stra-20240331

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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 March 31, 2024

☐ 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 April 12, 2024, there were outstanding 24,607,939 shares of Common Stock, par value $0.01 per share, of the Registrant.

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STRATEGIC EDUCATION, INC.

INDEX

FORM 10-Q



PART I — FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Unaudited Condensed Consolidated Balance Sheets at December 31, 202 3 and March 3 1 , 20 24	3

		Unaudited Condensed Consolidated Statements of Income (Loss) for the three months ended March 3 1 , 202 3 and 20 24	4

		Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 3 1 , 202 3 and 20 24	4

		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 3 1 , 202 3 and 202 4	5

		Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 3 1 , 202 3 and 202 4	6

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

	Item 4.	Controls and Procedures	35

PART II — OTHER INFORMATION

	Item 1.	Legal Proceedings	36

	Item 1A.	Risk Factors	36

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

	Item 3.	Defaults Upon Senior Securities	38

	Item 4.	Mine Safety Disclosures	38

	Item 5.	Other Information	38

	Item 6.	Exhibits	39

SIGNATURES			40

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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, 2023		March 31, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	168,481	$	222,116
Marketable securities	39,728		31,448
Tuition receivable, net	76,102		83,082


Other current assets	44,758		53,801
Total current assets	329,069		390,447
Property and equipment, net	118,529		116,419
Right-of-use lease assets	119,202		114,653
Marketable securities, non-current	483		—
Intangible assets, net	251,623		248,855
Goodwill	1,251,888		1,229,882
Other assets	54,419		54,980
Total assets	$	2,125,213	$	2,155,236

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	90,888	$	99,245
Income taxes payable	2,200		10,659
Contract liabilities	92,341		128,503
Lease liabilities	24,190		23,316
Total current liabilities	209,619		261,723
Long-term debt	61,400		61,256
Deferred income tax liabilities	28,338		30,439
Lease liabilities, non-current	127,735		116,350
Other long-term liabilities	45,603		42,885
Total liabilities	472,695		512,653
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.01; 32,000,000 shares authorized; 24,406,816 and 24,607,939 shares issued and outstanding at December 31, 2023 and March 31, 2024, respectively	244		246
Additional paid-in capital	1,517,650		1,519,291
Accumulated other comprehensive loss	(34,247)		(60,754)
Retained earnings	168,871		183,800
Total stockholders’ equity	1,652,518		1,642,583
Total liabilities and stockholders’ equity	$	2,125,213	$	2,155,236

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 INCOME (LOSS)

(in thousands, except per share data)


	For the three months ended March 31,
	2023		2024
Revenues	$	256,606	$	290,250
Costs and expenses:
Instructional and support costs	152,938		157,709
General and administration	95,465		96,695
Amortization of intangible assets	3,532		—
Merger and integration costs	425		—
Restructuring costs	5,595		(5,510)
Total costs and expenses	257,955		248,894
Income (loss) from operations	(1,349)		41,356
Other income	398		1,794
Income (loss) before income taxes	(951)		43,150
Provision for income taxes	1,077		13,448
Net income (loss)	$	(2,028)	$	29,702
Earnings (loss) per share:
Basic	$	(0.09)	$	1.27
Diluted	$	(0.09)	$	1.23
Weighted average shares outstanding:
Basic	23,430		23,391
Diluted	23,430		24,060

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)


	For the three months ended March 31,
	2023		2024
Net income (loss)	$	(2,028)	$	29,702
Other comprehensive income (loss):
Foreign currency translation adjustment	(9,340)		(26,650)
Unrealized gains on marketable securities, net of tax	108		143
Comprehensive income (loss)	$	(11,260)	$	3,195

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 March 31, 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	—	—		5,632		—		—		5,632
Exercise of stock options	1,322	—		55		—		—		55
Issuance of restricted stock, net	187,162	2		(5,021)		—		—		(5,019)

Common stock dividends ($0.60 per share)	—	—		—		(14,769)		—		(14,769)
Foreign currency translation adjustment	—	—		—		—		(9,340)		(9,340)
Unrealized gains on marketable securities, net of tax	—	—		—		—		108		108
Net loss	—	—		—		(2,028)		—		(2,028)
Balance at March 31, 2023	24,591,375	$	246	$	1,511,590	$	142,893	$	(44,300)	$	1,610,429


	For the three months ended March 31, 2024
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Par Value
Balance at December 31, 2023	24,406,816	$	244	$	1,517,650	$	168,871	$	(34,247)	$	1,652,518
Stock-based compensation	—	—		5,329		—		—		5,329
Exercise of stock options	2,236	—		145		—		—		145
Issuance of restricted stock, net	198,887	2		(3,833)		—		—		(3,831)
Common stock dividends ($0.60 per share)	—	—		—		(14,773)		—		(14,773)
Foreign currency translation adjustment	—	—		—		—		(26,650)		(26,650)
Unrealized gains on marketable securities, net of tax	—	—		—		—		143		143
Net income	—	—		—		29,702		—		29,702
Balance at March 31, 2024	24,607,939	$	246	$	1,519,291	$	183,800	$	(60,754)	$	1,642,583

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 three months ended March 31,
	2023		2024
Cash flows from operating activities:
Net income (loss)	$	(2,028)	$	29,702
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Gain on early termination of operating leases	—		(6,166)
Amortization of deferred financing costs	138		140
Amortization of investment discount/premium	3		(27)
Depreciation and amortization	14,651		11,069
Deferred income taxes	1,872		2,406
Stock-based compensation	5,632		5,329
Impairment of right-of-use lease assets	3,649		—
Changes in assets and liabilities:
Tuition receivable, net	(8,892)		(7,183)
Other assets	(10,891)		(7,950)
Accounts payable and accrued expenses	1,831		6,218
Income taxes payable and income taxes receivable	(4,613)		8,586
Contract liabilities	34,035		36,035
Other liabilities	(145)		(529)
Net cash provided by operating activities	35,242		77,630

Cash flows from investing activities:
Purchases of property and equipment	(8,270)		(9,188)
Purchases of marketable securities	(17,103)		—
Proceeds from marketable securities	1,960		8,220

Proceeds from other investments	457		—
Other investments	(118)		(34)
Cash paid for acquisition, net of cash acquired	(211)		—
Net cash used in investing activities	(23,285)		(1,002)

Cash flows from financing activities:
Common dividends paid	(14,755)		(14,734)

Net payments for stock awards	(4,964)		(3,686)

Net cash used in financing activities	(19,719)		(18,420)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(887)		(2,305)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(8,649)		55,903
Cash, cash equivalents, and restricted cash — beginning of period	227,454		181,925
Cash, cash equivalents, and restricted cash — end of period	$	218,805	$	237,828
Non-cash transactions:
Non-cash additions to property and equipment	$	1,447	$	3,002
Right-of-use lease assets obtained in exchange for operating lease liabilities	$	5,124	$	3,616

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 Capella University and Strayer University and is focused on providing flexible and affordable certificate and degree programs to working adults; (2) Education Technology Services, which primarily develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree 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, and for the three months ended, March 31, 2023 and 2024 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, 2023 has been derived from the audited consolidated financial statements at that date. Certain amounts in the prior period 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, 2023. The results of operations for the three months ended March 31, 2024 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 stockholders’ 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 (loss).

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 $1.8 million of these unpaid obligations as of December 31, 2023 and March 31, 2024. 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, 2023 and March 31, 2024, the Company had approximately $11.1 million and $13.4 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 in the unaudited condensed consolidated balance sheets.

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 March 31, 2023 and 2024 (in thousands):


	As of March 31,
	2023		2024
Cash and cash equivalents	$	202,824	$	222,116
Restricted cash included in other current assets	15,481		15,212
Restricted cash included in other assets	500		500
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	218,805	$	237,828

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 re-evaluates 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 stockholders’ 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 stockholders’ 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, 2023 and March 31, 2024 (in thousands):


	December 31, 2023		March 31, 2024
Tuition receivable	$	123,357	$	129,999
Allowance for credit losses	(47,255)		(46,917)
Tuition receivable, net	$	76,102	$	83,082

Approximately $2.5 million of tuition receivable, net, are included in other assets as of December 31, 2023 and March 31, 2024 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 months ended March 31, 2023 and 2024 (in thousands).


	For the three months ended March 31,
	2023		2024
Allowance for credit losses, beginning of period	$	47,113	$	47,255
Additions charged to expense	9,654		12,210
Write-offs, net of recoveries	(11,481)		(12,548)
Allowance for credit losses, end of period	$	45,286	$	46,917

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.

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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 24,406,816 and 24,607,939 shares were issued and outstanding as of December 31, 2023 and March 31, 2024, 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, the Board of Directors must 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 February 2024, 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 March 18, 2024.

Net Income (Loss) Per Share

Basic earnings per share is computed by dividing net income (loss) 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, 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.

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings (loss) per share for the three months ended March 31, 2023 and 2024 (in thousands):


	For the three months ended March 31,
	2023	2024
Weighted average shares outstanding used to compute basic earnings (loss) per share	23,430	23,391
Incremental shares issuable upon the assumed exercise of stock options	—	6
Unvested restricted stock and restricted stock units	—	663
Shares used to compute diluted earnings (loss) per share	23,430	24,060

Anti-dilutive shares excluded from the diluted earnings (loss) per share calculation	593	—

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) 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, 2023 and March 31, 2024, the balance of accumulated other comprehensive loss was $34.2 million, net of tax of $0.1 million, and $60.8 million, net of tax of $0.1 million, respectively. There were no reclassifications out of accumulated other comprehensive income (loss) to net income (loss) for the three months ended March 31, 2023 and 2024.

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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

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss. The standard also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. Additionally, ASU 2023-07 requires all segment disclosures to be provided on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments must be applied retrospectively. We are currently evaluating the impact that the standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires disclosure of specific categories in the effective tax rate reconciliation. Further, the standard requires certain disclosures of state versus federal income tax expense and taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis although retrospective application is permitted. We are currently evaluating the impact that the standard will have on our financial statement disclosures.

Other ASUs 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. Capella University’s GuidedPath classes and Strayer University’s educational programs 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.

Table of Contents

SEC Form 10-Q filed by Strategic Education Inc.