depending on the Company’s leverage ratio. The Company also is subject to a quarterly unused commitment fee ranging from 0.20% to 0.30% per annum depending on the Company’s leverage ratio, times the daily unused amount under the Revolving Credit Facility.
The Amended Credit Facility is guaranteed by all domestic subsidiaries, subject to certain exceptions, and secured by substantially all of the assets of the Company and its subsidiary guarantors. The Amended Credit Facility contains customary affirmative and negative covenants, representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Amended Credit Facility. In addition, the Amended Credit Facility requires that the Company satisfy certain financial maintenance covenants, including:
•A leverage ratio of not greater than 2.00 to 1.00. Leverage ratio is defined as the ratio of total debt (net of unrestricted cash in an amount not to exceed $150 million) to trailing four-quarter EBITDA.
•A coverage ratio of not less than 1.75 to 1.00. Coverage ratio is defined as the ratio of trailing four-quarter EBITDA and rent expense to trailing four-quarter interest and rent expense.
•A U.S. Department of Education (the “Department” or “Department of Education”) Financial Responsibility Composite Score of not less than 1.0 for any fiscal year and not less than 1.5 for any two consecutive fiscal years.
The Company was in compliance with all the terms of the Amended Credit Facility as of September 30, 2023.
In September 2023, the Company repaid $40.0 million of the outstanding balance under the Revolving Credit Facility. As of December 31, 2022 and September 30, 2023, the Company had approximately $101.4 million and $61.2 million, respectively, outstanding under the Revolving Credit Facility. Approximately $3.4 million and $3.2 million was denominated in Australian dollars as of December 31, 2022 and September 30, 2023, respectively.
During the nine months ended September 30, 2022 and 2023, the Company paid $3.0 million and $5.4 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility.
12. Other Long-Term Liabilities
Other long-term liabilities consist of the following as of December 31, 2022 and September 30, 2023 (in thousands):

| December 31, 2022 |  | September 30, 2023
Contract liabilities, net of current portion | $ | 36,540 |  |  | $ | 34,738 |
Asset retirement obligations | 6,283 |  |  | 5,273 |
Other | 3,183 |  |  | 2,948 |
Other long-term liabilities | $ | 46,006 |  |  | $ | 42,959 |

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Contract Liabilities
As discussed in Note 3, in connection with its student tuition contracts, the Company has an obligation to provide free classes in the future should certain eligibility conditions be maintained (the Graduation Fund). Long-term contract liabilities represent the amount of revenue under these arrangements that the Company expects will be realized after one year.
Asset Retirement Obligations
Certain of the Company’s lease agreements require the leased premises to be returned in a predetermined condition.
13. Equity Awards
The following table sets forth the amount of stock-based compensation expense recorded in each of the expense line items for the three and nine months ended September 30, 2022 and 2023 (in thousands):

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Instructional and support costs | $ | 1,802 |  |  | $ | 597 |  |  | $ | 5,190 |  |  | $ | 4,128 |
General and administration | 3,810 |  |  | 3,210 |  |  | 11,019 |  |  | 10,708 |
Restructuring costs | — |  |  | 270 |  |  | — |  |  | 366 |
Stock-based compensation expense included in operating expense | 5,612 |  |  | 4,077 |  |  | 16,209 |  |  | 15,202 |
Tax benefit | 1,460 |  |  | 1,054 |  |  | 4,250 |  |  | 3,988 |
Stock-based compensation expense, net of tax | $ | 4,152 |  |  | $ | 3,023 |  |  | $ | 11,959 |  |  | $ | 11,214 |

During the nine months ended September 30, 2022 and 2023, the Company recognized shortfall tax impacts of approximately $1.4 million related to share-based payment arrangements, which were adjustments to the provision for income taxes.
14. Income Taxes
During the nine months ended September 30, 2022 and 2023, the Company recorded income tax expense of $13.6 million and $14.8 million, reflecting an effective tax rate of 32.5% and 32.6%, respectively. Income tax expense for the nine months ended September 30, 2022 and 2023 include shortfall tax impacts of approximately $1.4 million related to share-based payment arrangements.
The Company had $0.9 million of unrecognized tax benefits as of December 31, 2022 and September 30, 2023. Interest and penalties, including those related to uncertain tax positions, are included in the provision for income taxes in the unaudited condensed consolidated statements of income.
The Company paid $20.2 million and $35.6 million in income taxes during the nine months ended September 30, 2022 and 2023, respectively.
The tax years since 2019 remain open for federal tax examination, the tax years since 2018 remain open to examination by certain states, and the tax years since 2017 remain open to examination by foreign taxing jurisdictions in which the Company is subject to taxation.
15. Segment Reporting
Strategic Education is an educational services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets. Strategic Education’s portfolio of companies is dedicated to closing the skills gap by placing adults on the most direct path between learning and employment. The Company’s organizational structure includes three operating and reportable segments: U.S. Higher Education, Education Technology Services, and Australia/New Zealand.
The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Strayer University and Capella University, including the Jack Welch Management Institute MBA, which is a unit of Strayer University. USHE also operates non-degree web and mobile application development courses through Hackbright Academy and Devmountain, which are units of Strayer University.
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The Education Technology Services segment is primarily focused on developing and maintaining relationships with employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs. The employer relationships developed by the Education Technology Services division are an important source of student enrollment for Strayer University and Capella University, and the majority of the revenue attributed to the Education Technology Services division is driven by the volume of enrollment derived from these employer relationships. Education Technology Services also supports employer partners through Workforce Edge, a platform which provides employers a full-service education benefits administration solution, and Sophia Learning, which enables education benefits programs through the use of low-cost online general education-level courses recommended by the American Council on Education for credit at other colleges and universities.
The Australia/New Zealand segment is comprised of Torrens University, Think Education and Media Design School in Australia and New Zealand, which collectively offer certificate and degree programs in business, design, education, hospitality, healthcare, and technology through campuses in Australia, New Zealand, and online.
Revenue and operating expenses are generally directly attributable to the segments. Inter-segment revenues are not presented separately, as these amounts are immaterial. The Company’s Chief Operating Decision Maker does not evaluate operating segments using asset information.
A summary of financial information by reportable segment for the three and nine months ended September 30, 2022 and 2023 is presented in the following table (in thousands):

| For the three months ended September 30, |  | For the nine months ended September 30,
| 2022 |  | 2023 |  | 2022 |  | 2023
Revenues |  |  |  |  |  |  |
U.S. Higher Education | $ | 185,499 |  |  | $ | 201,828 |  |  | $ | 571,291 |  |  | $ | 601,402 |
Australia/New Zealand | 61,177 |  |  | 63,264 |  |  | 177,232 |  |  | 170,239 |
Education Technology Services | 16,447 |  |  | 20,844 |  |  | 47,019 |  |  | 58,581 |
Consolidated revenues | $ | 263,123 |  |  | $ | 285,936 |  |  | $ | 795,542 |  |  | $ | 830,222 |
Income (loss) from operations |  |  |  |  |  |  |
U.S. Higher Education | $ | (1,948) |  |  | $ | 10,412 |  |  | $ | 25,386 |  |  | $ | 26,742 |
Australia/New Zealand | 8,934 |  |  | 13,875 |  |  | 20,506 |  |  | 20,984 |
Education Technology Services | 5,222 |  |  | 8,316 |  |  | 15,237 |  |  | 20,278 |
Amortization of intangible assets | (3,522) |  |  | (3,382) |  |  | (10,954) |  |  | (10,364) |
Merger and integration costs | (269) |  |  | (330) |  |  | (933) |  |  | (1,335) |
Restructuring costs | (610) |  |  | (3,262) |  |  | (6,129) |  |  | (15,208) |
Consolidated income from operations | $ | 7,807 |  |  | $ | 25,629 |  |  | $ | 43,113 |  |  | $ | 41,097 |

16. Litigation
The Company is involved in litigation and other legal proceedings arising out of the ordinary course of its business. Certain of these matters are discussed below. From time to time, certain matters may arise that are other than ordinary and routine. The outcome of such matters is uncertain, and the Company may incur costs in the future to defend, settle, or otherwise resolve them. The Company accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that it will incur these costs in the future and the costs are reasonably estimable. The Company currently believes that the ultimate outcome of such matters will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect future results of operations in a particular period.
On April 20, 2021, Capella University received a letter from the Department of Education referencing Wright, et al. v. Capella Education Co., et al. (subsequently captioned Ornelas, et al. v. Capella, et al.), United States District Court for the District of Minnesota, Case No. 18-cv-1062, and indicating that the Department would require a fact-finding process pursuant to the borrower defense to repayment regulations to determine the validity of more than 1,000 borrower defense applications that have been submitted regarding Capella University. According to the Department, some of the applications allege similar claims as in the Wright matter concerning alleged misrepresentations of the length of time to complete doctoral programs. Capella University subsequently received approximately 500 applications for borrower defense to repayment. Capella University contested each claim for defense to repayment in individualized responses with supporting evidence, the last of which was sent to the Department in August 2021. Since that time, Capella University has not received any communication from the Department related to the set of
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borrower defense claims received in 2021, nor has Capella University received indication that any of these claims has been evaluated on the facts presented and adjudicated on the merits.
On June 22, 2022, in litigation in which Capella University is not a party, Sweet, et al. v. Miguel Cardona and the United States Department of Education, United States District Court for the Northern District of California, Case No. 3:19-cv-03674-WHA, the Department joined a proposed class settlement agreement that would result in a blanket grant of automatic, presumptive relief for all borrower defense to repayment applications filed by students at any of approximately 150 different listed institutions, including Capella University, through June 22, 2022. The class settlement agreement would also provide certain expedited review of borrower defense claims related to schools excluded from the automatic relief list, as well as for borrowers who applied during the period after execution of the settlement and before final approval. The court granted final approval of the settlement on November 16, 2022. Intervenors, including multiple intervening higher education institutions and companies, appealed the court’s order and moved to stay the court’s final judgment approving the settlement pending resolution of the appeal. Intervenors’ attempts to stay the judgment pending full consideration of appeal have been denied, including by the U.S. Supreme Court on April 13, 2023.
In a July 25, 2022 filing in the same litigation, the Department stated that providing automatic relief to such borrowers “does not constitute the granting or adjudication of a borrower defense pursuant to the Borrower Defense Regulations, and therefore provides no basis to the Department for initiating a borrower defense recoupment proceeding against any institution identified” on the list. It is unclear whether the Department would attempt to seek recovery from Capella University for the amounts of discharged loans. The Department has indicated that any recoupment against institutions “could be imposed only after the Department initiated a separate, future proceeding, in accordance with regulations that require the Department to prove a sufficient basis for liability and provide schools with notice and an opportunity to be heard.” If the Department were to seek recovery for the amounts of discharged loans, Capella University would dispute and defend against such efforts. At this time, the Company is unable to predict the ultimate outcome of Capella-related borrower defense applications.
17. Regulation
Our higher education institutions are subject to uncertain and varying laws and regulations, and any changes to these laws or regulations or their application to us may materially adversely affect our business, financial condition, and results of operations. Other than as set forth below, there have been no material changes to the laws and regulations affecting our higher education institutions that are described in our Annual Report on Form 10-K for the year ended December 31, 2022.
United States Regulation
CARES Act
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Among other things, the CARES Act suspended payments and interest accrual on federal student loans until September 30, 2020, in addition to suspending involuntary collections such as wage garnishment, tax refund reductions, and reductions of federal benefits like Social Security benefits during the same timeframe. On March 30, 2021, the Secretary of Education also extended student loan relief to all Federal Family Education Loans (“FFEL”) not previously covered. In June 2023, the Department of Education announced that student loan interest would begin to accrue on September 1, 2023, and student loan repayment resumed in October 2023.
American Rescue Plan Act of 2021
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021. Among other things, the legislation amended the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation. See “Item 1. Business – Regulation – U.S. Regulatory Environment – The 90/10 Rule” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a description of the 90/10 Rule. The legislation required the Department to conduct a negotiated rulemaking process to modify related Department regulations, which the Department began in January 2022. In March 2022, the Institutional and Programmatic Eligibility negotiated rulemaking committee reached consensus on changes to the 90/10 Rule. On October 27, 2022, the Department of Education released final 90/10 regulations, which are largely consistent with the consensus language. However, within the preamble of the regulation the Department indicated that non-Title IV eligible programs offered via distance education are not eligible to be counted in the “10” side of the ratio calculation. The final regulations also provided for an expanded definition of “federal education assistance” that will be periodically defined by the Secretary of Education. On December 20, 2022, the Department published guidance further indicating that non-Title IV eligible programs offered in part or in whole via distance education are not eligible to be counted in the “10” side of the ratio calculation, and has continued to issue guidance related to implementation of the new rule. On December 21, 2022, the Department released a non-exhaustive list of federal agencies and federal education assistance programs that must be included as federal revenue in the 90/10
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calculation. Such agencies include the U.S. Department of Defense (military tuition assistance) and the Department of Veterans Affairs (veterans education benefits), in addition to the Title IV programs already covered by the 90/10 Rule. The new 90/10 regulations are effective for fiscal years beginning on or after January 1, 2023.
Current Negotiated Rulemaking
Improving Institutional Quality and Accountability Committee
In January 2023, the Department indicated its intention to establish one or more rulemaking committees in 2023 to propose new regulations on distance education, improving the use of deferments and forbearances, third-party servicers and related issues, cash management, return of federal funds, state authorization, accreditation and related issues, and TRIO programs. The Department invited interested parties to comment on the topics suggested by the Department at public hearings held on April 11 and 12, 2023. The Department also accepted written comments through April 24, 2023.
Section 432(a) Committee
In June 2023, the Department indicated its intention to establish a rulemaking committee related to the modification, waiver or compromise of federal student loans, as permitted in HEA Section 432(a). The Department held a public hearing on July 18, and accepted written comments through July 20, 2023. In September 2023, the Department announced its selection of non-federal negotiators and the first round of rulemaking meetings were held on October 10 and 11, 2023. The rulemaking committee is also scheduled to meet in November and December 2023.
Following completion of negotiated rulemaking committee meetings, the Department of Education issues proposed rules for public comment. If the negotiated rulemaking committee reaches consensus on a topic, the Department of Education is bound to propose a rule consistent with the consensus. Following public comment, the Department issues final regulations, which, if published by November 1, would generally take effect July 1 of the following year.
Financial Value Transparency and Gainful Employment, Financial Responsibility, Administrative Capability, Certification Procedures, and Ability to Benefit
On May 17, 2023, the Department released proposed rules on financial value transparency and gainful employment, financial responsibility, administrative capability, certification procedures, and ability to benefit. On September 27, 2023, the Department released final regulations on financial value transparency and gainful employment, which are largely consistent with the proposed rule. The gainful employment final rule establishes two independent metrics, both of which must be passed by a gainful employment program subject to the rule in order to maintain Title IV eligibility. Any gainful employment program that fails either or both metrics in a single year would be required to provide a disclosure to current and prospective students, and any such program that fails the same metric in two out of three consecutive years for which the program’s metrics are calculated would lose its access to federal financial aid. The two metrics are 1) a debt-to-earnings ratio that compares the median earnings of graduates who received federal financial aid to the median annual payments on loan debt borrowed for the program, which must be less than or equal to 8% of annual earnings or 20% of discretionary earnings, and 2) an earnings premium test that measures whether the typical graduates from a program that received federal financial aid earn more than a typical high school graduate in their state (or, in some cases, nationally) and within a certain age range in the labor force. A program that fails in two out of three consecutive years, or is voluntarily discontinued by the institution, would not be eligible to have Title IV reinstated for the program or launch and receive Title IV for a “substantially similar program” (generally defined as a program with the same four-digit CIP code) for a minimum of three years. The final rule describes that the Department will now measure earnings six years after graduation (instead of the proposed rule’s three years after graduation) for certain qualifying graduate programs such as clinical psychology, marriage and family therapy, clinical social work, and clinical counseling. The final rule also includes the requirement that, beginning July 1, 2026, all schools provide a link to a Department of Education-hosted website that includes information on cost, earnings, and licensure information, and the gainful employment metrics. The final gainful employment regulations will take effect July 1, 2024. The Department has indicated that it will release metrics beginning in the 2025 financial aid award year. Beginning July 1, 2026, if a program fails a metric, an institution must provide warnings to students and prospective students meeting certain minimum requirements to be specified by the Department; programs that fail the same metric in the first two years the rates are issued will lose eligibility in 2026.
On October 23, 2023, the Department released final rules on financial responsibility, administrative capability, certification procedures, and ability to benefit. The Department’s final rules regarding financial responsibility establish new mandatory triggers—including but not limited to failing 90/10, receiving at least 50% of funds from programs that are failing gainful employment, or being subject to a Department action to recover losses from approved Borrower Defense to Repayment claims that would cause a recalculated composite score to fall below 1.0—that allow the Department to seek financial protection or recalculate the institution’s financial composite score to determine whether an institution’s financial condition has materially weakened. The
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rules also establish new discretionary triggers that will result in the Department conducting case-by-case analysis to see if additional protection is needed. In general, institutions will be required to report triggering events within 21 days of occurrence. According to the regulation, such triggering events may result in a financial protection requirement that would most likely take the form of a letter of credit or cash escrow and provisional certification to participate in Title IV.
Under the final administrative capability rule, institutions will be required to offer adequate services to students, including financial aid counseling and career services support. The final language also includes a new requirement that institutions provide students with geographically accessible clinical or externship opportunities as required for licensure.
In final rules regarding certification procedures, the Department indicates, among other things, that it will consider withdrawal rates, gainful employment rates, licensure passage rates, and instructional and advertising spend when making institutional eligibility determinations. The regulation also provides the Secretary authority to require institutions to submit all marketing materials in cases where the institution is provisionally certified and is found to have engaged in substantial misrepresentation, aggressive recruitment, or a failure to comply with incentive compensation rules. The final regulation also makes changes regarding licensure-track programs, including preventing an institution from offering Title IV aid to a student enrolled in a program that does not meet educational prerequisites for licensure in the state in which the student is located. The Department’s final regulation also requires institutions to comply with all State laws related to closure, including record retention, teach-out plans or agreements and tuition recovery funds or surety bonds for each state in which the institution is located and in each state in which students enrolled by the institution in distance education courses are located.
Borrower Defenses to Repayment
On March 16, 2022, Federal Student Aid (“FSA”) announced that it is monitoring complaints and borrower defense to repayment (“BDTR”) applications from veterans, service members and their family members who report claims of deceptive recruitment and enrollment practices, including misrepresentations related to cost, financing, and application of military and veteran benefits. The Department indicated that it will seek all appropriate corrective measures pursuant to the BDTR regulations if it finds that an institution has engaged in substantial misrepresentation or fraudulent conduct, and that it will share information and complaints with the Department of Defense and Department of Veterans Affairs.
On March 14, 2023, the Department of Education announced that the Office of Enforcement of FSA will use “secret shoppers” to monitor post-secondary institutions’ compliance with the laws and regulations governing participation in federal student aid programs. The Department indicated that secret shoppers will evaluate recruitment, enrollment, financial aid, and other practices of post-secondary institutions to help identify potentially deceptive or predatory practices used to recruit and enroll students. The Department noted that findings from secret shopping may serve as evidence in ongoing investigations and reviews or serve as the basis for opening new investigations and reviews. The Department further noted that, where appropriate and permissible, FSA may refer secret shopping findings to other offices within the Department, as well as other state and federal enforcement agencies.
The Department of Education’s final BDTR rules that took effect on July 1, 2023 are currently being challenged in litigation, to which we are not a party. The litigation alleges that the new rules are unconstitutional, arbitrary and capricious, and that the Department has exceeded its authority in adopting them. On August 7, 2023, the U.S. Court of Appeals for the Fifth Circuit granted a nationwide emergency injunction preventing the Department of Education’s enforcement of the final BDTR and closed school discharge rules. The matter will be heard by the Fifth Circuit panel during the sitting commencing November 6, 2023, and the previous versions of the BDTR and closed school discharge rules remain in effect until at least then. The Company is unable to predict the ultimate outcome of the litigation.
Accrediting Agencies and State Authorization
Capella University’s accreditor, Higher Learning Commission (“HLC”), and Strayer University’s accreditor, Middle States Commission on Higher Education (“Middle States”), must periodically be reviewed by the U.S. Secretary of Education in order to maintain recognition as an institutional accrediting agency. On May 31, 2023, the Department of Education, acting on the recommendation of the National Advisory Committee for Institutional Quality and Integrity, renewed its recognition of HLC for a period of five years and required it provide a monitoring report regarding one item of substantial compliance, and continued the current recognition of Middle States for one year, requiring a compliance report regarding one item of noncompliance.
State Authorization Reciprocity Agreement (SARA)
Strayer University and Capella University participate in the State Authorization Reciprocity Agreement (“SARA”), which allows the Universities to enroll students in distance education programs in each SARA member state, including 49 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Each of the Universities applies separately to non-SARA member states (i.e., California) for authorization to enroll students, if such authorization is required by the state. On March 1, 2023, SARA’s
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coordinating entity, the National Council for State Authorization Reciprocity Agreements (“NC-SARA”), held its first of two public comment forums to seek input on potential changes to NC-SARA policies. The forum included a discussion of 63 proposed policy changes, some of which, if adopted, would have significantly altered the distance education reciprocity agreements, including a proposal that NC-SARA permit states to apply more stringent standards to for-profit institutions or to eliminate the ability of for-profit institutions to participate in the agreements altogether. In addition to the public comment forums, written comments were accepted through May 17, 2023. In September 2023, NC-SARA’s four regional compacts completed evaluation of the proposed policy changes and unanimously approved six proposed policy changes to be voted upon by the NC-SARA board of directors on October 24, 2023. The remaining proposed policy changes to be voted upon do not include the proposals to permit states to apply more stringent standards to for-profit institutions or exclude for-profit institutions from NC-SARA participation.
Title IX
On June 23, 2022, the Department of Education released proposed Title IX regulations for public comment. Among other changes, the proposed rule would address all forms of sex-based harassment (not only sexual harassment); clarify that Title IX’s prohibition against sex discrimination includes discrimination on the basis of sex stereotypes, sex characteristics, pregnancy or related conditions, sexual orientation, and gender identity; and eliminate the requirement for live hearings at the post-secondary level. The public comment period on the proposed rule ended on September 12, 2022, and the Department has indicated its intention to publish a final Title IX rule in October 2023. When the Department publishes the final Title IX rule, it will indicate an effective date.
Third-Party Servicers
Department of Education regulations permit an institution to enter into a written contract with a third-party servicer for the administration of any aspect of the institution’s participation in Title IV programs. The third-party servicer must, among other obligations, comply with Title IV requirements and be jointly and severally liable with the institution to the Secretary of Education for any violation by the servicer of any Title IV provision. An institution must report to the Department of Education new contracts or any significant modifications to contracts with third-party servicers as well as other matters related to third-party servicers. On February 15, 2023 the Department released a Dear Colleague Letter (“DCL”) (GEN 23-03) with updated guidance expanding the definition of third-party servicers and covered activities to include vendors providing student recruitment and retention services, software products and services related to Title IV administration activities, and educational content and instruction, initially requiring institutions to be in compliance with the new guidance by May 1, 2023. On February 28, 2023, the Department extended the effective date of the updated guidance and reporting requirements from May 1, 2023 to September 1, 2023. On April 11, 2023, the Department again delayed the effective date until six months after the Department publishes a new, revised final guidance letter on the topic, and on May 16, 2023, the Department formally rescinded its 2023 and prior guidance (DCL GEN-16-15 and the March 8, 2017 Electronic Announcement) prohibiting contracts between colleges and foreign-owned or operated servicers. Additionally, in March 2023, the Department indicated via Federal Register publication its intention to establish a negotiated rulemaking committee in 2023 to consider new proposed regulations on third-party servicers and related issues.
Program Participation Agreement
As a result of the August 1, 2018 merger, Capella University experienced a change of ownership, with the Company as its new owner. On January 18, 2019, consistent with standard procedure upon a Title IV institution’s change of ownership, the Department and Capella University executed a new Provisional Program Participation Agreement, approving Capella’s continued participation in Title IV programs with provisional certification through December 31, 2022. As is typical, the Provisional Program Participation Agreement subjected Capella University to certain requirements during the period of provisional certification, including that Capella University must apply for and receive approval from the Department in connection with new locations or the addition of new Title IV-eligible educational programs. Capella University filed its application for recertification in advance of the September 30, 2022 deadline, and on April 18, 2023, Capella University and the Department of Education executed a fully certified Program Participation Agreement, approving Capella University’s continued participation in Title IV programs through September 30, 2025.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022.
Cautionary Notice Regarding Forward-Looking Statements
Certain of the statements included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report on Form 10-Q are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 (“Reform Act”). Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” “potential” or similar words, and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, and capital expenditures. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. In accordance with the Safe Harbor provisions of the Reform Act, the Company has identified important factors that could cause the actual results to differ materially from those expressed in or implied by such statements. The assumptions, risks and uncertainties include the pace of student enrollment, our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as other federal laws and regulations, institutional accreditation standards and state regulatory requirements, rulemaking and other action by the Department or other governmental entities, including without limitation action related to borrower defense to repayment applications, and increased focus by the U.S. Congress on for-profit education institutions, competitive factors, risks associated with the further spread of COVID-19, including the ultimate impact of COVID-19 on people and economies, risks associated with the opening of new campuses, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing educational institutions including our acquisition of Torrens University and associated assets in Australia and New Zealand, the risk that the benefits of our acquisition of Torrens University and associated assets in Australia and New Zealand may not be fully realized or may take longer to realize than expected, the risk that our acquisition of Torrens University and associated assets in Australia and New Zealand may not advance our business strategy and growth strategy, risks related to the timing of regulatory approvals, our ability to implement our growth strategy, the risk that the combined company may experience difficulty integrating employees or operations, risks associated with the ability of our students to finance their education in a timely manner, and general economic and market conditions. You should not put undue reliance on any forward-looking statements. Further information about these and other relevant risks and uncertainties may be found in Part II, “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q, Part I, “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K and in the Company’s other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward-looking statements, except as required by law.
Additional Information
We maintain a website at http://www.strategiceducation.com. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only. We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
Background
Strategic Education, Inc. (“SEI,” “we”, “us” or “our”) is an education services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets. We operate primarily through our wholly-owned subsidiaries Strayer University and Capella University, both accredited post-secondary institutions of higher education located in the United States, and Torrens University, an accredited post-secondary institution of higher education located in Australia. Our operations emphasize relationships through our Education Technology Services segment with employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs.
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Segments Overview
As of September 30, 2023, we had the following reportable segments:
U.S. Higher Education (“USHE”) Segment
•The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Strayer University and Capella University, including the Jack Welch Management Institute MBA, which is a unit of Strayer University. USHE also operates non-degree web and mobile application development courses through Hackbright Academy and Devmountain, which are units of Strayer University.
•Strayer University is accredited by the Middle States Commission on Higher Education and Capella University is accredited by the Higher Learning Commission, both higher education institutional accrediting agencies recognized by the Department of Education. The USHE segment provides academic offerings both online and in physical classrooms, helping working adult students develop specific competencies they can apply in their workplace.
•In the third quarter of 2023, USHE enrollment increased 9.9% to 82,548 compared to 75,144 for the same period in 2022.
•Trailing 4-quarter student persistence within USHE was 87.3% in the second quarter of 2023 compared to 87.3% for the same period in 2022. Student persistence is calculated as the rate of students continuing from one quarter to the next, adjusted for graduates, on a trailing 4-quarter basis. Student persistence is reported one quarter in arrears. The table below summarizes USHE trailing 4-quarter student persistence for the past 8 quarters.

Q3 2021 |  | Q4 2021 |  | Q1 2022 |  | Q2 2022 |  | Q3 2022 |  | Q4 2022 |  | Q1 2023 |  | Q2 2023
86.9 | % |  | 86.8 | % |  | 87.1 | % |  | 87.3 | % |  | 87.7 | % |  | 87.4 | % |  | 87.4 | % |  | 87.3 | %

•Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 7.4% as of the end of the second quarter of 2023. Government provided grants and loans per credit earned includes all Federal loans and grants for students (Title IV hereafter) in our USHE institutions, and is calculated on a trailing 4-quarter basis and reported one quarter in arrears. Title IV per credit earned has been declining as employer-affiliated enrollment has grown, and as more students earn credit through Sophia Learning and other affordable alternative pathways. The table below summarizes the percentage change in USHE trailing 4-quarter Title IV per credit earned for the past 8 quarters.

Q3 2021 |  | Q4 2021 |  | Q1 2022 |  | Q2 2022 |  | Q3 2022 |  | Q4 2022 |  | Q1 2023 |  | Q2 2023
(15.1) | % |  | (11.3) | % |  | (8.1) | % |  | (6.4) | % |  | (5.3) | % |  | (6.2) | % |  | (7.2) | % |  | (7.4) | %

Education Technology Services Segment
•Our Education Technology Services segment is primarily focused on developing and maintaining relationships with employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs. The employer relationships developed by the Education Technology Services division are an important source of student enrollment for Strayer University and Capella University, and the majority of the revenue attributed to the Education Technology Services division is driven by the volume of enrollment derived from these employer relationships. Enrollments attributed to the Education Technology Services segment are determined based on a student’s employment status and the existence of a corporate partnership arrangement with SEI. All enrollments attributed to the Education Technology Services division continue to be attributed to the division until the student graduates or withdraws, even if his or her employment status changes or if the partnership contract expires.
•In the third quarter of 2023, employer affiliated enrollment as a percentage of USHE enrollment was 27.8% compared to 25.3% for the same period in 2022.
•Education Technology Services also supports employer partners through Workforce Edge, a platform which provides employers a full-service education benefits administration solution, and Sophia Learning, which enables education benefits programs through the use of low-cost online general education-level courses recommended by the American Council on Education for credit at other colleges and universities.
Australia/New Zealand Segment
•Torrens University is the only investor-funded university in Australia. Torrens University offers undergraduate, graduate, higher degree by research, and specialized degree courses primarily in five fields of study: business, design and creative technology, health, hospitality, and education. Courses are offered both online and at physical campuses. Torrens
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University is registered with the Tertiary Education Quality and Standards Agency (“TEQSA”), the regulator for higher education providers and universities throughout Australia, as an Australian University that is authorized to self-accredit its courses.
•Think Education is a vocational registered training organization and accredited higher education provider in Australia. Think Education delivers education at several campuses in Sydney, Melbourne, Brisbane, and Adelaide as well as through online study. Think Education and its colleges are accredited in Australia by the TEQSA and the Australian Skills Quality Authority, the regulator for vocational education and training organizations that operate in Australia.
•Media Design School is a private tertiary institution for creative and technology qualifications in New Zealand. Media Design School offers industry-endorsed courses in 3D animation and visual effects, game art, game programming, graphic and motion design, digital media, artificial intelligence, and creative advertising. Media Design School is accredited in New Zealand by the New Zealand Qualifications Authority, the organization responsible for the quality assurance of non-university tertiary training providers.
•In the third quarter of 2023, Australia/New Zealand enrollment decreased 1.2% to 18,279 compared to 18,493 for the same period in 2022.
We believe we have the right operating strategies in place to provide the most direct path between learning and employment for our students. We are constantly innovating to differentiate ourselves in our markets and drive growth by supporting student success, producing affordable degrees, optimizing our comprehensive marketing strategy, serving a broader set of our students’ professional needs, and establishing new growth platforms. The talent of our faculty and employees, supported by market leading technology, enable these strategies. We believe our strategy will allow us to continue to deliver high quality, affordable education, resulting in continued growth over the long-term. We will continue to invest in this strategy to strengthen the foundation and future of our business.
Critical Accounting Policies and Estimates
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and judgments related to its allowance for credit losses; income tax provisions; the useful lives of property and equipment and intangible assets; redemption rates for scholarship programs and valuation of contract liabilities; fair value of right-of-use lease assets for facilities that have been vacated; incremental borrowing rates; valuation of deferred tax assets, goodwill, and intangible assets; forfeiture rates and achievability of performance targets for stock-based compensation plans; and accrued expenses. Management bases its estimates and judgments on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly reviews its estimates and judgments for reasonableness and may modify them in the future. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the following critical accounting policies are its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue recognition — Strayer University and Capella University offer educational programs primarily on a quarter system having four academic terms, which generally coincide with our quarterly financial reporting periods. Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the calendar year. Approximately 96% of our revenues during the nine months ended September 30, 2023 consisted of tuition revenue. Capella University offers monthly start options for new students, who then transition to a quarterly schedule. Capella University also offers its FlexPath program, which allows students to determine their 12-week billing session schedule after they complete their first course. Tuition revenue for all students is recognized ratably over the course of instruction as the universities provide academic services, whether delivered in person at a physical campus or online. Tuition revenue is shown net of any refunds, withdrawals, corporate discounts, scholarships, and employee tuition discounts. The universities also derive revenue from other sources such as textbook-related income, certificate revenue, certain academic fees, licensing revenue, accommodation revenue, food and beverage fees, and other income, which are all recognized when earned. In accordance with ASC 606, materials provided to students in connection with their enrollment in a course are recognized as revenue when control of those materials transfers to the student. At the start of each academic term or program, a contract liability is recorded for academic services to be provided, and a tuition receivable is recorded for the portion of the tuition not paid in advance. Any cash received prior to the start of an academic term or program is recorded as a contract liability.
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Students at Strayer University and Capella University finance their education in a variety of ways, and historically about 75% of our students have participated in one or more financial aid program provided through Title IV of the Higher Education Act. In addition, many of our working adult students finance their own education or receive full or partial tuition reimbursement from their employers. Those students who are veterans or active duty military personnel have access to various additional government-funded educational benefit programs.
In Australia, domestic students attending an ANZ institution finance their education themselves or by taking a loan through the national Higher Education Loan Program provided by the Australian government to support higher education. In New Zealand, domestic students may utilize government loans to fund tuition and may be eligible for a period of “fees free” study funded by the government. International students attending an ANZ institution are not eligible for funding from the Australian or New Zealand governments.
A typical class is offered in weekly increments over a six- to twelve-week period, depending on the university and course type, and is followed by an exam. Student attendance is based on physical presence in class for on-ground classes. For online classes, attendance consists of logging into one’s course shell and performing an academically-related activity (e.g., engaging in a discussion post or taking a quiz).
If a student withdraws from a course prior to completion, a portion of the tuition may be refundable depending on when the withdrawal occurs. We use the student’s withdrawal date or last date of attendance for this purpose. Our specific refund policies vary across the universities and non-degree programs. For students attending Strayer University, our refund policy typically permits students who complete less than half of a course to receive a partial refund of tuition for that course. For students attending Capella University, our refund policy varies based on course format. GuidedPath students are allowed a 100% refund through the first five days of the course, a 75% refund from six to twelve days, and 0% refund for the remainder of the period. FlexPath students receive a 100% refund through the 12th calendar day of the course for their first billing session only and a 0% refund after that date and for all subsequent billing sessions. For domestic students attending an ANZ institution, refunds are typically provided to students that withdraw within the first 20% of a course term. For international students attending an ANZ institution, refunds are provided to students that withdraw prior to the course commencement date. In limited circumstances, refunds to students attending an ANZ institution may be granted after these cut-offs subject to an application for special consideration by the student and approval of that application by the institution. Refunds reduce the tuition revenue that otherwise would have been recognized for that student. Since the academic terms coincide with our financial reporting periods for most programs, nearly all refunds are processed and recorded in the same quarter as the corresponding revenue. For certain programs where courses may overlap a quarter-end date, we estimate a refund or withdrawal rate and do not recognize the related revenue until the uncertainty related to the refund is resolved. The portion of tuition revenue refundable to students may vary based on the student’s state of residence.
For U.S. students who receive funding under Title IV and withdraw, funds are subject to return provisions as defined by the Department of Education. The university is responsible for returning Title IV funds to the Department and then may seek payment from the withdrawn student of prorated tuition or other amounts charged to him or her. Loss of financial aid eligibility during an academic term is rare and would normally coincide with the student’s withdrawal from the institution. In Australia and New Zealand, government funding for eligible students is provided directly to the institution on an estimated basis annually. The amount of government funding provided is based on a course-by-course forecast of enrollments that the institution submits for the upcoming calendar year. Using the enrollment forecast provided as well as the requesting institution’s historical enrollment trends, the government approves a fixed amount, which is then funded to the institution evenly on a monthly basis. Periodic reconciliation and true-ups are undertaken between the relevant government authority and the institution based on actual eligible enrollments, which may result in a net amount being due to or from the government.
Students at Strayer University registering in credit-bearing courses in any undergraduate program qualify for the Graduation Fund, whereby qualifying students earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program. Students must meet all of Strayer University’s admission requirements and not be eligible for any previously offered scholarship program. To maintain eligibility, students must be enrolled in a bachelor’s degree program. Students who have more than one consecutive term of non-attendance lose any Graduation Fund credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by Strayer University in the future. In their final academic year, qualifying students will receive one free course for every three courses that the student successfully completed in prior years. Strayer University’s performance obligation associated with free courses that may be redeemed in the future is valued based on a systematic and rational allocation of the cost of honoring the benefit earned to each of the underlying revenue transactions that result in progress by the student toward earning the benefit. The estimated value of awards under the Graduation Fund that will be recognized in the future is based on historical experience of students’ persistence in completing their course of study and earning a degree and the tuition rate in effect at the time it was associated with the transaction. Estimated redemption rates of eligible students vary based on their term of enrollment. As of September 30, 2023, we had deferred $44.5 million for
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estimated redemptions earned under the Graduation Fund, as compared to $46.8 million at December 31, 2022. Each quarter, we assess our assumptions underlying our estimates for persistence and estimated redemptions based on actual experience. To date, any adjustments to our estimates have not been material. However, if actual persistence or redemption rates change, adjustments to the reserve may be necessary and could be material.
Tuition receivable — We record estimates for our allowance for credit losses related to tuition receivable from students primarily based on our historical collection rates by age of receivable and adjusted for reasonable expectations of future collection performance, net of recoveries. Our experience is that payment of outstanding balances is influenced by whether the student returns to the institution, as we require students to make payment arrangements for their outstanding balances prior to enrollment. Therefore, we monitor outstanding tuition receivable balances through subsequent terms, increasing the reserve on such balances over time as the likelihood of returning to the institution diminishes and our historical experience indicates collection is less likely. We periodically assess our methodologies for estimating credit losses in consideration of actual experience. If the financial condition of our students were to deteriorate based on current or expected future events resulting in evidence of impairment of their ability to make required payments for tuition payable to us, additional allowances or write-offs may be required. For the third quarter of 2023, our bad debt expense was 5.2% of revenue, compared to 4.5% for the same period in 2022. A change in our allowance for credit losses of 1% of gross tuition receivable as of September 30, 2023 would have changed our income from operations by approximately $1.5 million.
Goodwill and intangible assets — Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. Indefinite-lived intangible assets, which include trade names, are recorded at fair market value on their acquisition date. At the time of acquisition, goodwill and indefinite-lived intangible assets are allocated to reporting units. Management identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management regularly reviews the operating results of those components. Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment. No events or circumstances occurred in the three and nine months ended September 30, 2023 to indicate an impairment to goodwill or indefinite-lived intangible assets. Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three and nine month periods ended September 30, 2023.
Finite-lived intangible assets that are acquired in business combinations are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the asset. Finite-lived intangible assets consist of student relationships. We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the assets exceeds the fair value of the assets. No impairment charges related to finite-lived intangible assets were recorded during the three and nine month periods ended September 30, 2023.
Other estimates — We record estimates for certain of our accrued expenses and for income tax liabilities. We estimate the useful lives of our property and equipment and intangible assets and periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary. Should actual results differ from our estimates, revisions to our accrued expenses, carrying amount of goodwill and intangible assets, stock-based compensation expense, and income tax liabilities may be required.
Results of Operations
In the third quarter of 2023, we generated $285.9 million in revenue compared to $263.1 million for the same period in 2022. Our income from operations was $25.6 million in the third quarter of 2023 compared to $7.8 million for the same period in 2022, principally due to higher revenue driven by enrollment growth in the USHE segment and growth in Sophia Learning subscriptions in the Education Technology Services segment, partially offset by higher restructuring costs. Net income in the third quarter of 2023 was $18.5 million compared to $6.1 million for the same period in 2022, and diluted earnings per share was $0.77 in the third quarter of 2023 compared to $0.25 for the same period in 2022. For the nine months ended September 30, 2023, we generated $830.2 million in revenue compared to $795.5 million for the same period in 2022. Our income from operations was $41.1 million for the nine months ended September 30, 2023 compared to $43.1 million for the same period in 2022, principally due to higher restructuring costs and unfavorable foreign currency exchange impacts, partially offset by higher earnings in the Education Technology Services and USHE segments as a result of revenue growth. Net income was $30.7 million for the nine months ended September 30, 2023 compared to $28.3 million for the same period in 2022, and diluted earnings per share was $1.28 in the nine months ended September 30, 2023 compared to $1.18 for the same period in 2022.
Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
Revenues. Consolidated revenue increased to $285.9 million in the third quarter of 2023 compared to $263.1 million in the third quarter of 2022, primarily due to an increase in USHE enrollment and growth in Sophia Learning subscriptions, partially offset by
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unfavorable foreign currency exchange impacts. In the USHE segment for the three months ended September 30, 2023, total enrollment increased 9.9% to 82,548 from 75,144 for the same period in 2022. USHE segment revenue increased 8.8% to $201.8 million in the third quarter of 2023 compared to $185.5 million in the third quarter of 2022, primarily due to an increase in enrollment. In the Australia/New Zealand segment for the three months ended September 30, 2023, total enrollment decreased 1.2% to 18,279 from 18,493 for the same period in 2022. Australia/New Zealand segment revenue increased 3.4% to $63.3 million in the third quarter of 2023 compared to $61.2 million in the third quarter of 2022, primarily due to higher revenue per student as a result of students taking higher course loads, partially offset by unfavorable foreign currency exchange impacts. Education Technology Services segment revenue increased 26.7% to $20.8 million in the third quarter of 2023 compared to $16.4 million in the third quarter of 2022, primarily as a result of growth in Sophia Learning subscriptions and higher employer affiliated enrollment.
Instructional and support costs. Consolidated instructional and support costs increased to $155.7 million in the third quarter of 2023 compared to $153.2 million in the third quarter of 2022, principally due to increases in bad debt expense, personnel-related costs, student material costs, and technology-related expenses, partially offset by lower stock-based compensation expense and facility costs, and favorable foreign currency exchange impacts. Consolidated instructional and support costs as a percentage of revenues decreased to 54.5% in the third quarter of 2023 from 58.2% in the third quarter of 2022.
General and administration expenses. Consolidated general and administration expenses decreased to $97.6 million in the third quarter of 2023 compared to $97.8 million in the third quarter of 2022, principally due to lower personnel-related costs and stock-based compensation expense, and favorable foreign currency exchange impacts, partially offset by increased investments in branding initiatives and partnerships with brand ambassadors. Consolidated general and administration expenses as a percentage of revenues decreased to 34.1% in the third quarter of 2023 from 37.2% in the third quarter of 2022.
Amortization of intangible assets. Amortization of intangible assets decreased to $3.4 million in the third quarter of 2023 compared to $3.5 million in the third quarter of 2022, due to favorable foreign currency exchange impacts.
Merger and integration costs. Merger and integration costs were $0.3 million in the third quarter of 2023 and 2022, primarily due to integration expenses associated with the Company’s acquisition of ANZ.
Restructuring costs. Restructuring costs increased to $3.3 million in the third quarter of 2023 compared to $0.6 million in the third quarter of 2022, primarily due to higher severance and other personnel-related expenses from employee terminations in the third quarter of 2023.
Income from operations. Consolidated income from operations increased to $25.6 million in the third quarter of 2023 compared to $7.8 million in the third quarter of 2022, principally due to higher revenue driven by enrollment growth in the USHE segment and growth in Sophia Learning subscriptions in the Education Technology Services segment, partially offset by higher restructuring costs. In the USHE segment, income from operations was $10.4 million in the third quarter of 2023 compared to $1.9 million of loss from operations in the third quarter of 2022, primarily driven by higher revenue due to an increase in enrollment, partially offset by higher bad debt expense. In the Australia/New Zealand segment, income from operations increased 55.3% to $13.9 million in the third quarter of 2023 compared to $8.9 million in the third quarter of 2022, primarily driven by higher revenue and personnel cost savings due to headcount reductions. In the Education Technology Services segment, income from operations increased 59.2% to $8.3 million in the third quarter of 2023 compared to $5.2 million in the third quarter of 2022, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment.
Other income (expense). Other income (expense) increased to $0.8 million of income in the third quarter of 2023 compared to $0.3 million of expense in the third quarter of 2022, as a result of an increase in interest income, partially offset by an increase in interest expense due to higher interest rates. We incurred $2.0 million of interest expense in the three months ended September 30, 2023 compared to $1.6 million in the three months ended September 30, 2022.
Provision for income taxes. Income tax expense was $8.0 million in the third quarter of 2023, compared to $1.5 million in the third quarter of 2022. Our effective tax rate for the quarter was 30.3%, compared to 19.3% for the same period in 2022.
Net income. Net income increased to $18.5 million in the third quarter of 2023 compared to $6.1 million in the third quarter of 2022 due to the factors discussed above.
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Revenues. Consolidated revenue increased to $830.2 million in the nine months ended September 30, 2023 compared to $795.5 million in the same period in 2022, primarily due to an increase in USHE enrollment and growth in Sophia Learning subscriptions, partially offset by a decrease in Australia/New Zealand segment revenue due to the timing of academic term start dates and unfavorable foreign currency exchange impacts. USHE segment revenue increased 5.3% to $601.4 million in the nine
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months ended September 30, 2023 compared to $571.3 million in the same period in 2022, primarily due to an increase in enrollment. Australia/New Zealand segment revenue decreased 3.9% to $170.2 million in the nine months ended September 30, 2023 compared to $177.2 million in the same period in 2022, primarily due to the timing of the academic term start dates and unfavorable foreign currency exchange impacts, partially offset by higher revenue per student as a result of students taking higher course loads. Education Technology Services segment revenue increased 24.6% to $58.6 million in the nine months ended September 30, 2023 compared to $47.0 million in the same period in 2022, primarily as a result of growth in Sophia Learning subscriptions and higher employer affiliated enrollment.
Instructional and support costs. Consolidated instructional and support costs increased to $470.2 million in the nine months ended September 30, 2023 compared to $445.2 million in the same period in 2022, principally due to increases in personnel-related costs, bad debt expense, student material costs, and technology-related costs, partially offset by lower facility costs and stock-based compensation expense, and favorable foreign currency exchange impacts. Consolidated instructional and support costs as a percentage of revenues increased to 56.6% in the nine months ended September 30, 2023 from 56.0% in the nine months ended September 30, 2022.
General and administration expenses. Consolidated general and administration expenses increased to $292.1 million in the nine months ended September 30, 2023 compared to $289.3 million in the same period in 2022, principally due to increased investments in branding initiatives and partnerships with brand ambassadors, partially offset by favorable foreign currency exchange impacts. Consolidated general and administration expenses as a percentage of revenues decreased to 35.2% in the nine months ended September 30, 2023 from 36.4% in the nine months ended September 30, 2022.
Amortization of intangible assets. Amortization of intangible assets decreased to $10.4 million in the nine months ended September 30, 2023 compared to $11.0 million in the same period in 2022, due to favorable foreign currency exchange impacts.
Merger and integration costs. Merger and integration costs increased to $1.3 million in the nine months ended September 30, 2023 compared to $0.9 million in the same period in 2022, and are primarily related to integration expenses associated with the Company’s acquisition of ANZ.
Restructuring costs. Restructuring costs increased to $15.2 million in the nine months ended September 30, 2023 compared to $6.1 million in the same period in 2022, primarily due to higher severance and other personnel-related expenses from employee terminations and higher right-of-use lease asset and fixed asset impairment charges associated with vacating leased space in the nine months ended September 30, 2023, partially offset by a $2.1 million gain from the sale of property and equipment of an owned campus in 2023.
Income from operations. Consolidated income from operations decreased to $41.1 million in the nine months ended September 30, 2023 compared to $43.1 million in the same period in 2022, principally due to higher restructuring costs and unfavorable foreign currency exchange impacts, partially offset by higher earnings in the Education Technology Services and USHE segments as a result of revenue growth. USHE segment income from operations increased 5.3% to $26.7 million in the nine months ended September 30, 2023 compared to $25.4 million in the same period in 2022, primarily due to higher revenue from an increase in enrollments. Australia/New Zealand segment income from operations increased 2.3% to $21.0 million in the nine months ended September 30, 2023 compared to $20.5 million in the same period in 2022, primarily driven by personnel cost savings due to headcount reductions, partially offset by lower revenue due to the timing of academic term start dates and unfavorable foreign currency impacts. Education Technology Services segment income from operations increased 33.1% to $20.3 million in the nine months ended September 30, 2023 compared to $15.2 million in the same period in 2022, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment, partially offset by increased investment in outreach to corporate partners.
Other income (expense). Other income (expense) increased to $4.4 million of income in the nine months ended September 30, 2023 compared to $1.1 million of expense in the same period in 2022, as a result of an increase in investment income from our limited partnership investments and an increase in interest income, partially offset by an increase in interest expense due to higher interest rates. We incurred $5.8 million of interest expense in the nine months ended September 30, 2023 compared to $3.6 million in the nine months ended September 30, 2022.
Provision for income taxes. Income tax expense was $14.8 million in the nine months ended September 30, 2023 compared to $13.6 million in the same period in 2022. Income tax expense for the nine months ended September 30, 2023 and 2022 include shortfall tax impacts of approximately $1.4 million related to share-based payment arrangements. Our effective tax rate for the nine months ended September 30, 2023 was 32.6%, compared to 32.5% for the same period in 2022.
Net income. Net income increased to $30.7 million in the nine months ended September 30, 2023 compared $28.3 million in the same period in 2022 due to the factors discussed above.
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Non-GAAP Financial Measures
We use certain financial measures including Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share that are not required by or prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These measures, which are considered “non-GAAP financial measures” under SEC rules, are defined by us to exclude the following:
•amortization and depreciation expense related to intangible assets and software assets acquired through our acquisition of Torrens University and associated assets in Australia and New Zealand;
•integration expenses associated with our merger with Capella Education Company and our acquisition of Torrens University and associated assets in Australia and New Zealand;
•severance costs, lease and fixed asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with our restructuring activities;
•income/loss from partnership and other investments that are not part of our core operations; and
•discrete tax adjustments related to stock-based compensation and other adjustments.
To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three and nine months ended September 30, 2023 are also presented on a constant currency basis.
When considered together with GAAP financial results, we believe these measures provide management and investors with an additional understanding of our business and operating results, including underlying trends associated with our ongoing operations.
Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable with other similarly titled measures of other companies. Non-GAAP financial measures may be considered in addition to, but not as a substitute for or superior to, GAAP results. A reconciliation of these measures to the most directly comparable GAAP measures is provided below.
Adjusted income from operations was $32.6 million in the third quarter of 2023 compared to $12.2 million in 2022. Adjusted net income was $23.3 million in the third quarter of 2023 compared to $8.0 million in 2022, and adjusted diluted earnings per share was $0.97 in the third quarter of 2023 compared to $0.33 in 2022. Adjusted income from operations was $68.0 million for the nine months ended September 30, 2023 compared to $61.1 million for the same period in 2022. Adjusted net income was $48.7 million for the nine months ended September 30, 2023 compared to $41.5 million for the same period in 2022, and adjusted diluted earnings per share was $2.03 for the nine months ended September 30, 2023 compared to $1.73 for the same period in 2022.
The tables below reconcile our reported results of operations to adjusted results (amounts in thousands, except per share data):
Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2023

|  |  | Non-GAAP Adjustments |  |
| As Reported (GAAP) |  | Amortization of intangible assets(1) |  | Merger and integration costs(2) |  | Restructuring costs(3) |  | Income from other investments(4) |  | Tax adjustments(5) |  | As Adjusted (Non-GAAP)
Revenues | $ | 285,936 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 285,936 |
Total costs and expenses | $ | 260,307 |  |  | $ | (3,382) |  |  | $ | (330) |  |  | $ | (3,262) |  |  | $ | — |  |  | $ | — |  |  | $ | 253,333 |
Income from operations | $ | 25,629 |  |  | $ | 3,382 |  |  | $ | 330 |  |  | $ | 3,262 |  |  | $ | — |  |  | $ | — |  |  | $ | 32,603 |
Operating margin | 9.0% |  |  |  |  |  |  |  |  |  |  |  | 11.4%
Income before income taxes | $ | 26,471 |  |  | $ | 3,382 |  |  | $ | 330 |  |  | $ | 3,262 |  |  | $ | (215) |  |  | $ | — |  |  | $ | 33,230 |
Net income | $ | 18,459 |  |  | $ | 3,382 |  |  | $ | 330 |  |  | $ | 3,262 |  |  | $ | (215) |  |  | $ | (1,957) |  |  | $ | 23,261 |
Diluted earnings per share | $ | 0.77 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 0.97 |
Weighted average diluted shares outstanding | 23,870 |  |  |  |  |  |  |  |  |  |  |  | 23,870

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Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2022

|  |  | Non-GAAP Adjustments |  |
| As Reported (GAAP) |  | Amortization of intangible assets(1) |  | Merger and integration costs(2) |  | Restructuring costs(3) |  | Income from other investments(4) |  | Tax adjustments(5) |  | As Adjusted (Non-GAAP)
Revenues | $ | 263,123 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 263,123 |
Total costs and expenses | $ | 255,316 |  |  | $ | (3,522) |  |  | $ | (269) |  |  | $ | (610) |  |  | $ | — |  |  | $ | — |  |  | $ | 250,915 |
Income from operations | $ | 7,807 |  |  | $ | 3,522 |  |  | $ | 269 |  |  | $ | 610 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,208 |
Operating margin | 3.0% |  |  |  |  |  |  |  |  |  |  |  | 4.6%
Income before income taxes | $ | 7,545 |  |  | $ | 3,522 |  |  | $ | 269 |  |  | $ | 610 |  |  | $ | (39) |  |  | $ | — |  |  | $ | 11,907 |
Net income | $ | 6,092 |  |  | $ | 3,522 |  |  | $ | 269 |  |  | $ | 610 |  |  | $ | (39) |  |  | $ | (2,478) |  |  | $ | 7,976 |
Diluted earnings per share | $ | 0.25 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 0.33 |
Weighted average diluted shares outstanding | 23,902 |  |  |  |  |  |  |  |  |  |  |  | 23,902

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2023

|  |  | Non-GAAP Adjustments |  |
| As Reported (GAAP) |  | Amortization of intangible assets(1) |  | Merger and integration costs(2) |  | Restructuring costs(3) |  | Income from other investments(4) |  | Tax adjustments(5) |  | As Adjusted (Non-GAAP)
Revenues | $ | 830,222 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 830,222 |
Total costs and expenses | $ | 789,125 |  |  | $ | (10,364) |  |  | $ | (1,335) |  |  | $ | (15,208) |  |  | $ | — |  |  | $ | — |  |  | $ | 762,218 |
Income from operations | $ | 41,097 |  |  | $ | 10,364 |  |  | $ | 1,335 |  |  | $ | 15,208 |  |  | $ | — |  |  | $ | — |  |  | $ | 68,004 |
Operating margin | 5.0% |  |  |  |  |  |  |  |  |  |  |  | 8.2%
Income before income taxes | $ | 45,508 |  |  | $ | 10,364 |  |  | $ | 1,335 |  |  | $ | 15,208 |  |  | $ | (2,826) |  |  | $ | — |  |  | $ | 69,589 |
Net income | $ | 30,662 |  |  | $ | 10,364 |  |  | $ | 1,335 |  |  | $ | 15,208 |  |  | $ | (2,826) |  |  | $ | (6,031) |  |  | $ | 48,712 |
Diluted earnings per share | $ | 1.28 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 2.03 |
Weighted average diluted shares outstanding | 23,952 |  |  |  |  |  |  |  |  |  |  |  | 23,952

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2022

|  |  | Non-GAAP Adjustments |  |
| As Reported (GAAP) |  | Amortization of intangible assets(1) |  | Merger and integration costs(2) |  | Restructuring costs(3) |  | Income from other investments(4) |  | Tax adjustments(5) |  | As Adjusted (Non-GAAP)
Revenues | $ | 795,542 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 795,542 |
Total costs and expenses | $ | 752,429 |  |  | $ | (10,954) |  |  | $ | (933) |  |  | $ | (6,129) |  |  | $ | — |  |  | $ | — |  |  | $ | 734,413 |
Income from operations | $ | 43,113 |  |  | $ | 10,954 |  |  | $ | 933 |  |  | $ | 6,129 |  |  | $ | — |  |  | $ | — |  |  | $ | 61,129 |
Operating margin | 5.4% |  |  |  |  |  |  |  |  |  |  |  | 7.7%
Income before income taxes | $ | 41,980 |  |  | $ | 10,954 |  |  | $ | 933 |  |  | $ | 6,129 |  |  | $ | (178) |  |  | $ | — |  |  | $ | 59,818 |
Net income | $ | 28,341 |  |  | $ | 10,954 |  |  | $ | 933 |  |  | $ | 6,129 |  |  | $ | (178) |  |  | $ | (4,666) |  |  | $ | 41,513 |
Diluted earnings per share | $ | 1.18 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1.73 |
Weighted average diluted shares outstanding | 24,026 |  |  |  |  |  |  |  |  |  |  |  | 24,026

__________________________________________________________________________________________
(1)Reflects amortization and depreciation expense of intangible assets and software assets acquired through the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand.
(2)Reflects integration expenses associated with the Company’s merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand.
(3)Reflects severance costs, lease and fixed asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with the Company’s restructuring activities.
(4)Reflects income/loss recognized from the Company’s investments in partnership interests and other investments.
(5)Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing an adjusted effective tax rate of 30.0% for the three and nine months ended September 30, 2023, and an adjusted effective tax rate of 33.0% and 30.6% for the three and nine months ended September 30, 2022, respectively.
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The table below presents our adjusted results of operations on a constant currency basis for the three and nine months ended September 30, 2023 (amounts in thousands, except per share data):

| For the three months ended September 30, 2023 |  | For the nine months ended September 30, 2023
| As Adjusted (Non-GAAP) |  | Constant currency adjustment(1) |  | As Adjusted with Constant Currency (Non-GAAP) |  | As Adjusted (Non-GAAP) |  | Constant currency adjustment(1) |  | As Adjusted with Constant Currency (Non-GAAP)
Revenues | $ | 285,936 |  |  | $ | 2,453 |  |  | $ | 288,389 |  |  | $ | 830,222 |  |  | $ | 10,015 |  |  | $ | 840,237 |
Total costs and expenses | $ | 253,333 |  |  | $ | 2,029 |  |  | $ | 255,362 |  |  | $ | 762,218 |  |  | $ | 8,370 |  |  | $ | 770,588 |
Income from operations | $ | 32,603 |  |  | $ | 424 |  |  | $ | 33,027 |  |  | $ | 68,004 |  |  | $ | 1,645 |  |  | $ | 69,649 |
Operating margin | 11.4% |  |  |  | 11.5% |  | 8.2% |  |  |  | 8.3%
Income before income taxes | $ | 33,230 |  |  | $ | 464 |  |  | $ | 33,694 |  |  | $ | 69,589 |  |  | $ | 1,737 |  |  | $ | 71,326 |
Net income | $ | 23,261 |  |  | $ | 325 |  |  | $ | 23,586 |  |  | $ | 48,712 |  |  | $ | 1,217 |  |  | $ | 49,929 |
Diluted earnings per share | $ | 0.97 |  |  |  |  | $ | 0.99 |  |  | $ | 2.03 |  |  |  |  | $ | 2.08 |
Weighted average diluted shares outstanding | 23,870 |  |  |  | 23,870 |  | 23,952 |  |  |  | 23,952

__________________________________________________________________________________________
(1)Reflects an adjustment to translate foreign currency results for the three and nine months ended September 30, 2023 at a constant exchange rate of 0.68 and 0.71 Australian Dollars to U.S. Dollars, respectively, which were the average exchange rates for the same periods in 2022.
Liquidity and Capital Resources
At September 30, 2023, we had cash, cash equivalents, and marketable securities of $198.6 million compared to $235.9 million at December 31, 2022 and $288.8 million at September 30, 2022. We maintain our cash and cash equivalents primarily in money market funds and demand deposit bank accounts at high credit quality financial institutions, which are included in cash and cash equivalents at September 30, 2023 and 2022. In addition, we invest excess cash in U.S. treasury bills with maturities of three months or less, which are included in cash and cash equivalents. We also hold marketable securities, which primarily include tax-exempt municipal securities, corporate debt securities, and term deposits. During the nine months ended September 30, 2023 and 2022, we earned interest income of $7.6 million and $1.9 million, respectively.
We are party to a credit facility (the “Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $350 million. The Amended Credit Facility provides us with an option, subject to obtaining additional loan commitments and satisfaction of certain conditions, to increase the commitments under the Revolving Credit Facility or establish one or more incremental term loans (each, an “Incremental Facility”) in an amount up to the sum of (x) the greater of (A) $300 million and (B) 100% of the Company’s consolidated EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation) calculated on a trailing four-quarter basis and on a pro forma basis, and (y) if such Incremental Facility is incurred in connection with a permitted acquisition or other permitted investment, any amounts so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00. In addition, the Amended Credit Facility provides for a subfacility for borrowings in certain foreign currencies in an amount equal to the U.S. dollar equivalent of $150 million. Borrowings under the Revolving Credit Facility bear interest at a per annum rate equal to Term SOFR or a base rate, plus a margin ranging from 1.50% to 2.00%, depending on our leverage ratio. An unused commitment fee ranging from 0.20% to 0.30% per annum, depending on our leverage ratio, accrues on unused amounts. We were in compliance with all applicable covenants related to the Amended Credit Facility as of September 30, 2023. In September 2023, the Company repaid $40.0 million of the outstanding balance under the Revolving Credit Facility. As of September 30, 2023 and 2022, we had $61.2 million and $141.2 million, respectively, outstanding under our Revolving Credit Facility. During the nine months ended September 30, 2023 and 2022, we paid $5.4 million and $3.0 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.
Our net cash provided by operating activities for the nine months ended September 30, 2023 decreased to $87.2 million, compared to $124.7 million for the same period in 2022. The decrease in net cash from operating activities was primarily driven by an increase in cash used for working capital and higher tax payments.
Our net cash used in investing activities for the nine months ended September 30, 2023 increased to $30.5 million, compared to $30.3 million for the same period in 2022. The increase in net cash used in investing activities was primarily driven by $16.9 million in purchases of marketable securities, partially offset by $5.9 million of cash proceeds related to the sale of property and equipment, higher cash proceeds from marketable securities and other investments, and lower capital expenditures for the nine
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months ended September 30, 2023. Capital expenditures decreased to $27.3 million for the nine months ended September 30, 2023, compared to $32.5 million for the same period in 2022, primarily due to the timing of capital projects.
Our net cash used in financing activities for the nine months ended September 30, 2023 increased to $99.1 million, compared to $84.5 million for the same period in 2022. The increase in net cash used in financing activities was primarily driven by a $40.0 million long-term debt payment and an increase in net payments for employee stock awards, partially offset by a $26.9 million decrease in repurchases of common stock.
The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock for each of the first three quarters of 2023. During the nine months ended September 30, 2023, we paid a total of $44.1 million in cash dividends on our common stock, compared to $44.6 million for the same period in 2022. During the nine months ended September 30, 2023, we paid $10.0 million to repurchase shares of common stock in the open market under our repurchase program, compared to $36.9 million for the same period in 2022. As of September 30, 2023, we had $236.8 million of share repurchase authorization remaining to use through December 31, 2023.
For the third quarter of 2023 and 2022, bad debt expense as a percentage of revenue was 5.2% and 4.5%, respectively.
Our recurring cash requirements consist primarily of general operating expenses, capital expenditures, discretionary dividend payments, and contractual obligations related to our lease agreements, limited partnership investments, and Revolving Credit Facility. We believe that the combination of our existing cash, cash equivalents, and marketable securities, cash generated from operating activities, and if necessary, cash available under our Amended Credit Facility will be sufficient to meet our cash requirements for the next 12 months and beyond.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are subject to the impact of interest rate changes and may be subject to changes in the market values of our future investments. We invest our excess cash in money market mutual funds, bank overnight deposits, U.S. treasury bills, and marketable securities. We have not used derivative financial instruments in our investment portfolio. Earnings from investments in money market mutual funds, bank overnight deposits, U.S. treasury bills, and marketable securities may be adversely affected in the future should interest rates decline, although such a decline may reduce the interest rate payable on any borrowings under our Revolving Credit Facility. Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. As of September 30, 2023, a 1% increase or decrease in interest rates would not have a material impact on our future earnings, fair values, or cash flows related to investments in cash equivalents or interest earning marketable securities.
At September 30, 2023, we had $61.2 million outstanding under our Amended Credit Facility. Borrowings under the Amended Credit Facility bear interest at Term SOFR or a base rate, plus a margin ranging from 1.50% to 2.00%, depending on our leverage ratio. An unused commitment fee ranging from 0.20% to 0.30%, depending on our leverage ratio, accrues on unused amounts under the Amended Credit Facility. An increase in Term SOFR would affect interest expense on any outstanding balance of the Revolving Credit Facility. For every 100 basis points increase in Term SOFR, we would incur an incremental $3.5 million in interest expense per year assuming the entire $350 million Revolving Credit Facility was utilized.
Foreign Currency Risk
The United States Dollar (“USD”) is our reporting currency. The functional currency of each of our foreign subsidiaries is the currency of the economic environment in which the subsidiary primarily does business. Revenues denominated in currencies other than the USD accounted for 20.5% of our consolidated revenues for the nine months ended September 30, 2023. We therefore have foreign currency risk related to these currencies, which is primarily the Australian dollar. Accordingly, changes in exchange rates, and in particular a weakening of foreign currencies relative to the USD may negatively affect our revenue and operating income as expressed in the USD. For the nine months ended September 30, 2023, a hypothetical 10% adverse change in the average foreign currency exchange rates would have decreased our consolidated revenues by approximately $17.0 million. In addition, the effect of exchange rate changes on cash, cash equivalents, and restricted cash for the nine months ended September 30, 2023 was a decrease of $3.7 million. We do not use foreign exchange contracts or derivatives to hedge any foreign currency exposures.
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ITEM 4: CONTROLS AND PROCEDURES
a)Disclosure Controls and Procedures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that the Company had in place, as of September 30, 2023, effective disclosure controls and procedures designed to ensure that information required to be disclosed by the Company (including consolidated subsidiaries) in the reports it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
b)Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in litigation and other legal proceedings arising out of the ordinary course of our business. From time to time, certain matters may arise that are other than ordinary and routine. The outcome of such matters is uncertain, and we may incur costs in the future to defend, settle, or otherwise resolve them. We currently believe that the ultimate outcome of such matters will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect future results of operations in a particular period. See Note 16, Litigation, in the condensed consolidated financial statements appearing in Part I, Item 1 of this report for additional information regarding our legal proceedings and related matters, which information is incorporated herein by reference.
Item 1A. Risk Factors
You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, adversely affect the market price of our common stock and could cause you to suffer a partial or complete loss of your investment. There have been no material changes to the risk factors previously described in Part I, “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022, other than the revised risk factors included below. The risks described below and in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business. See “Cautionary Notice Regarding Forward-Looking Statements.”
Strayer University or Capella University could lose its eligibility to participate in federal student financial aid programs or be provisionally certified with respect to such participation if the percentage of its revenues derived from those programs were too high, or could be restricted from enrolling students in certain states if the percentage of the University’s revenues from federal or state programs were too high.
A proprietary institution may lose its eligibility to participate in the federal Title IV student financial aid program if it derives more than 90% of its revenues, on a cash basis, from Title IV programs for two consecutive fiscal years. A proprietary institution of higher education that violates the 90/10 Rule for any fiscal year will be placed on provisional status for up to two fiscal years. For fiscal year 2022, using the formula specified in the Higher Education Act, Strayer University derived approximately 80.57% of its cash-basis revenues from these programs. For fiscal year 2022, Capella University derived approximately 65.30% of its cash-basis revenues from Title IV program funds. On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which amends the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation. The legislation required the Department to conduct a negotiated rulemaking process to modify related Department regulations, which was considered by the Institutional and Programmatic Eligibility negotiated rulemaking committee. The Department of Education released final 90/10 regulations on October 27, 2022. The final regulations provided for an expanded definition of “federal education assistance” that will be periodically defined by the Secretary. On December 21, 2022, the Department released a list of federal agencies and federal education assistance programs that must be included as federal revenue in the 90/10 calculation. Such agencies include the U.S. Department of Defense (military tuition assistance) and the Department of Veterans Affairs (veterans education benefits) in addition to the Title IV programs already covered by the 90/10 Rule. These revisions to the 90/10 Rule will apply to institutional fiscal years beginning on or after January 1, 2023. Further legislation has been introduced in both chambers of Congress that seek to modify the 90/10 Rule further, including proposals to change the ratio requirement to 85/15 (federal to nonfederal revenue). We cannot predict whether Congress will pass any of these legislative proposals. If one of the Universities were to violate the 90/10 Rule, the loss of eligibility to participate in the federal student financial aid programs would have a material adverse effect on our business. Certain states have also proposed legislation that would prohibit enrollment of their residents based on a state and federal funding threshold that is more restrictive than the federal 90/10 Rule. If such legislation were to be enacted, and the Universities were unable to meet the threshold, loss of eligibility to enroll students in certain states would have a material adverse effect on our business.
If either Strayer University or Capella University fails to maintain any of its state authorizations, the University would lose its ability to operate in that state and to participate in Title IV programs there.
Each Strayer University campus is authorized to operate and to grant degrees, diplomas, or certificates by the applicable education agency or agencies of the state where the campus is located. Such state authorization is required for students at the campus to participate in Title IV programs. The loss of state authorization would, among other things, limit Strayer University’s ability to operate in that state, render Strayer University ineligible to participate in Title IV programs at least at those state campus locations, and could have a material adverse effect on our business.
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Capella University is registered as a private institution with the Minnesota Office of Higher Education, as required for most post-secondary private institutions that grant degrees at the associate level or above in Minnesota and as required by the Higher Education Act to participate in Title IV programs. The loss of state authorization would, among other things, limit Capella University’s ability to operate in that state, render Capella University ineligible to participate in Title IV programs, and could have a material adverse effect on our business.
Effective July 1, 2011, Department of Education regulations provide that an institution is considered legally authorized by a state if the state has a process to review and appropriately act on complaints concerning the institution, including enforcing applicable state laws, and the institution complies with any applicable state approval or licensure requirements consistent with the new rules. If a state in which Strayer University or Capella University is located fails to comply in the future with the provisions of the new rule or fails to provide the University with legal authorization, it could limit the University’s ability to operate in that state and to participate in Title IV programs at least for students in that state and could have a material adverse effect on our operations.
On December 19, 2016, the Department of Education published final regulations addressing, among other issues, state authorization of programs offered through distance education. The final regulations, which became effective on May 26, 2019, require an institution offering distance education programs to be authorized by each state in which the institution enrolls students (other than the state(s) in which the institution is physically located), if such authorization is required by the state, in order to award Title IV aid to such students. An institution could obtain such authorization directly from the state or (except in California) through a state authorization reciprocity agreement. Under those rules, if one of the Universities should fail to obtain or maintain required state authorization to provide post-secondary distance education in a specific state in which the institution is not physically located, the institution could lose its ability to provide distance education in that state and to award Title IV aid to online students in that state. The 2016 rules require that schools disclose all applicable prerequisites for licensure for professional programs and whether the school’s programs satisfy those prerequisites in each state where enrolled students reside. The institution must make direct disclosures to students and prospective students if the institution determines that a program does not meet a state’s professional licensure requirements. If an institution has not made these determinations, it must make a general disclosure to the public to that effect. An institution must also notify students within 14 days if it determines that a program does not meet a state’s requirements. If one of the Universities failed to make any of these disclosures, the Department of Education could limit, suspend, or terminate its participation in Title IV programs or impose other penalties such as requiring the Universities to make refunds, pay liabilities, or pay an administrative fine upon a material finding of noncompliance.
Strayer University and Capella University participate in the State Authorization Reciprocity Agreement (“SARA”), which originated after the 2016 rulemaking and allows the Universities to enroll students in distance education programs in each SARA member state. Each of the Universities applies separately to non-SARA member states (i.e., California) for authorization to enroll students, if such authorization is required by the state. If Strayer University or Capella University failed to comply with the requirements to participate in SARA or state licensing or authorization requirements to provide distance education in a non-SARA state, the University could lose its ability to participate in SARA or may be subject to the loss of state licensure or authorization to provide distance education in that non-SARA state, respectively.
On November 1, 2019, the Department released final regulations on accreditation and state authorization of distance education, which became effective July 1, 2020. The rules maintain the requirement from the 2016 rule that institutions offering post-secondary education through distance education or correspondence courses to students located in a state in which the institution is not located meet state requirements in that state or participate in a state authorization reciprocity agreement. In addition, an institution must make disclosures readily available to enrolled and prospective students regarding whether programs leading to professional licensure or certification meet state educational requirements, and provide a direct disclosure to students in writing if the program leading to professional licensure or certification does not meet state educational requirements in the state in which the student is located, or if no determination for such state has been made by the institution.
On March 1, 2023, SARA’s coordinating entity, the National Council for State Authorization Reciprocity Agreements (“NC-SARA”), held its first of two public comment forums to seek input on potential changes to NC-SARA policies. The forum included a discussion of 63 proposed policy changes, some of which, if adopted, would have significantly altered the distance education reciprocity agreements, including a proposal that NC-SARA permit states to apply more stringent standards to for-profit institutions or to eliminate the ability of for-profit institutions to participate in the agreements altogether. In addition to the public comment forums, written comments were accepted through May 17, 2023. In September 2023, NC-SARA’s four regional compacts completed evaluation of the proposed policy changes and unanimously approved six proposed policy changes to be voted upon by the NC-SARA board of directors on October 24, 2023. We cannot predict whether NC-SARA will adopt any of these proposals. While the remaining proposed policy changes to be voted upon do not include the proposals to permit states to apply more stringent standards to for-profit institutions or exclude for-profit institutions from NC-SARA participation, the process demonstrates the possibility that the adoption of certain NC-SARA proposals, including the earlier proposal to alter standards or to eliminate the ability of for-profit institutions to participate in the agreements, could have a material adverse effect on Strayer
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University, Capella University, and the Company. For example, if excluded from the ability to participate in the agreements, Strayer University and Capella University would need to seek authorization in each state, which would increase costs and present the risk that certain jurisdictions would decline authorization.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2023, the Company did not repurchase any shares of common stock under its repurchase program. The remaining authorization for common stock repurchases was $236.8 million as of September 30, 2023, and is available for use through December 31, 2023.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Director and Officer Trading Arrangements
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits

3.1 |  | Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on August 1, 2018).
3.2 |  | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2021).
10.1 |  | Amended and Restated Employment Agreement, dated as of July 26, 2023, between Strategic Education, Inc. and Karl McDonnell (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on July 27, 2023).
31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. |  | INS Inline XBRL Instance Document
101. |  | SCH Inline XBRL Schema Document
101. |  | CAL Inline XBRL Calculation Linkbase Document
101. |  | DEF Inline XBRL Definition Linkbase Document
101. |  | LAB Inline XBRL Label Linkbase Document
101. |  | PRE XBRL Presentation Linkbase Document
104. |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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.

| STRATEGIC EDUCATION, INC.
| By: | /s/ Daniel W. Jackson
| Daniel W. Jackson
| Executive Vice President and Chief Financial Officer
| Date: November 2, 2023

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