zvo-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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, 2022


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

For the transition period from________________to________________

Commission File Number: 001-34272

___________________________________________________________________________

ZOVIO INC

(Exact name of registrant as specified in its charter)

___________________________________________________________________________


			Delaware			59-3551629
			(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

1811 E. Northrop Blvd, Chandler, AZ 85286

(Address, including zip code, of principal executive offices)

(858) 668-2586

(Registrant’s telephone number, including area code)

____________________________________________________________________________

None

(Former name, former address and former fiscal year, if changed since last report)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☒

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ZVO	The Nasdaq Stock Market LLC

The total number of shares of common stock outstanding as of May 2, 2022, was 34,095,968.

ZOVIO INC

FORM 10-Q

INDEX



PART I—FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Income (Loss) (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4. Controls and Procedures		30

PART II—OTHER INFORMATION		31
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3. Defaults Upon Senior Securities		31
Item 4. Mine Safety Disclosures		31
Item 5. Other Information		31
Item 6. Exhibits		32
SIGNATURES		33

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ZOVIO INC

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value)


	As of March 31, 2022		As of December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	33,698	$	28,265
Restricted cash	6,083		9,288
Investments	905		974
Accounts receivable, net of allowance for credit losses of $1.1 million and $0.9 million at March 31, 2022 and December 31, 2021, respectively	6,596		9,631


Prepaid expenses and other current assets	17,243		13,423

Total current assets	64,525		61,581
Property and equipment, net	24,965		26,382
Operating lease assets	28,103		28,881


Goodwill and intangibles, net	29,079		29,499

Other long-term assets	2,079		2,691
Total assets	$	148,751	$	149,034
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	85,521	$	74,769
Deferred revenue and student deposits	15,157		14,939

Total current liabilities	100,678		89,708
Rent liability	33,132		34,205

Other long-term liabilities	3,674		5,115
Total liabilities	137,484		129,028
Commitments and contingencies (see Note 14)
Stockholders' equity:
Preferred stock, $0.01 par value:
20,000 shares authorized; zero shares issued and outstanding at both March 31, 2022, and December 31, 2021	—		—
Common stock, $0.01 par value:
300,000 shares authorized; 67,764 and 67,255 issued, and 34,055 and 33,546 outstanding, at March 31, 2022 and December 31, 2021, respectively	681		676
Additional paid-in capital	170,753		172,060
Retained earnings	276,533		283,970

Treasury stock, 33,709 and 33,709 shares at cost at March 31, 2022, and December 31, 2021, respectively	(436,700)		(436,700)
Total stockholders' equity	11,267		20,006
Total liabilities and stockholders' equity	$	148,751	$	149,034

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

ZOVIO INC

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
	2022		2021
Revenue	$	59,624	$	74,107

Other revenue	2,009		2,752
Revenue and other revenue	$	61,633	$	76,859
Costs and expenses:
Technology and academic services	$	18,498	$	19,144
Counseling services and support	21,331		25,325
Marketing and communication	21,914		25,831
General and administrative	7,122		15,896




Total costs and expenses	68,865		86,196
Operating loss	(7,232)		(9,337)

Other income (expense), net	(127)		(73)

Loss before income taxes	(7,359)		(9,410)
Income tax expense	78		83
Net loss	$	(7,437)	$	(9,493)
Loss per share:
Basic	$	(0.22)	$	(0.29)
Diluted	$	(0.22)	$	(0.29)
Weighted average number of common shares outstanding used in computing loss per share:
Basic	33,562		32,769
Diluted	33,562		32,769

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

ZOVIO INC

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings			Treasury Stock
	Shares	Par Value						Total
Balance at December 31, 2020	66,454	$	668	$	179,489	$	326,319		$	(447,259)	$	59,217

Stock-based compensation	—	—		2,382		—			—		2,382

Stock issued under stock incentive plan, net of shares held for taxes	563	5		(1,083)		—			—		(1,078)

Contingent consideration	—	—		(122)		—			—		(122)
Stock issued for acquisition	—	—		(10,559)		—			10,559		—
Net loss	—	—		—		(9,493)			—		(9,493)

Balance at March 31, 2021	67,017	$	673	$	170,107	$	316,826		$	(436,700)	$	50,906


	Common Stock			Additional Paid-in Capital		Retained Earnings			Treasury Stock
	Shares	Par Value						Total
Balance at December 31, 2021	67,255	$	676	$	172,060	$	283,970		$	(436,700)	$	20,006

Stock-based compensation	—	—		(1,169)		—			—		(1,169)




Stock issued under stock incentive plan, net of shares held for taxes	509	5		(138)		—			—		(133)


Net loss	—	—		—		(7,437)			—		(7,437)

Balance at March 31, 2022	67,764	$	681	$	170,753	$	276,533		$	(436,700)	$	11,267

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

ZOVIO INC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(7,437)	$	(9,493)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for bad debts	201		661
Depreciation and amortization	2,033		2,285


Stock-based compensation	(1,169)		2,382
Noncash lease expense	1,433		2,077

Net loss (gain) on marketable securities	63		(68)


Changes in operating assets and liabilities:
Accounts receivable	2,833		(288)
Prepaid expenses and other current assets	(3,820)		(2,776)
Other long-term assets	612		(305)
Accounts payable and accrued liabilities	10,784		7,457
Deferred revenue and student deposits	218		(13)
Operating lease liabilities	(1,705)		(2,598)
Other liabilities	(1,440)		1,455

Net cash provided by operating activities	2,606		776
Cash flows from investing activities:
Capital expenditures	(24)		(184)
Purchases of investments	(2)		(30)
Capitalized costs for intangible assets	(227)		(143)

Sale of investments	8		247

Net cash used in investing activities	(245)		(110)
Cash flows from financing activities:






Tax withholdings on issuance of stock awards	(133)		(1,078)


Net cash used in financing activities	(133)		(1,078)
Net increase (decrease) in cash, cash equivalents and restricted cash	2,228		(412)

Cash, cash equivalents and restricted cash at beginning of period	37,553		55,497
Cash, cash equivalents and restricted cash at end of period	$	39,781	$	55,085

Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	33,698	$	35,052
Restricted cash	6,083		20,033

Total cash, cash equivalents and restricted cash	$	39,781	$	55,085




Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities	$	—	$	16
Issuance of common stock for vested restricted stock units	$	560	$	3,461

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

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of Business

Zovio Inc (the “Company”) is a Delaware corporation, and is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. In April 2019, the Company acquired both Fullstack Academy, Inc. (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), each of which became wholly-owned subsidiaries of the Company at that time. Fullstack is an innovative web development school offering immersive technology bootcamps, and TutorMe is an online education platform that provides 24/7 on-demand tutoring and online courses.

On December 1, 2020, the Company finalized a definitive Asset Purchase and Sale Agreement (the “Purchase Agreement”), by and among the Company, AU LLC (the “University”), the Arizona Board of Regents, a body corporate, for and on behalf of the University of Arizona (the “University of Arizona”), and the University of Arizona Global Campus (“Global Campus”). Upon the closing of the Purchase Agreement (the “Sale Transaction”), Global Campus owns and operates the University in affiliation with the University of Arizona and with a focus on expanding access to education for non-traditional adult learners, and the Company provides services to Global Campus under a long-term Strategic Services Agreement (the “Services Agreement”). The services that the Company provides to Global Campus under the Services Agreement include recruiting, admissions, marketing, student finance, financial aid processing, and financial aid advising, program advising, student retention advising, support services for academics, information technology and institutional support.

The majority of the Company's cash comes from the Services Agreement with Global Campus. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance during each service period, and to a certain extent the performance and forecast of Global Campus.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (“SEC”) on April 15, 2022. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.

Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP for complete annual consolidated financial statements.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.

Comprehensive Income (Loss)

The Company has no components of other comprehensive income (loss), and therefore, comprehensive income (loss) equals net income (loss).

Recent Accounting Pronouncements

None noted as applicable.

3. Revenue, Other Revenue and Deferred Revenue

The following table presents the Company’s net revenue disaggregated based on the revenue source (in thousands):


	Three Months Ended March 31,
	2022		2021
Strategic services revenue	$	50,289	$	66,927
Transition services income	2,009		2,752
Tuition revenue, net	9,246		7,089
Other revenue, net (1)	89		91
Total revenue, net	$	61,633	$	76,859

(1) Primarily consists of revenues generated from various services and other miscellaneous fees.

The following table presents the Company’s net revenue disaggregated based on the timing of revenue recognition (in thousands):


	Three Months Ended March 31,
	2022		2021
Over time, over period of instruction	$	61,592	$	76,768

Point in time (1)	41		91
Total revenue, net	$	61,633	$	76,859

(1)Represents revenue generated from digital textbooks and other miscellaneous fees.

The Company operates under two reportable segments and has no significant foreign operations or assets located outside of the United States. For additional information on segmentation, see Note 15, “Segment Information.”

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Deferred Revenue and Student Deposits

Current deferred revenue and student deposits consisted of the following (in thousands):


	As of March 31, 2022		As of December 31, 2021
Deferred revenue, current	$	14,734	$	14,469
Student deposits	423		470
Total current deferred revenue and student deposits	$	15,157	$	14,939

Below are the opening and closing balances of current deferred revenue from the Company’s contracts with customers (in thousands):


	March 31, 2022		March 31, 2021
Current deferred revenue opening balance, January 1	$	14,469	$	7,477
Current deferred revenue closing balance, March 31	14,734		7,307
Increase (decrease)	$	265	$	(170)

For further information on receivables, refer to Note 6, “Accounts Receivable, Net” within the condensed consolidated financial statements.

Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance. As of March 31, 2022 the deferred revenue balance relates entirely to the Zovio Growth segment. For the majority of the Company’s customers, payment for services is due prior to services being provided and is included in current deferred revenue. However, there are contracts which include deferred revenue that is deemed to be long-term. For additional information, refer to Note 7, “Other Significant Balance Sheet Accounts - Other Long-Term Liabilities” within the condensed consolidated financial statements.

The difference between the opening and closing balances of deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment. For the three months ended March 31, 2022, the Company recognized $6.7 million of revenue that was included in the deferred revenue balance as of January 1, 2022. For the three months ended March 31, 2021, the Company recognized $4.7 million of revenue that was included in the deferred revenue balance as of January 1, 2021. Amounts reported in the closing balance of deferred revenue are expected to be recognized as revenue within the next 12 months.

4. Restructuring and Impairment Expense

The Company previously vacated or consolidated properties and subsequently reassessed its non-cancelable leases. Additionally, the Company previously implemented restructuring plans to reduce operating expenses, implement cost reductions and conserve cash resources. The severance costs and lease costs are expected to substantially all be paid out over the next 12 months.

The following table summarizes the changes in the Company's restructuring and impairment liability by type during the three months ended March 31, 2022 (in thousands):


	Student Transfer Costs		Severance Costs		Lease Exit and Other Costs		Total
Balance at December 31, 2021	$	1,282	$	520	$	398	$	2,200

Payments and adjustments	—		(294)		(67)		(361)

Balance at March 31, 2022	$	1,282	$	226	$	331	$	1,839

The restructuring liability amounts are recorded within either the (i) accounts payable and accrued liabilities account or (ii) rent liability account on the condensed consolidated balance sheets.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

5. Fair Value Measurements

The following tables summarize fair value information as of March 31, 2022 and December 31, 2021, respectively (in thousands):


	As of March 31, 2022
	Level 1		Level 2		Level 3		Total
Mutual funds	$	905	$	—	$	—	$	905


	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
Mutual funds	$	974	$	—	$	—	$	974

The mutual funds in the tables above, represent deferred compensation asset balances, which are considered to be trading securities. The Company’s deferred compensation asset balances are recorded in the investments line item on the Company’s condensed consolidated balance sheets, and are classified as Level 1 securities. There were no transfers between any level categories for investments during the periods presented.

There were no differences between amortized cost and fair value of investments as of March 31, 2022 or December 31, 2021, and no reclassifications out of accumulated other comprehensive income during the three months ended March 31, 2022 or 2021.

6. Accounts Receivable, Net

Accounts receivable, net, consisted of the following (in thousands):


	As of March 31, 2022		As of December 31, 2021
Accounts receivable	$	7,726	$	10,562
Less allowance for credit losses	1,130		931
Accounts receivable, net	$	6,596	$	9,631

The following table presents the changes in the allowance for credit losses for the three months ended March 31, 2022 (in thousands):


Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance


$	931	$	201	$	(2)	$	—	$	1,130

The following table presents the changes in the allowance for credit losses for the three months ended March 31, 2021 (in thousands):


Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance


$	1,216	$	661	$	(159)	$	—	$	1,718

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

7. Other Significant Balance Sheet Accounts

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	As of March 31, 2022		As of December 31, 2021
Prepaid expenses	$	3,760	$	2,664
Prepaid licenses	3,685		1,233


Prepaid insurance	2,437		2,254

Insurance recoverable	515		496
Other current assets (1)	6,846		6,776
Total prepaid expenses and other current assets	$	17,243	$	13,423

(1) Other current assets includes a net asset adjustment due from Global Campus related to the Sale Transaction, which is currently in mediation.

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):


	As of March 31, 2022		As of December 31, 2021


Furniture and office equipment	$	22,001	$	22,032
Software	4,493		4,493
Leasehold improvements	15,921		15,921
Vehicles	22		22

Total property and equipment	42,437		42,468
Less accumulated depreciation and amortization	(17,472)		(16,086)
Total property and equipment, net	$	24,965	$	26,382

For the three months ended March 31, 2022 and 2021, depreciation and amortization expense related to property and equipment was $1.4 million and $1.3 million, respectively.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Goodwill and Intangibles, Net

Goodwill and intangibles, net, consisted of the following (in thousands):


	March 31, 2022
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	14,012	$	(12,733)	$	1,279
Purchased intangible assets	14,185		(9,561)		4,624
Total definite-lived intangible assets	$	28,197	$	(22,294)	$	5,903
Goodwill					23,176
Total goodwill and intangibles, net					$	29,079

	December 31, 2021
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	13,982	$	(12,796)	$	1,186
Purchased intangible assets	14,185		(9,048)		5,137
Total definite-lived intangible assets

SEC Form 10-Q filed by Zovio Inc.