PRDO Perdoceo Education Corporation

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

(Amendment No. 1)

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): December 2, 2024

 

Perdoceo Education Corporation

(Exact Name of Registrant as Specified in Charter)

 

Delaware		0-23245		36-3932190
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

1750 E. Golf Road, Schaumburg, IL		60173
(Address of Principal Executive Offices)		(Zip Code)

 

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

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

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. ☐

 

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Introductory Note

As previously disclosed by Perdoceo Education Corporation, a Delaware corporation (the “Company”) on December 2, 2024 (the “Closing Date”), the Company completed its previously announced acquisition of University of St. Augustine Parent Corp., a Delaware corporation (“USAPC”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) with Lighthouse Merger Sub, Inc., a Delaware corporation and a wholly-owned direct subsidiary of the Company (“Merger Sub”), USAPC, and APH GP LP, an Ontario limited partnership, solely in its capacity as seller representative. USAPC is the 100% indirect owner of University of St. Augustine for Health Sciences, LLC.

Item 9.01. Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

The audited consolidated financial statements of the University of St. Augustine Intermediate Corp., and Subsidiaries (a wholly owned subsidiary of University of St. Augustine Parent Corp.) as of December 31, 2023 and 2022, and for the years ended December 31, 2023 and 2022 and the notes related thereto (the “Audited Financial Statements”), and the unaudited interim condensed consolidated financial statements of University of St. Augustine Parent Corp., and Subsidiaries as of September 30, 2024 and September 30, 2023 and for the nine months ended September 30, 2024 and 2023, and the notes related thereto (the “Interim Financial Statements”) are filed herein as Exhibit 99.1 and 99.2, respectively. The Audited Financial Statements and the Interim Financial Statements are incorporated herein by reference.

(b) Pro forma financial information.

The unaudited pro forma condensed combined statements of income for the year ended December 31, 2023, and the unaudited pro forma condensed combined income statement for the nine months ended September 30, 2024, and the notes related thereto, giving effect to the acquisition of the University of St. Augustine for Health Sciences, are filed herein as Exhibit 99.3 and are incorporated herein by reference.

(d) exhibits

 

 

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Exhibit Index

Exhibit Number		Description of Exhibits
23.1		Consent of Grant Thornton LLP.
99.1		Audited consolidated financial statements of University of St. Augustine Intermediate Corp., and Subsidiaries (a wholly owned subsidiary of University of St. Augustine Parent Corp.) as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022 and the related notes thereto.
99.2		Unaudited interim condensed consolidated financial statements of University of St. Augustine Parent Corp., and Subsidiaries as of September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, and the related notes thereto.
99.3		Unaudited pro forma condensed combined income statement for the year ended December 30, 2023 and the unaudited pro forma condensed combined income statement for the nine months ended September 30, 2024, and the notes related thereto, giving effect to the acquisition of the University of St. Augustine for Health Sciences.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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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 hereunto duly authorized.

 

PERDOCEO EDUCATION CORPORATION
By:		/s/ Ashish R. Ghia
		Ashish R. Ghia
		Senior Vice President and Chief Financial Officer

 

Date: February 18, 2025

 

 

 

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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated April 29, 2024, with respect to the consolidated financial statements of University of St. Augustine Intermediate Corp. and Subsidiaries for the years ended December 31, 2023 and 2022 included in the Current Report on Form 8-K/A of Perdoceo Education Corporation dated February 18, 2025. We consent to the incorporation by reference of said report in the Registration Statements of Perdoceo Education Corporation (formerly known as Career Education Corporation) on Forms S-8 (File Nos. 333- 256742, 333-211551, 333-150987, 333-96539, 333-37848, 333-150978, 333-84403, 333-60339, and 333-60335).

/s/ GRANT THORNTON LLP

Miami, Florida

February 18, 2025

 

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Consolidated Financial Statements and Report of Independent Certified Public Accountants

 

University of St. Augustine Intermediate Corp., and Subsidiaries
(a wholly owned subsidiary of University of St. Augustine Parent Corp.)

 

December 31, 2023 and 2022

 

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	Page
Report of Independent Certified Public Accountants	3
Consolidated Financial Statements
Consolidated balance sheets	5
Consolidated statements of operations	6
Consolidated statements of changes in stockholder's equity	7
Consolidated statements of cash flows	8
Notes to consolidated financial statements	9

 

 

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS   GRANT THORNTON LLP 801 Brickell Ave., Suite 2450 Miami, FL 33131-4943   D +1 305 341 8040 F +1 305 341 8099

Management and Board of Directors
University of St. Augustine Intermediate Corp. and Subsidiaries

Opinion

We have audited the consolidated financial statements of University of St. Augustine Intermediate Corp. and Subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of operations, changes in stockholder’s equity, and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for opinion

We conducted our audits of the consolidated financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of management for the financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are available to be issued.

 

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable

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assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with US GAAS, we:

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/GRANT THORNTON LLP

Miami, Florida
April 29, 2024

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	2023	2022
ASSETS
Current assets
Cash	$ 115,388	$ 106,996
Restricted cash	19,221	16,953
Student tuition and fees receivable	1,067	714
Short-term derivative asset	-	1,428
Prepaid expenses and other current assets	7,049	5,321
Total current assets	142,725	131,412
Property and equipment
Owned property and equipment, net	65,962	36,080
Leased property, net	18,305	18,953
Other assets
Investment in real estate	-	11,757
Course content, net	9,117	6,104
Other long-term assets	965	1,303
Lease right-of-use assets	53,461	63,189
Trade name	115,264	115,264
Goodwill	153,285	153,285
Total other assets	332,092	350,902
Total assets	$ 559,084	$ 537,347
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Accounts payable and accrued expenses	$ 9,438	$ 13,460
Student deposits	1,252	2,323
Income taxes payable	-	688
Current portion of lease liability	5,091	7,154
Current portion of long-term debt obligations	1,850	1,850
Current portion of sale-leaseback financings	1,042	841
Total current liabilities	18,673	26,316
Lease liability, less current portion	51,945	58,121
Sale-leaseback financings, less current portion	17,876	18,531
Long-term debt obligations, net discounts, less current portion	172,165	173,026
Construction financing	16,608	-
Deferred tax liability, net	12,271	6,772
Total liabilities	289,538	282,766
Stockholder’s equity	269,546	254,581
Total liabilities and stockholder’s equity	$ 559,084	$ 537,347

 

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	2023	2022
Revenue
Revenue, net of scholarships and discounts	$ 170,451	$ 176,399
Operating expenses
Wages and benefits	(70,618)	(71,488)
Depreciation and amortization	(18,580)	(18,283)
Professional, contracted and subscription services	(18,008)	(16,997)
Facilities, maintenance, and insurance	(12,653)	(11,001)
Advertising and marketing	(11,721)	(11,532)
Other operating expenses	(4,167)	(4,504)
Total operating expenses	(135,747)	(133,805)
Income from operations	34,704	42,594
Other income (expenses)
Interest income	5,755	1,788
Interest on debt obligations	(16,627)	(12,357)
Interest on financing lease obligations	(3,552)	(3,388)
Total other expenses	(14,424)	(13,957)
Income before taxes	20,280	28,637
Income tax expense	(5,233)	(7,879)
NET INCOME	15,047	20,758
Other comprehensive (loss) income	(1,074)	1,407
Total comprehensive income	$ 13,973	$ 22,165

 

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	Stockholder’s Equity
	Additional Paid-in Capital	Stock Subscription Receivable	Common Stock	(Accumulated Deficit) Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Total Stockholder’s Equity
Balance as of December 31, 2021	$ 221,398	$ 519	$ 1	$ 7,446	$ (333)	$ 229,031
Cumulative-effect adjustment from adoption of ASC 842	-	-	-	2,470	-	2,470
Net income	-	-	-	20,758	-	20,758
Stock-based compensation	915	-	-	-	-	915
Other comprehensive income	-	-	-	-	1,407	1,407
Balance as of December 31, 2022	222,313	519	1	30,674	1,074	254,581
Net income	-	-	-	15,047	-	15,047
Stock-based compensation	992	-	-	-	-	992
Other comprehensive loss	-	-	-	-	(1,074)	(1,074)
Balance as of December 31, 2023	$ 223,305	$ 519	$ 1	$ 45,721	$ -	$ 269,546

 

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	2023	2022
Cash flows from operating activities:
Net income	$ 15,047	$ 20,758
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	18,580	18,283
Amortization of right-of-use assets	4,596	2,355
Amortization of debt discounts	990	925
Deferred income tax expense	5,499	7,540
Stock-based compensation	992	915
Changes in operating assets and liabilities:
Student tuition and fees receivable	(353)	(166)
Other receivables	(148)	(1,116)
Prepaid expenses and other assets	(1,225)	315
Other long-term assets	65	(212)
Accounts payable and accrued expenses	(4,710)	1,408
Student deposits	(1,070)	122
Other long-term liabilities	(3,625)	(1,660)
Net cash provided by operating activities	34,638	49,467
Cash flows from investing activities:
Purchases of property, equipment and leasehold improvements	(12,291)	(12,189)
Investment in real estate	-	(3,497)
Additions to course content	(4,770)	(2,986)
Net cash used in investing activities	(17,061)	(18,672)
Cash flows from financing activities:
Principal payments on finance lease obligations	(4,613)	(4,307)
Principal payments on long-term debt obligations	(1,850)	(1,850)
Principal payments on sale-leaseback financings	(454)	(689)
Net cash used in financing activities	(6,917)	(6,846)
NET INCREASE IN CASH AND RESTRICTED CASH	10,660	23,949
Cash and restricted cash, beginning of period	123,949	100,000
Cash and restricted cash, end of period	$ 134,609	$ 123,949
Reconciliation of cash and restricted cash:
Cash	$ 115,388	$ 106,996
Restricted cash	19,221	16,953
Total cash and restricted cash shown in the statements of cash flows	$ 134,609	$ 123,949
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$ 18,828	$ 14,494
Cash paid during the period for taxes	$ 575	$ 882
Property, equipment and leasehold improvements acquired under construction financing arrangements	$ 16,608	$ -

 

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Note 1 - Nature of Business and Change in Control

Nature of Business

The University of St. Augustine Intermediate Corp. and its wholly owned direct and indirect subsidiaries University of St. Augustine Acquisition Corp. and University of St. Augustine for Health Sciences, LLC (“USA”), collectively referred to hereafter as the “Company”, is a for-profit, campus-based institution, offering traditional and flexible graduate and doctoral degree programs in physical and occupational therapy, nursing, speech language pathology, and health sciences. In addition, the Company conducts continuing education seminars in related fields throughout the United States, along with offering non-degree online courses. The Company's campus-based institutions are in California, Florida and Texas. USAHS is institutionally accredited by the Western Association of Schools and Colleges (“WASC”) Senior College and University Commission and maintains programmatic accreditation with the Commission on Accreditation in Physical Therapy Education, the Accreditation on Speech Language Pathology, the Accreditation on Commission on Collegiate Nursing Education, and the Accreditation Council for Occupational Therapy Education.

Change in Control

On February 1, 2019 (the “Closing Date”), pursuant to the Members Interest Purchase Agreement (the “MIPA”), University of St. Augustine Acquisition Corp., the direct subsidiary of University of St. Augustine Intermediate Corp., acquired 100% of the ownership and voting rights of USA for a total consideration of $353,109 at Closing, subject to customary post-close price adjustments. Prior to the acquisition, both the University of St. Augustine Intermediate Corp. and University of St. Augustine Acquisition Corp. were dormant, non-operating, entities specifically established for the acquisition of USA.

All Company operations are conducted at the USA entity level. USA’s operations are overseen by its Board of Directors (the “BoD”), currently consisting of 9 members who comprise various BoD committees, including Finance and Business Operations, Academic and Student Affairs, Governance, Audit & Enterprise Risk.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of University of St. Augustine Intermediate Corp. and its wholly owned direct and indirect subsidiaries of University of St. Augustine Acquisition Corp., and USA. All intercompany accounts and transactions are eliminated in consolidation. The Company is a wholly owned subsidiary of University of St. Augustine Parent Corp. (the “Parent”).

Note 2 - Significant Accounting Policies

Basis of Presentation and Use of Estimates

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could differ from those estimates.

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Business Combinations

When the Company completes a business combination, all tangible and identifiable intangible assets acquired, and all liabilities assumed are recorded at fair value. Any excess purchase price is recorded as goodwill. The Company accounts for acquired businesses using the acquisition method.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity date of three months or less, when purchased, to be cash equivalents. No such investments existed at December 31, 2023 and 2022.

Restricted Cash

The Company participates in the United States Department of Education (“DOE”) Title IV student financing assistance lending programs (“Title IV programs”). At times the DOE may require institutions to post standby letters of credit (“LOC”) to continue participation in Title IV programs. LOC requirements are based on several considerations, including failure to meet minimum financial ratio requirements set forth by the DOE. As such, the Company is required to maintain an LOC in the amount of 10% of USA’s Title IV funding during the prior fiscal year. At December 31, 2023 and 2022, the LOC was collateralized by $18,844 and $16,242, respectively, which is included in restricted cash on the accompanying balance sheets. In April 2023, the DOE required USA to establish an LOC in the amount of $100, or 25% of Title IV refunds made to the DOE during the prior fiscal year, based upon the DOE’s review of the Company’s Title IV program, whose collateral is also included in restricted cash on the accompanying balance sheets.

Additionally, in connection with the leased property for its Miami campus, the Company obtained a LOC in favor of the landlord which is collateralized in full by the cash of the Company. As of December 31, 2023 and 2022, the LOC had a balance of $377 and $711 included in restricted cash on the accompanying balance sheets.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, restricted cash, student tuition and fees receivable. The Company has cash with financial institutions more than federally insured limits. The Company does not believe it is exposed to any significant credit risk on cash related to amounts more than federally insured limits. Student tuition and fees receivable are unsecured and are derived from students enrolled in the Company’s educational programs. Student receivables are not collateralized; however, credit risk is reduced as the amount owed by any individual student is small relative to the total student tuition and fees receivable.

Accounts Receivable

Student tuition and fees receivable primarily consist of tuition and educational services and are recognized when an academic session begins, although students generally enroll in courses prior to the start of the academic session. Receivables are recognized only to the extent that amounts are due, and collection is reasonably assured. The student tuition and fees receivable balance on December 31, 2023 and 2022 was $1,067 and $714, respectively. Other receivables include accrued interest on the Company’s money market account and leasehold improvement expenses for the Miami campus reimbursable from the landlord, which totaled $565 and $297 on December 31, 2023 and 2022, respectively.

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Allowance for Credit Losses

The Company uses estimates to determine the amount of the allowance for credit losses necessary to reduce the student tuition and fees receivable to net realizable value. The Company estimates the amount of the required allowance by reviewing the status of past-due receivables, analyzing historical and projected credit loss trends, as well as analysis of aged accounts receivable balances with allowances generally increasing as the receivable ages. The analysis of receivables is performed monthly, and allowances are adjusted accordingly. Receivables are generally due on the date on which the related class commences. Additionally, a substantial portion of the Company's receivables are derived from students that participate in the Title IV programs administered by the DOE.

The Company writes off student tuition and fees receivable deemed to be uncollectible directly to the receivable balance when all collection efforts have been exhausted.

Property, Equipment and Leasehold Improvements, and Impairment of Long-Lived Assets

Property, equipment, and leasehold improvements are recorded at cost. Depreciation is provided on the straight-line method over estimated useful lives, or the shorter of the term of the lease or leasehold improvements. The depreciation expense on assets acquired under sale-leaseback financings is included within depreciation expense on owned assets.

Upon sale or disposition of property or equipment, the cost and related accumulated depreciation is eliminated from the accounts and any resulting gain or loss is credited or charged to income. Assets under construction are recorded in construction-in-progress until they are available for use. Interest is capitalized as a component of the cost of projects during the construction period if material. Maintenance and repair costs are charged to operating expenses as incurred. Improvements and betterments are capitalized and depreciated over the remaining useful life of the related asset.

Long-lived assets, which include property, equipment, and leasehold improvements, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, an impairment charge is recognized in the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed are reported at the lower of carrying amount or fair value, less costs to sell. There was an impairment of $1,104 recognized during the year ended December 31, 2022 for leasehold improvements related to the termination of USA’s old Dallas campus lease in December 2022. There was no impairment of long-lived depreciable assets during the year ended December 31, 2023.

Investment in Real Estate

In October 2020, the Company acquired a property in St. Augustine, FL, with the intention of subsequently selling the property to a developer under a sale-leaseback transaction to build out a new USA St. Augustine campus. Since acquisition, the Company has incurred costs related to the new campus schematic design and project management. At December 31, 2022, the carrying value of the investment in real estate was $11,757. In April 2023, the sale-leaseback transaction closed with construction of the new campus beginning shortly thereafter.

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Construction Related Activities

The Company is occasionally involved in the construction of leased facilities to be used in its operations. Upon construction commencement, the Company evaluates whether it, as lessee, controls the asset being constructed, and depending on the extent of involvement in the project, may be the “deemed owner” of the leased asset for accounting purposes during the construction period under a build-to-suit (BTS) arrangement. If the Company is the “deemed owner” for accounting purposes during the construction period, upon construction commencement the Company is required to capitalize (i) costs incurred by the Company and (ii) the cash and non-cash assets contributed by the landlord for construction as property and equipment on our consolidated balance sheets as Construction in Progress, with an offsetting financing obligation under Construction Financing. Upon completion of a construction project, where the Company is the deemed owner, the Company will perform a sale-leaseback analysis to determine if it can derecognize the BTS asset and corresponding financing obligation. If the asset and liability cannot be derecognized, the agreement is treated as a debt-like financing arrangement.

Upon construction commencement of the new St. Augustine campus in April 2023, the Company determined that it was the deemed owner during the construction period. Accordingly, the Company has recognized all of cash and non-cash assets contributed by the landlord during the year ended December 31, 2023 for construction as a component of construction in progress with a corresponding construction financing liability.

Capitalized Implementation Costs

The Company has incurred costs substantially related to the implementation of various internal-use software applications accessed on an as-needed basis as part of contractual hosting arrangements with service providers. These costs totaled $36 and $170 at December 31, 2023 and 2022, respectively, and are included in Other Assets on the accompanying balance sheets. The Company amortizes capitalized implementation costs on a straight-line basis over the expected term of the associated hosting arrangement. The Company recorded $134 and $301 in amortization expense related to capitalized implementation costs during the years ended December 31, 2023 and 2022, respectively.

Leases

USA conducts its operations at leased facilities. On January 1, 2022, the Company adopted ASC 842 - Leases (“ASC 842”) using the cumulative-effect transition method and applied the standard to all existing leases. Information for prior years presented has not been restated and continues to reflect the authoritative accounting standards in effect for those periods. At transition, the Company selected the package of practical expedients that allows for carryforward of historical assessments of whether existing contracts contain leases, determinations of lease classification, and treatments of initial direct costs. Please refer to the Recently Adopted Accounting Pronouncements Section of Note 2 for additional information.

The Company analyzes each new lease agreement to determine whether it should be classified as a finance lease or an operating lease. For operating leases, right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date of the lease based on the estimated present value of lease payments over the lease term. For finance leases, we initially record the assets and lease liabilities at the present value of the future minimum lease payments. As most of the Company’s leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The significant assumption used in estimating the present value of the lease payments is the incremental borrowing rate.

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Course Content Costs

Course content costs include direct costs associated with the development of online educational programs, which are capitalized after technological feasibility has been established. Course content development costs are amortized to direct costs on a straight-line basis over the estimated period that the associated products are expected to generate revenues, which generally approximates five years. Course content costs are evaluated on a quarterly basis through review of the corresponding course catalog. If a course is no longer listed or offered in the current course catalog, then the costs associated with its development are written off. Course content is required to be evaluated for impairment at each measurement date by comparing the unamortized carrying value of the course content with its net realizable value. There was no impairment of course content during the years ended December 31, 2023 and 2022.

Goodwill and Other Intangible Assets

In connection with the acquisition of USA on the Closing Date, the Company acquired certain indefinite and finite-lived intangible assets. The indefinite intangible asset consists of the tradename attributable to the Company. Finite-lived intangibles consist of the student roster and course content.

Goodwill represents the excess of the purchase price of an acquired business over the amount of fair value assigned to identifiable assets acquired and liabilities assumed. This is principally attributable to the future earnings potential associated with enrollment growth and other intangibles that do not qualify for separate recognition such as the assembled workforce. The goodwill resulting from the acquisition of USA is expected to be deductible for tax purposes.

Indefinite-Lived Intangible Assets

The Company assigned indefinite lives to intangibles that it believes have the continued ability to generate cash flows indefinitely; have no legal, regulatory, contractual, economic, or other factors limiting the useful life of the respective intangible; and the Company intends to renew the respective intangible, as applicable, and renewal can be accomplished at little cost. The tradename intangible asset represents the fair value of the Company’s name on the date acquired.

Goodwill and indefinite-lived intangibles are tested for impairment annually, 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 below its carrying amount. In performing our impairment tests, the Company first considers the option to assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or intangible, as applicable, is less than its carrying amount (i.e. - step zero). If determined that it is more likely than not that the fair value is less than the carrying amount based on the qualitative assessment, or that a qualitative assessment should not be performed, the Company proceeds with the following quantitative impairment tests:

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The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgement. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry, and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis.

When performing a quantitative goodwill or indefinite-lived intangibles impairment test, the Company generally determines fair value using an income-based approach, a market-based approach, or a combination of both methods. The fair value determination consists primarily of using significant unobservable inputs (Level 3) under the fair value measurement standards.

Finite-Lived Intangible Assets

The student roster represents an identifiable acquisition-related asset that attributes value from an established student base and existing student relationships, which represent a source of future sales and earnings to the Company. USA’s student roster was determined to have a useful life of four years and will be amortized in a pattern that reflects the way economic benefits are expected to be consumed.

Course content primarily represents direct costs associated with online course development and accreditation and reflects the capitalizable curriculum development costs incurred by USA. Course content is a finite-lived intangible asset with a useful life of five years.

Revenue Recognition

The Company's revenues consist of tuition, educational product & service revenues, and student fees. Tuition revenues are recognized ratably on a daily straight-line basis over each academic term as the performance obligations are satisfied. Revenues from the sale of educational products are generally recognized point in time upon delivery and when collectability is probable. Educational services, such as continuing professional education, are recognized ratably as services are rendered which generally approximate one to three days in length, and collectability is probable.

The Company elected a practical expedient portfolio approach for assessing student collectability given the large volume of homogeneous transactions and assesses all students as one portfolio. Due to the Company’s high collection rate, management does not expect there to be any material differences from assessing the portfolio when compared to collectability on a student-by-student basis. Billings on student contracts are billed at the start of each academic term and are paid over the term. Generally, students cannot re-enroll for the next academic term without satisfactory resolution of any past-due amounts.

Revenue is reported net of scholarships and other discounts, refunds, and waivers. Management has determined that variable consideration need not be estimated at contract inception as scholarships are usually known and taken at contract inception and refunds would not need to be accounted throughout the term, as revenue will only be recognized for the proportional amount of education provided and no amount of revenue recognized will be subject to a refund.

Deferred revenue and student deposits, which consist of tuition paid prior to the start of the academic term and unearned tuition amounts, begins to be recognized as revenue after the term begins. If a student withdraws within the refund period, the Company is obligated to issue a refund according to the refund policy and the timing of the student’s withdrawal. The amount of refund obligations is reduced over the course of the academic term. Refunds are recorded as a reduction of deferred revenue and student deposits, as applicable.

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Financing and Debt Issuance Costs

Financing costs paid to the lender because of debt obtained for the acquisition of USA are presented as a reduction of debt. Financing costs are amortized using the effective interest method and will be presented as a component of interest expense over the contractual term of the debt. Refer to Note 5 for details regarding the Company’s Initial Term Loan that was effective contemporaneously with the acquisition of USA.

Debt issuance costs include various incremental fees paid to third parties, other than the lender, in connection with the issuance of debt. Debt issuance costs are also presented as a reduction of debt and are amortized using the effective interest method and will be presented as a component of interest expense over the contractual term of the debt.

Financial Instruments

The Company’s financial instruments consist of cash, restricted cash, student tuition and fees receivable, other current assets, derivatives, accounts payable and accrued expenses, and debt. Management has adopted Accounting Standards Update 2016-01, Financial Instruments - Overall, which eliminated the requirement to disclose the fair value of financial instruments measured at amortized cost for non-public entities.

Derivatives

In the normal course of business, our operations are exposed to fluctuations in interest rate changes. We may seek to control a portion of these risks through a risk management program that includes the use of derivative instruments.

On October 31, 2019, the Company entered, and designated as cash flow hedges, an interest rate swap agreement (the “Swap”) on $138,056 of the Senior Secured Term Loan Facility (“Initial Term Loan”) outstanding balance (the “initial notional amount”). Please refer to Note 5 - Debt, Finance Lease, and Sale-Leaseback Financings, for further details regarding the Swap. This initial notional amount matched the corresponding principal of the Initial Term Loan of which the Swap was effectively hedging the interest payments. As such, the notional values amortized annually based on the terms of the agreements to match the principal borrowings as they were repaid. These swaps effectively fixed the floating interest rate on the term loan to reduce exposure to variability in cash flows attributable to changes in LIBOR. On December 30, 2022, the Initial Term Loan and related Swap agreements were amended to have their interest rate pegged to the Secured Overnight Financing Rate (“SOFR”) instead of LIBOR.

The Swap qualified as a derivative financial instrument entered as a hedging strategy against interest rate risk related to the Initial Term Loan. As such, the Swap is carried at fair value on the accompanying balance sheets and any gains and losses arising from changes in its fair value are recognized in other comprehensive income (OCI). For the years ended December 31, 2023 and 2022, the Company recognized income of $1,519 and $1,407, respectively, related to the Swap, included within Interest expense. On December 31, 2022, accumulated other comprehensive income included $1,074 in unrealized gains related to the change in fair value of the Swap, which expired in October 2023.

Income Taxes

The Parent and its wholly owned subsidiaries, University of St. Augustine Intermediate Corp. and University of St. Augustine Acquisition Corp., file as a C Corporation for federal and state income tax purposes. USA is a single member limited liability corporation, which is disregarded for income tax purposes, and its

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income, deductions, losses, and credits flow through the return of its sole member, University of St. Augustine Acquisition Corp.

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating losses, and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The acquisition of USA is considered a taxable transaction. Refer to Note 7 for further details on deferred taxes.

Advertising Costs

The Company expenses the costs of advertising as incurred, and primarily relate to web marketing, paid search and social media, paper, and other costs related to production of photographic images used on the Company’s website.

Defined Contribution Plan

Eligible employees of the Company participate in a defined contribution plan administered by the Company under Section 401(k) of the Internal Revenue Code, up to certain annual limits. The Company matches 50% of the first 6% of eligible compensation an employee contributes to the benefit plan. The company match is discretionary and based on the Company's financial performance. Matching contributions of $1,362 were funded to the plan in March 2024 for the 2023 plan year.

Contingencies

The Company accrues contingent obligations when it is probable that a liability is incurred, and the amount or range of amounts is reasonably estimable. As new facts become known to management, the assumptions related to a contingency are reviewed and adjustments are made, as necessary. Refer to Note 8 for information on contingency matters.

Recently Adopted Accounting Pronouncements

ASU No. 2016-02 (ASU 2016-02), Leases (Topic 842)

On February 25, 2016, the FASB issued ASU 2016-02, which requires lessees to recognize on their balance sheet an ROU asset and a lease liability for virtually all their leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of the lease payments. The asset is based on the liability, subject to adjustment, such as for initial direct costs and uneven rent payments. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases result in straight-line expense (similar to operating leases prior to adoption of ASU 2016-02) while finance leases result in a front-loaded expense pattern (similar to capital leases prior to adoption of ASU 2016-02).

The Company adopted ASU 2016-02 as of January 1, 2022 under the cumulative-effect transition method, which allows entities to prospectively apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We elected this optional transition method. In accordance with ASC Topic 842, we also elected the package of practical expedients, which permits us to not reassess: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) any initial direct costs for any existing leases as of

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the effective date. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment. Nor did we elect the practical expedient to combine our lease and related non-lease components for our building leases.

Adopting ASU 2016-02 had a material impact on our Consolidated Financial Statements as we recorded significant asset and liability balances in connection with our leased properties. The most significant impacts to our Consolidated Financial Statements of adopting this standard are as follows:

Current Expected Credit Losses

In June 2016, the FASB issued guidance (FASB ASC 326) which changed how entities measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The most significant change in this standard is a shift from the incurred loss model to the expected loss model. Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity’s exposure to credit risk and the measurement of credit losses. Financial assets held by the company that are subject to the guidance in FASB ASC 326 were accounts receivable. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the consolidated financial statements.

Note 3 - Property, Equipment and Leasehold ImprovementS

Property, equipment, and leasehold improvements consist of the following as of December 31, 2023:

	Depreciable Life	Cost	Accumulated Dep.	Net Carrying Value
Furniture and fixtures	2 - 7 years	$ 5,471	$ (3,482)	$ 1,989
Computer equipment, software and other	2 - 7 years	33,720	(21,104)	12,616
Leasehold improvements	2 - 20 years	32,616	(17,525)	15,091
Construction in progress		36,266	-	36,266
Owned property, equipment and leasehold improvements, net		$ 108,073	$ (42,111)	$ 65,962
Buildings	30 years	$ 19,130	$ (3,135)	$ 15,995
Leased equipment	2 - 7 years	251	(251)	-
Land		2,310	-	2,310
Leased property, net		$ 21,691	$ (3,386)	$ 18,305

 

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Property, equipment, and leasehold improvements consist of the following as of December 31, 2022:

	Depreciable Life	Cost	Accumulated Dep.	Net Carrying Value
Furniture and fixtures	2 - 7 years	$ 4,942	$ (2,764)	$ 2,178
Computer equipment, software and other	2 - 7 years	29,050	(15,413)	13,637
Leasehold improvements	2 - 20 years	26,265	(13,152)	13,113
Construction in progress		7,151	-	7,151
Owned property, equipment and leasehold improvements, net		$ 67,409	$ (31,329)	$ 36,080
Buildings	30 years	$ 19,130	$ (2,498)	$ 16,632
Leased equipment	2 - 7 years	251	(241)	10
Land		2,310	-	2,310
Leased property, net		$ 21,691	$ (2,738)	$ 18,953

 

For the years ended December 31, 2023 and 2022, the Company recorded depreciation of owned PP&E of $10,779 and $10,020, respectively. For leased property, the Company recorded depreciation of $638 and $638 for the years ended December 31, 2023 and 2022, respectively. The $36,266 and $7,151 of construction in progress on December 31, 2023 and 2022, respectively, is primarily comprised of the Company’s new St. Augustine campus currently under construction and at December 31, 2022 leasehold improvements related to the build out of USA’s new Dallas campus, which entered service in January 2023.

Note 4 - Goodwill AND Intangible Assets

As discussed in Note 1, on the Closing Date, the University of St. Augustine Acquisition Corp. acquired 100% of the equity and voting interests of USA. The acquisition established a presence for the Company in the fast-growing U.S. healthcare marketplace and was recorded by allocating the purchase price to the estimated fair value of the assets acquired, including intangible assets, based on their estimated fair values at the acquisition date, less the liabilities assumed.

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The Company's intangible assets as of December 31, 2023 consist of the following:

	Cost	Net Carrying Amount	Weighted Average Amortization Period (Yrs.)
Subject to amortization:
Student roster	$ 31,236	$ -	-
Course content	12,619	7,404	2.4
Subtotal	43,855	7,404
Not subject to amortization:
Course Content - CIP	1,713	1,713	N/A
Tradename	115,264	115,264	Indefinite
Total intangible assets	$ 160,832	$ 124,381

 

 

The Company's intangible assets as of December 31, 2022 consist of the following:

	Cost	Net Carrying Amount	Weighted Average Amortization Period (Yrs.)
Subject to amortization:
Student roster	$ 31,236	$ 40	0.1
Course content	9,575	6,104	2.4
Subtotal	35,464	8,258
Not subject to amortization:
Tradename	115,264	115,264	Indefinite
Total intangible assets	$ 156,075	$ 121,408

 

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The estimated future amortization expense for intangible assets for the next five years as of:

	December 31, 2023
Year 1	$ 2,213
Year 2	2,032
Year 3	1,560
Year 4	1,059
Year 5	540
Total	$ 7,404

 

Amortization expense for intangible assets for the years ended December 31, 2023 and 2022 was $1,797 and $2,092, respectively.

Note 5 - Debt and Sale-Leaseback Financings

Credit Facilities

In connection with the acquisition of USA on February 1, 2019, the Company entered different types of credit facilities. The proceeds from the credit facilities were used as consideration to fund the acquisition of the Company, as collateral for compliance with certain DOE regulations, or to finance working capital and other general corporate purposes.

Senior Secured Term Loan Facility

Concurrent with the Closing Date, the Company entered a Senior Secured Term Loan Facility (“Initial Term Loan”) of $185,000 aggregate principal amount. The Initial Term Loan matures on February 1, 2026, and requires quarterly principal payments of $463, or 0.25% of the original loan amount, plus accrued interest, on the last business day of each calendar quarter and the applicable maturity date. At December 31, 2021, interest rates under the Initial Term Loan were adjusted LIBOR or ABR (Alternate Base Rate), plus the “applicable margin”. Effective December 30, 2022, the Initial Term Loan was amended to replace adjusted LIBOR with SOFR.

Applicable margin means a) 3.25% in the case of ABR loans and b) 4.25% in the case of adjusted SOFR loans. The applicable margin is based on leverage ratio calculation and can range from 4.25% to 4.75%. In addition, there is a 1.00% floor on the adjusted SOFR portion of the calculated interest rate. Calculation of interest is based on the actual days elapsed in a year of 360 days and shall be payable quarterly in arrears and on the applicable maturity date. There are no financial maintenance covenants or early prepayment penalties with respect to the Initial Term Loan. As of December 31, 2023 and 2022, the interest rate on the Initial Term Loan was 9.71% and 8.64%, respectively.

Finally, the Initial Term Loan includes an incremental term facility providing the Company the ability to enter additional term loan facilities or to increase the principal on the existing Initial Term Loan. The University of St. Augustine Intermediate Corp., as well as its wholly owned subsidiaries, University of St. Augustine Acquisition Corp. and USA, are equally considered jointly and severally liable as the primary obligor to the Initial Term Loan.

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Senior Secured Revolving Credit Facility

Concurrent with the Closing Date, the Company entered a Senior Secured Revolving Credit Facility (“Initial Revolver”) of $20,000 aggregate principal, which matures on February 1, 2024. The interest rates under the Initial Revolver are at the option of the Company. Prior to December 30, 2022, the interest rate was either adjusted LIBOR or ABR (Alternate Base Rate), plus the “applicable margin” (consistently calculated as the term loan). On December 30, 2022, adjusted LIBOR was replaced with adjusted SOFR. Calculation of interest shall be payable quarterly in arrears and on the applicable maturity date. Principal on the Initial Revolver is due at maturity. Also, the loan agreement contains a maximum First Lien Secured Leverage Ratio of 8.00:1.00 with no step downs. Finally, the Initial Revolver includes an incremental revolving facility providing the Company the ability to enter additional revolving credit facilities or to increase the principal on the Initial Revolver.

Swingline Loan

Lastly, available under the Initial Revolver, is a Swingline Loan whereby upon same day notice the Company may make additional short-term borrowings in an amount to be agreed upon, but no more than $4,000. Any such swingline borrowing will reduce availability under the Initial Revolver on a dollar-for-dollar basis. All swingline loans will be ABR loans, thus the calculation of interest shall be based on the actual days elapsed in a year of 365 or 366 days and shall be payable quarterly in arrears and on the applicable maturity dates. Principal on the Swingline Loan is due at maturity of the Initial Revolver.

Interest Rate Swap Agreement

On October 31, 2019, the Company entered into an interest rate swap agreement (the “Swap”) on $138,056 of the Initial Term Loan outstanding balance (the initial “notional amount”). The notional amount decreases over the period of the Swap based on anticipated lower outstanding term loan balance. Per the terms of the Swap, the Company is contracted to pay a fixed rate of 1.53%, plus the applicable margin, on the notional amount. The counterparty was contracted to pay adjusted LIBOR plus the applicable margin, as per the terms of the Initial Term Loan, on the notional amount. Effective December 30, 2022, the Swap was amended to pay SOFR plus the applicable margin, as per the terms of the amended Initial Term Loan, on the notional amount. The fair value of the Swap is carried as a $1,428 asset on the balance sheet as of December 31, 2022, and expired on October 31, 2023.

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Total debt, including debt on the Company’s Initial Term Loan and sale-leaseback financings, as of December 31, 2023 and 2022 were as follows:

	December 31, 2023	December 31, 2022
Senior secured term loan facility, net of debt discount and issuance costs	$ 172,165	$ 173,026
Sale-leaseback financing, less current portion	17,876	18,531
Construction financing	16,608	-
Total long-term debt, net	206,649	191,557
Current portion of senior secured term loan facility	1,850	1,850
Current portion of sale-leaseback financing	1,042	841
Total current portion of debt, net	2,892	2,691
Total debt, net	$ 209,541	$ 194,248
Total unamortized debt discount	$ 1,888	$ 2,738
Total unamortized debt issuance costs	309	449
Total unamortized debt discount and debt issuance costs	$ 2,197	$ 3,187

 

As of December 31, 2023, aggregate annual maturities of the senior debt are as follows:

	December 31, 2023
Year 1	$ 1,850
Year 2	1,850
Year 3	172,513
Year 4	-
Year 5	-
Total	176,213
Less: unamortized debt discount and debt issuance costs	2,197
Total senior secured term loan facility	$ 174,016

 

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Sale-Leaseback Financings

The aggregate maturities of our total future value and present value of the minimum payments on sale-leaseback financings on December 31, 2023 are as follows:

	Future Value of Payments	Interest	Present Value of Payments
Year 1	$ 3,855	$ 2,813	$ 1,042
Year 2	18,400	524	17,876
Year 3	-	-	-
Year 4	-	-	-
Year 5	-	-	-
Thereafter	-	-	-
Total	$ 22,255	$ 3,337	$ 18,918

 

Prior to the adoption of ASC 842, the Company had several leases with its campus-based properties, which include St. Augustine, Florida, San Marcos, California, and Austin, Texas, that are accounted for as financing arrangements. Management determined that each lease included at least one form of prohibited continuing involvement resulting in failed sale-leaseback treatment. As such, land and/or building assets were recorded at their fair values, along with a corresponding debt liability. The fair values of the land and buildings were determined by a third-party appraisal firm, which utilized a blended valuation technique.

At the adoption of ASC 842 on January 1, 2022, those leases with assets and liabilities recognized solely because of their build-to-suit designation under prior guidance were derecognized and included the Company’s sale-leaseback financings for its San Marcos and Austin campuses.

The following schedule provides a summary of the Company’s failed sale-leaseback, including the types of assets financed and the carrying value of each location as of December 31, 2023 and 2022:

			Reason for	Carrying Value
Location	Property Type	Build-to-Suit Applied	Failed Sale-Leaseback	December 31, 2023	December 31, 2022
St. Augustine, Florida (1)	Buildings and land	No	Accelerated rent clause/ Contingent collateral	$ 18,305	$ 18,942

 

(1) 15-year lease term for two buildings, ending March 2025.

 

Construction Financing

Upon construction commencement of its new St. Augustine campus in April 2023, the Company determined that it was the deemed owner for accounting purposes during the construction period under a BTS arrangement due to the extent of the Company’s involvement in the project. Accordingly, the Company has recognized all cash and non-cash assets contributed by the landlord to the project during the year ended December 31, 2023 as a component of construction in progress with a corresponding construction financing liability. As of December 31, 2023, the Company has recognized $16,608 in construction contributions made by the landlord as a construction financing on the consolidated balance sheet.

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Note 6 - Leases

The Company conducts a significant portion of its operations at leased facilities and analyzes each new lease agreement to determine whether it should be classified as a finance lease or an operating lease.

Finance Leases

Our finance lease agreements are primarily for real estate space and are included within lease ROU assets and finance lease liabilities on the balance sheet. The terms of our finance leases vary and generally contain renewal options. Certain of these operating leases provide for increasing rent over the term of the lease.

Operating Leases

Our operating lease agreements are primarily for real estate space and are included within operating lease ROU assets and operating lease liabilities on the balance sheet. The terms of our operating leases vary and generally contain renewal options. Certain of these operating leases provide for increasing rent over the term of the lease.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. As discussed in Note 2, Significant Accounting Policies, ROU assets and lease liabilities are recognized at the commencement date of the lease based on the estimated present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. On occasion, the Company has entered into sublease agreements for certain leased office space; however, the sublease income from these agreements is immaterial.

Lease Term and Discount Rate	December 31, 2023	December 31, 2022
Weighted-average remaining lease terms (yrs.)
Operating leases	9.43	9.73
Finance leases	4.04	5.04
Weighted-average discount rate
Operating leases	5.50%	5.07%
Finance leases	3.50%	3.50%

 

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The components of lease costs are as follows:

Lease expense	Classification	For the Year Ended December 31, 2023	For the Year Ended December 31, 2022
Finance lease cost
Amortization of ROU assets	Direct costs	$ 5,132	$ 5,132
Interest on lease liabilities	Interest expense	845	1,000
Operating lease cost	Direct costs	5,085	3,363
Short-term lease cost	Direct costs	-	656
Variable lease cost	Direct costs	128	1,820
Total lease cost		$ 11,190	$ 11,971

 

As of December 31, 2023, maturities of lease liabilities were as follows:

Maturity of Lease Liability	Operating Leases	Finance Leases
Year 1	$ 2,046	$ 5,622
Year 2	4,892	5,791
Year 3	3,339	5,964
Year 4	5,621	5,325
Year 5	5,319	957
Thereafter	26,378	-
Total lease payments	47,595	23,659
Less: present value discount	(12,625)	(1,593)
Total lease liabilities	$ 34,970	$ 22,066

 

Supplemental cash flow information related to leases was as follows for the year ended December 31, 2023:

	For the Year Ended December 31, 2023	For the Year Ended December 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$ 3,980	$ 1,353
Operating cash flows from finance leases	858	1,000
Financing cash flows from finance leases	4,600	3,473
Leased assets obtained for new finance lease liabilities	-	30,908
Leased assets obtained for new operating lease liabilities	231	40,256

 

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Note 7 - Income Taxes

The significant components of the Company's expense for income taxes (benefit) for the years ended December 31, 2023 and 2022 were as follows:

	December 31, 2023	December 31, 2022
Current:
Federal	$ 276	$ 648
State	(542)	(309)
	(266)	339
Deferred:
Federal	4,042	5,902
State	1,457	1,638
	5,499	7,540
Total expense for income taxes	$ 5,233	$ 7,879

 

The tax effects of temporary differences between financial and income tax accounting that give rise to the Company's deferred tax assets and liabilities on 2023 and 2022 were as follows:

	December 31, 2023	December 31, 2022
Deferred tax assets:
Net operating losses	$ 882	$ 2,328
IRC Section 163(j) limitation	1,973	1,378
Transaction costs	3,264	3,601
Accrued expenses	612	681
Student roster and curriculum development amortization	5,445	5,857
Other deferred taxes	718	-
Total deferred tax assets	12,762	13,845
Deferred tax liabilities:
Basis differences in fixed assets	(3,942)	(3,426)
Amortization of intangible assets	(9,324)	(7,458)
Goodwill amortization	(11,899)	(9,847)
Other deferred taxes	-	(246)
Total deferred tax liabilities	(25,165)	(20,618)
Net deferred tax (liabilities) assets	$ (12,271)	$ (6,772)

 

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A reconciliation of the reported income tax expense to the amount that would result by applying the U.S. federal statutory rate of 21% to income before income taxes for the years ended December 31, 2023 and 2022 was as follows:

	December 31, 2023	December 31, 2022
Federal statutory tax rate (21%)	$ 4,269	$ 6,215
Blended state tax rate, net of federal benefit (5%)	915	1,329
Permanent and other differences (1%)	49	335
Expense for income taxes (26%)	$ 5,233	$ 7,879

Note 8 - Commitments and Contingencies

Litigation Matters

From time to time, the Company is a defendant in various lawsuits. Management monitors the status of such events and accrues an estimated amount when an obligation becomes probable and estimable. Any amount recorded is based on the status of current activity and the advice from legal counsel. There are lawsuits and pending claims in various stages of proceedings, many of which the outcome cannot be determined as of the date of this report.

Certain former students of USA have filed borrower defense to repayment (“BDR”) claims with the DOE seeking discharge of their federal student loans. In correspondence received from the DOE with seven BDR notices on July 28, 2023 and one BDR notice on August 28, 2023, the DOE provided USA with an opportunity to respond to the BDR claims. As of December 31, 2023, USA has submitted responses to all eight of the BDR claims provided by DOE. USA has not received a response or other communication from DOE regarding its response to these borrower defense claims as of the date of this report. The ultimate resolution of this matter cannot be estimated at this time, and no amounts have been recorded in the accompanying financial statements related to this matter,

Other Commitments

The Company participates in student financial aid through the DOE’s Guaranteed Student Loan Program (the “Program”). Transfers of funds from the financial aid programs to the Company are made in accordance with DOE requirements. The financial aid and assistance programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which the Company’s students participate. The Company’s administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions including a suspension, limitation or termination proceeding which could have a material adverse effect on the Company. While unlikely, if the Company were to lose its eligibility to participate in federal student financial aid programs, the students at that institution would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees.

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Note 9 - Share-Based Compensation

On February 1, 2019, the effective date, the Parent established the 2019 Stock Option Plan (the “Stock Option Plan”) whereby the Parent may grant certain employees of the Company options to purchase shares of the Parent’ s common stock. On February 1, 2019, the Parent granted options which vest over time (the “Service Options”) and options that grant upon the achievement of a targeted return (the “Target Options”) to purchase a total of 44,680 shares at a price of $100 per share.

On December 31, 2021, the Parent granted Service Options and Target Options to purchase a total of 29,307 shares at a price of $191. On May 23, 2022, the Parent granted Service Options and Target Options to purchase a total of 9,609 shares at a price of $209.

The Service Options vest 20% at each year of service and are fully vested after five years of continuous service from the specified vesting commencement date. The Target Options vest as follows (1) fifty percent (50%) of the Target Options shall vest on the date on which Parent ownership receives a multiple of invested capital (“MOIC”) of at least 2.25x and Cumulative Cash Proceeds resulting in an IRR of at least fifteen percent (15%) from an Initial Public Offering (“IPO”); and (2) the remaining fifty percent (50%) of the Target Options shall vest on the date on which Parent ownership receives a MOIC of at least 2.75x and Cumulative Cash Proceeds resulting in an IRR of at least eighteen percent (18%) from an IPO.

The contractual life of the Stock Option Plan is 10 years from the date of the Stock Option Plan’s inception. As of both December 31, 2023 and 2022, the Parent has 118,187 shares available to be issued to employees under the Stock Option Plan.

Awards of options under the Stock Option Plan are recorded at the fair value on the date of grant, and the Company recognizes compensation cost related to stock options on a straight-line basis over the requisite service period for Service Options and at such time vesting is deemed probable for the Target Options. Total compensation cost recognized were approximately $992 and $915 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, there was $1,909 in unrecognized compensation costs related to non-vested stock options which is expected to be recognized over a weighted-average period of 6.42 years.

The fair value of each option was estimated on the date of the grant using the Black-Scholes option pricing model based on the following assumptions:

	2022 Grants	2021 Grants
Weighted average expected volatility	41.81%	40,42%
Range of expected volatility	33.79% - 59.89%	33.23% - 58.52%
Weighted average risk-free interest rate	3.16%	1.25%
Expected term	6.50 years	6.50 years
Expected annual forfeiture rate	0%	0%
Expected dividend rate	0%	0%

 

Expected volatility is estimated based on the historical volatility of the common stock of other companies in the same industry over a period commensurate with the expected term of the options awarded by the Parent. The expected term for options granted is estimated based on historical employee exercise activity. Management had estimated the risk-free rate based on U.S. Treasury note rates for the expected term.

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The following table summarizes the Parent’s stock option activity for the year ended December 31, 2023:

	Shares	Weighted Average Exercise Price (Dollars)	Weighted Average Remaining Contractual Term (Years)
Outstanding at January 1, 2023	80,473	$ 142.62	7.42
Granted	-	-
Exercised	-	-
Forfeited	-	-
Outstanding at December 31, 2023	80,473	$ 142.62	6.42

Note 10 - Related Party Transactions

The Company has not entered into any related-party transactions during the years ended December 31, 2023 and 2022.

Note 11 - Subsequent Events

The Company has evaluated subsequent events occurring after the date of the accompanying consolidated balance sheet through April 29, 2024, the date the consolidated financial statements were available to be issued and noted no matters that required adjustment to or disclosure in the consolidated financial statements.

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Note 12 - Functional Statement of Operations

	For the Years Ended December 31,
	2023	2022
Revenue:
Revenue, net of scholarships and discounts	$ 170,451	$ 176,399
Instructional costs	(51,291)	(49,377)
Operating costs:
Marketing	(19,738)	(17,475)
Academic support	(2,946)	(2,870)
Academic student services	(6,130)	(5,994)
Facilities	(30,319)	(27,771)
Information technology	(7,678)	(7,855)
General and administrative	(17,645)	(22,463)
Total operating costs	(84,456)	(84,428)
Income from operations	34,704	42,654
Non-operating income (expenses):
Interest income	5,755	1,788
Interest expense	(20,179)	(15,745)
Total non-operating expenses	(14,424)	(13,957)
Income tax expense	(5,233)	(7,879)
Net income	$ 15,047	$ 20,758

 

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Unaudited Interim Condensed Consolidated Financial Statements

 

University of St. Augustine Parent Corp., and Subsidiaries

 

September 30, 2024 and 2023

 

 

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Contents

 

	Page
Consolidated Unaudited Interim Condensed Financial Statements
Condensed consolidated balance sheets	2
Condensed consolidated statements of operations	3
Condensed consolidated statements of changes in stockholder's equity	4
Condensed consolidated statements of cash flows	5
Notes to condensed consolidated financial statements	6

 

 

 

 

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University of St. Augustine Parent Corp., and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30,
(Dollars in thousands)
	2024		2023
ASSETS
Current assets
Cash	$108,923		$90,928
Restricted cash	21,844		19,221
Student tuition and fees receivable	61,185		67,978
Short-term derivative asset	-		124
Prepaid expenses and other current assets	6,881		5,091
Total current assets	198,833		183,342
Property and equipment
Owned property and equipment, net	95,037		50,270
Leased property, net	17,827		17,883
Other assets
Course content, net	11,163		4,928
Lease right-to-use assets	50,273		56,798
Deferred tax asset, net	50,901		-
Other long-term assets	979		1,024
Trade name	26,937		115,264
Goodwill	-		153,285
Total other assets	140,253		331,299
Total assets	$451,950		$582,794
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Accounts payable and accrued expenses	$28,062		$7,625
Student deposits	41,201		47,208
Income taxes payable	-		114
Current portion of lease liability	8,589		7,949
Current portion of long-term debt obligations	1,850		1,850
Current portion of sale-leaseback financings	747		841
Total current liabilities	80,449		65,587
Lease liability, less current portion	49,325		52,090
Sale-leaseback financings, less current portion	17,543		17,914
Long-term debt obligations, net discounts, less current portion	171,566		172,372
Construction financing	42,774		-
Deferred tax liability, net	-		10,127
Total liabilities	361,657		318,090
Stockholder’s equity	90,293		264,704
Total liabilities and stockholder’s equity	$451,950		$582,794

 

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University of St. Augustine Parent Corp., and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the nine months ended September 30,
(Dollars in thousands)
	2024		2023
Revenue
Revenue, net of scholarships and discounts	$113,761		$127,682
Operating expenses
Wages and benefits	(55,926)		(53,509)
Depreciation and amortization	(14,408)		(14,661)
Professional, contracted and subscription services	(12,424)		(13,130)
Facilities, maintenance, and insurance	(9,960)		(9,733)
Advertising and marketing	(8,145)		(8,655)
Other operating expenses	(2,392)		(2,804)
Total operating expenses	(103,255)		(102,492)
Income from operations	10,506		25,190
Other income (expenses)
Interest income	4,755		3,930
Interest on debt obligations	(14,025)		(12,097)
Interest on financing lease obligations	(2,650)		(2,399)
Loss on impairment of intangible assets	(241,612)		-
Total other expenses	(253,532)		(10,566)
(Loss) income before taxes	(243,026)		14,624
Income tax benefit (expense)	63,295		(3,941)
NET (LOSS) INCOME	(179,731)		10,683
Other comprehensive loss	-		(1,304)
Total comprehensive (loss) income	$(179,731)		$9,379

 

 

 

 

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University of St. Augustine Parent Corp., and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (Unaudited)
For the nine months ended September 30, 2024 and 2023
(Dollars in thousands)
	Stockholder’s Equity
	Additional Paid-in Capital		Stock Subscription Receivable		Common Stock		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholder’s Equity
Balance as of January 1, 2023	$222,312		$519		$1		$30,674		$1,075		$254,581
Net income	-		-		-		10,683		-		10,683
Stock-based compensation	744		-		-		-		-		744
Other comprehensive loss	-		-		-		-		(1,304)		(1,304)
Balance as of September 30, 2023	$223,056		$519		$1		$41,357		$(229)		$264,704
Balance as of January 1, 2024	$223,305		$519		$1		$45,721		$-		$269,546
Net loss	-		-		-		(179,731)		-		$(179,731)
Stock-based compensation	478		-		-		-		-		$478
Balance as of September 30, 2024	$223,783		$519		$1		$(134,010)		$-		$90,293

 

 

 

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University of St. Augustine Parent Corp., and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the nine months ended September 30,
(Dollars in thousands)
	2024		2023
Cash flows from operating activities:
Net (loss) income	$(179,731)		$10,683
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	14,408		14,661
(Recognition) amortization of right-of-use assets	(662)		2,542
Amortization of debt discounts	788		734
Deferred income tax expense	(63,304)		3,355
Stock-based compensation	479		745
Impairment of intangible assets	241,612		-
Changes in operating assets and liabilities:
Student tuition and fees receivable	(60,118)		(67,264)
Other receivables	871		1,203
Prepaid expenses and other assets	(571)		(973)
Other long-term assets	(68)		48
Accounts payable and accrued expenses	18,623		(6,410)
Student deposits	39,948		44,886
Operating lease liabilities	4,547		(1,814)
Net cash provided by operating activities	16,822		2,396
Cash flows from investing activities:
Purchases of property, equipment and leasehold improvements	(11,094)		(10,519)
Additions to course content	(3,888)		(249)
Net cash used in investing activities	(14,982)		(10,768)
Cash flows from financing activities:
Principal payments on finance lease obligations	(3,668)		(3,422)
Principal payments on long-term debt obligations	(1,387)		(1,388)
Principal payments on sale-leaseback financings	(627)		(617)
Net cash used in financing activities	(5,682)		(5,427)
NET DECREASE IN CASH AND RESTRICTED CASH	(3,842)		(13,799)
Cash and restricted cash, beginning of period	134,609		123,948
Cash and restricted cash, end of period	$130,767		$110,149
Reconciliation of cash and restricted cash:
Cash	$108,923		$90,928
Restricted cash	21,844		19,221
Total cash and restricted cash shown in the statements of cash flows	$130,767		$110,149
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$15,690		$16,258
Cash paid during the period for taxes	$449		$575
Property, equipment and leasehold improvements acquired under construction financing arrangements	$16,139		$16,833

 

 

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Note 1 - Nature of Business

Nature of Business

The University of St. Augustine Parent Corp. (the “Parent”), and its wholly owned direct and indirect subsidiaries University of St. Augustine Intermediate Corp., University of St. Augustine Acquisition Corp., and University of St. Augustine for Health Sciences, LLC (“USA”), collectively referred to hereafter as the “Company”, is a for-profit, campus-based institution, offering traditional and flexible graduate and doctoral degree programs in physical and occupational therapy, nursing, speech language pathology, and health sciences. In addition, the Company conducts continuing education seminars in related fields throughout the United States, along with offering non-degree online courses. The Company's campus-based institutions are in California, Florida and Texas. USAHS is institutionally accredited by the Western Association of Schools and Colleges (“WASC”) Senior College and University Commission and maintains programmatic accreditation with the Commission on Accreditation in Physical Therapy Education, the Accreditation on Speech Language Pathology, the Accreditation on Commission on Collegiate Nursing Education, and the Accreditation Council for Occupational Therapy Education.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Parent, and its direct and indirect wholly owned subsidiaries of University of St. Augustine Intermediate Corp., University of St. Augustine Acquisition Corp. and USA. All intercompany accounts and transactions are eliminated in consolidation.

Note 2 - Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, the financial statements do not include all the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued Accounting Standard Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require that public business entities on an annual basis 1) disclose specific categories in the rate reconciliation, and 2) provide additional information for reconciling items that meet a quantitative threshold. The amendments require disclosure about income taxes paid by federal, state, and foreign taxes, and by individual jurisdictions in which income taxes paid is equal or greater than 5 percent of total income taxes paid. The amendment also requires entities to disclose income or loss from continuing operations before income tax expense disaggregated between domestic and foreign and income tax expense or benefit from continuing operations disaggregated by federal, state, and foreign. For all public business entities, ASU 2023-09 is effective for

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annual periods beginning after December 15, 2024; early adoption is permitted. The Company is currently evaluating this guidance and believe the adoption will not significantly impact the presentation of the Company’s financial condition, results of operations and disclosures.

Note 3 - Property, Equipment and Leasehold ImprovementS

Property, equipment, and leasehold improvements consist of the following as of September 30, 2024:

	Depreciable Life	Cost	Accumulated Dep.	Net Carrying Value
Furniture and fixtures	2 - 7 years	$ 5,788	$ (4,017)	$ 1,771
Computer equipment, software and other	2 - 7 years	37,342	(25,366)	11,976
Leasehold improvements	2 - 20 years	38,815	(19,813)	19,002
Construction in progress		62,288	-	62,288
Owned property, equipment and leasehold improvements, net		$ 144,233	$ (49,196)	$ 95,037
Buildings	30 years	$ 19,130	$ (3,613)	$ 15,517
Land		2,310	-	2,310
Leased property, net		$ 21,440	$ (3,613)	17,827

Property, equipment, and leasehold improvements consist of the following as of September 30, 2023:

	Depreciable Life	Cost	Accumulated Dep.	Net Carrying Value
Furniture and fixtures	2 - 7 years	$ 5,341	$ (3,306)	$ 2,035
Computer equipment, software and other	2 - 7 years	32,695	(19,691)	13,004
Leasehold improvements	2 - 20 years	32,504	(16,417)	16,087
Construction in progress		19,144	-	19,144
Owned property, equipment and leasehold improvements, net		$ 89,684	$ (39,414)	$ 50,270
Buildings	30 years	$ 19,130	$ (3,557)	$ 15,573
Land		2,310	-	2,310
Leased property, net		$ 21,440	$ (3,557)	$ 17,883

 

For the nine months ended September 30, 2024 and 2023, the Company recorded depreciation of owned property and equipment of $8,185 and $8,096, respectively. For leased property, the Company recorded depreciation of $478 and $478 for the nine months ended September 30, 2024 and 2023, respectively. $58,809 and $11,709 of construction in progress on September 30, 2024 and 2023, respectively, is primarily comprised of the Company’s new St. Augustine campus currently under construction which is expected to be completed by March 2025.

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Note 4 - Goodwill and Intangible Assets

The Company's intangible assets as of September 30, 2024 consist of the following:

	Cost	Net Carrying Amount
Subject to amortization:
Student roster	$ 31,236	$ -
Course content	15,462	8,424
Subtotal	46,698	8,424
Not subject to amortization:
Course content under development	2,739	2,739
Trade name	115,264	26,937
Total intangible assets	$ 164,701	$ 38,100

 

The Company's intangible assets as of September 30, 2023 consist of the following:

	Cost	Net Carrying Amount
Subject to amortization:
Student roster	$ 31,236	$ -
Course content	9,793	4,896
Subtotal	41,029	4,896
Not subject to amortization:
Course content under development	32	32
Trade name	115,264	115,264
Total intangible assets	$ 156,325	$ 120,192

 

The Company’s goodwill balance was $0 and $153,285 as of September 30, 2024 and 2023, respectively.

 

Amortization expense for intangible assets for the nine months ended September 30, 2024 and 2023 was $1,843 and $1,425, respectively.

As a result of the matters discussed in Note 10, the Company recognized a $88,327 impairment charge to its trade name and a $153,285 impairment charge to its goodwill for the nine months ended September 30, 2024.

Note 5 – Debt, Sale-Leaseback and CONSTRUCTION Financings

Total debt, including debt on the Company’s Initial Term Loan, sale-leaseback financing, and construction financing, as of September 30, 2024 and 2023 were as follows:

	September 30, 2024	September 30, 2023
Senior secured term loan facility, net of debt discount and issuance costs	$ 171,566	$ 172,372
Sale-leaseback financing, less current portion	17,543	17,914
Construction financing	42,774	-

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Total long-term debt, net	231,883	190,286
Current portion of senior secured term loan facility	1,850	1,850
Current portion of sale-leaseback financing	747	841
Total current portion of debt, net	2,597	2,691
Total debt, net	$ 234,480	$ 192,977
Total unamortized debt discount	$ 1,210	$ 2,107
Total unamortized debt issuance costs	198	345
Total unamortized debt discount and debt issuance costs	$ 1,408	$ 2,452

 

Construction Financing

Upon construction commencement of its new St. Augustine campus in April 2023, the Company determined that it was the deemed owner for accounting purposes during the construction period under a build to suit arrangement due to the extent of the Company’s involvement in the project. Accordingly, the Company has recognized all cash and non-cash assets contributed by the landlord for the duration of the project as a component of construction in progress with a corresponding construction financing liability. As of September 30, 2024, the Company has recognized $42,774 in construction contributions made by the landlord as a construction financing on the condensed consolidated balance sheet.

Note 6 - Leases

The Company conducts a significant portion of its operations at leased facilities and analyzes each new lease agreement to determine whether it should be classified as a finance lease or an operating lease. The terms of our leases vary and generally contain renewal options. Certain of these leases provide for increasing rent over the term of the lease.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date of the lease based on the estimated present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. On occasion, the Company has entered into sublease agreements for certain leased office space; however, the sublease income from these agreements is immaterial.

Lease Term and Discount Rate	September 30, 2024	September 30, 2023
Weighted-average remaining lease terms (yrs.)
Operating leases	8.73	9.66
Finance leases	3.30	4.29
Weighted-average discount rate
Operating leases	5.70%	5.50%

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Finance leases	3.50%	3.50%

 

The components of lease costs are as follows:

Lease expense	Classification	For the Nine Months Ended September 30, 2024	For the Nine Months Ended September 30, 2023
Finance lease cost
Amortization of ROU assets	Direct costs	$ 3,849	$ 3,849
Interest on lease liabilities	Interest expense	524	649
Operating lease cost	Direct costs	4,236	3,810
Short-term lease cost	Direct costs	-	-
Variable lease cost	Direct costs	108	93
Total lease cost		$ 8,717	$ 8,401

 

Supplemental cash flow information related to leases was as follows: for the nine months ended September 30, 2024 and 2023:

Cash paid for amounts included in the measurement of lease liabilities	For the Nine Months Ended September 30, 2024	For the Nine Months Ended September 30, 2023
Operating cash flows from operating leases	$ 535	$ 3,246
Operating cash flows from finance leases	302	659
Financing cash flows from finance leases	3,658	3,412
Leased assets obtained for new finance lease liabilities	-	-
Leased assets obtained for new operating lease liabilities	3,239	-

Note 7 - Income Taxes

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

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

 

 

	For the Nine Months Ended
	September 30, 2024	September 30, 2023
Pretax (loss) income	$ (243,026)	$ 14,624
Benefit (provision) for income taxes	63,295	(3,941)
Effective rate	26.0%	26.9%

 

As a result of the trade name and goodwill impairment discussed in Note 10, the Company recognized an income tax benefit of $62,818 for the nine months ended September 30, 2024. Additionally, the Company

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recorded a $37,090 increase to its deferred tax asset and a reduction of $25,728 to its deferred tax liability on its condensed consolidated balance sheet.

Note 8 - Commitments and Contingencies

Litigation Matters

From time to time, the Company is a defendant in various lawsuits. Management monitors the status of such events and accrues an estimated amount when an obligation becomes probable and estimable. Any amount recorded is based on the status of current activity and the advice from legal counsel. There are lawsuits and pending claims in various stages of proceedings, many of which the outcome cannot be determined as of the date of this report.

Other Commitments

The Company participates in student financial aid through the DOE’s Guaranteed Student Loan Program (the “Program”). Transfers of funds from the financial aid programs to the Company are made in accordance with DOE requirements. The financial aid and assistance programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which the Company’s students participate. The Company’s administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions including a suspension, limitation or termination proceeding which could have a material adverse effect on the Company. While unlikely, if the Company were to lose its eligibility to participate in federal student financial aid programs, the students at that institution would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees.

Note 9 - Related Party Transactions

The Company has not entered into any related-party transactions during the nine months ended September 30, 2024 and 2023.

Note 10 - Subsequent Events

On July 15, 2024, Perdoceo Education Corporation, a Delaware corporation (“Perdoceo”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lighthouse Merger Sub, Inc., a Delaware corporation and a wholly-owned direct subsidiary of Perdoceo (“Merger Sub”), the Company, and APH GP LP, an Ontario limited partnership, solely in its capacity as seller representative, providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned direct subsidiary of Perdoceo, all subject to the terms and conditions set forth therein.

The acquisition was completed on December 2, 2024 and on the closing date of the merger, Perdoceo made an initial cash payment of $137.8 million. The final purchase price will depend on adjustments for cash, debt and working capital based on the final closing balance sheet to be finalized within 90 days of the closing date.

Based upon the $92,691 estimated net asset value of the Company as defined in the Merger Agreement, it was determined that an impairment indicator for the Company’s trade name and goodwill exists. As a result, the Company performed an impairment test and recognized a $88,327 and $153,285 impairment charge to its trade name and goodwill, respectively, in its condensed consolidated statement of operations for the nine months ended September 30, 2024.

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Exhibit 99.3

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

 

 

The following unaudited pro forma condensed combined financial information presents the pro forma effects of the acquisition of the University of St. Augustine Health Sciences (“USAHS”) by Perdoceo Education Corporation (“Perdoceo”).

On December 2, 2024, Perdoceo completed the acquisition of USAHS and pursuant to the terms of the purchase agreement, USAHS become a wholly owned subsidiary of Perdoceo. The preliminary purchase price of $136.9 million was funded with cash from operations and short-term available for sale investment balances.

 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2023

(dollars and weighted average shares outstanding in thousands, except per share amounts)

 

		Historical				Reclassification Adjustments		Transaction Accounting Adjustments		Pro Forma Combined
		PEC		USAHS
		For the Year Ended 12/31/2023				Note 2		Note 3		For the Year Ended 12/31/2023
REVENUE
Total revenue		$710,004		$170,451						$880,455
OPERATING EXPENSES
Educational services and facilities		130,324		-		52,786	2(a)	120	3(a)	202,531
						7,184	2(b)
						9,718	2(c)
						316	2(d)
						2,083	2(e)
General and administrative		398,084		-		17,832	2(a)			443,164
						10,824	2(b)
						2,935	2(c)
						11,405	2(d)
						2,084	2(e)
Wages and benefits		-		70,618		(70,618)	2(a)			-
Professional, contracted & subscription services		-		18,008		(18,008)	2(b)			-
Facilities, maintenance and insurance		-		12,653		(12,653)	2(c)			-
Advertising and marketing		-		11,721		(11,721)	2(d)			-
Other operating expenses		-		4,167		(4,167)	2(e)			-
Depreciation and amortization		16,887		18,580				10,255	3(b)	45,722
Asset impairment		14,263		-						14,263
Total operating expenses		559,558		135,747						705,680
Operating income		150,446		34,704						174,775
OTHER INCOME
Interest income		19,980		5,755				(6,720)	3(c)	19,015
Interest expense		(404)		-						(404)
Interest on debt obligations		-		(16,627)				16,627	3(d)	-
Interest on finance lease obligations		-		(3,552)				(502)	3(e)	(4,054)
Miscellaneous income		22,099		-						22,099
Total other income		41,675		(14,424)						36,656
PRETAX INCOME		192,121		20,280						211,431
Provision for income taxes		44,469		5,233				(243)	3(f)	49,459
NET INCOME		$147,652		$15,047						$161,972
NET INCOME PER SHARE - BASIC		$2.22								$2.44
NET INCOME PER SHARE - DILUTED		$2.18								$2.39
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		66,468								66,468
Diluted		67,826								67,826

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024

(dollars and weighted average shares outstanding in thousands, except per share amounts)

 

		Historical				Reclassification Adjustments		Transaction Accounting Adjustments		Pro Forma Combined
		PEC		USAHS
		For the Nine Months Ended 09/30/2024				Note 2		Note 3		For the Nine Months Ended 09/30/2024
REVENUE
Total revenue		$504,832		$113,761						$618,593
OPERATING EXPENSES
Educational services and facilities		85,661		-		39,370	2(a)	79	3(a)	139,844
						5,646	2(b)
						7,505	2(c)
						231	2(d)
						1,352	2(e)
General and administrative		270,487		-		16,556	2(a)			305,230
						6,778	2(b)
						2,455	2(c)
						7,914	2(d)
						1,040	2(e)
Wages and benefits		-		55,926		(55,926)	2(a)			-
Professional, contracted & subscription services		-		12,424		(12,424)	2(b)			-
Facilities, maintenance and insurance		-		9,960		(9,960)	2(c)			-
Advertising and marketing		-		8,145		(8,145)	2(d)			-
Other operating expenses		-		2,392		(2,392)	2(e)			-
Depreciation and amortization		9,138		14,408				7,320	3(b)	30,866
Asset impairment		2,468		-		241,612	2(f)	(241,612)	3(g)	2,468
Total operating expenses		367,754		103,255						478,408
Operating income		137,078		10,506						140,185
OTHER INCOME
Interest income		21,685		4,755				(5,591)	3(c)	20,849
Interest expense		(529)		-						(529)
Interest on debt obligations		-		(14,025)				14,025	3(d)	-
Interest on finance lease obligations		-		(2,650)				(320)	3(e)	(2,970)
Loss on impairment of intangible assets				(241,612)		241,612	2(f)			-
Miscellaneous income (expense)		(7)		-						(7)
Total other income (loss)		21,149		(253,532)						17,343
PRETAX INCOME (LOSS)		158,227		(243,026)						157,528
Provision for (benefit from) income taxes		42,101		(63,295)				60,582	3(f)	39,388
NET INCOME (LOSS)		$116,126		$(179,731)						$118,140
NET INCOME PER SHARE - BASIC		$1.77								$1.80
NET INCOME PER SHARE - DILUTED		$1.73								$1.76
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		65,622								65,622
Diluted		67,110								67,110

 

 

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. Basis of Presentation

 

The unaudited pro forma condensed combined financial information is prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The historical information of Perdoceo and USAHS is presented in accordance with accounting principles generally accepted in the United States of America.

 

Reference should be made to the consolidated balance sheet and footnote 3 “Business Acquisition” in our Annual Report on Form 10-K for the year ended December 31, 2024 for combined balance sheet information and further discussion of the USAHS acquisition.

 

The unaudited pro forma condensed combined consolidated statement of income for the year ended December 31, 2023 and the nine months ended September 30, 2024 give effect to (i) the acquisition as if it had been completed on January 1, 2023, the beginning of Perdoceo’s most recently completed fiscal year and (ii) the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined consolidated statement of income for the year ended December 31, 2023 is prepared using Perdoceo’s audited consolidated statement of income for the year ended December 31, 2023 and USAHS’ audited consolidated statement of operations for the year ended December 31, 2023. The unaudited pro forma condensed combined consolidated statement of income for the nine months ended September 30, 2024 is prepared using Perdoceo’s unaudited condensed consolidated statement of income for the nine months ended September 30, 2024 and USAHS’ unaudited condensed consolidated statement of operations for the nine months ended September 30, 2024.

 

The unaudited pro forma condensed combined financial information is prepared using the acquisition method of accounting in accordance with the business combination accounting guidance as provided in Accounting Standards Codification 805, Business Combinations, with Perdoceo treated as the accounting acquirer for the acquisition.

 

The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisition had been completed as of the dates set forth above, nor is it indicative of the future results of Perdoceo following the acquisition. The unaudited pro forma condensed combined financial information does not give effect to the potential impact of any anticipated synergies, operating efficiencies or cost savings that may result from the acquisition or of any integration costs. The unaudited pro forma condensed combined financial information does not purport to project the future operating results of Perdoceo following the acquisition.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with:

 

 

 

 

 

 

 

2. Reclassification Adjustments to Unaudited Pro Forma Condensed Combined Statements of Income

 

Certain reclassifications are reflected in the pro forma adjustments to conform USAHS’ presentation to Perdoceo’s in the unaudited pro forma condensed combined statements of income. These reclassifications have no effect on previously reported total assets, total liabilities and shareholders’ equity, or net income of Perdoceo or USAHS.

 

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The following reclassification adjustments were made to conform USAHS’ presentation to Perdoceo’s presentation:

 

 

 

 

3. Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statements of Income

 

 

 

The adjustment for the depreciation and amortization expense is as follows (dollars in thousands):

 

		For the Year Ended December 31, 2023				For the Nine Months Ended September 30, 2024
Reversal of USAHS’ historical amortization expense-intangible assets		$	(2,031	)		$	(1,896	)
Amortization of acquired identifiable intangible assets			12,958				9,719
Reversal of USAHS’ historical amortization expense-finance leases			(5,132	)			(3,849	)
Amortization of remeasured finance leases			4,761				3,571
Reversal of USAHS’ historical depreciation expense			(11,417	)			(8,663	)
Depreciation of acquired property, plant and equipment			11,116				8,438
Total depreciation and amortization expense adjustment		$	10,255			$	7,320

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v3.25.0.1

Document And Entity Information	Dec. 02, 2024
Cover [Abstract]
Document Type	8-K/A
Amendment Flag	true
Document Period End Date	Dec. 02, 2024
Entity Registrant Name	Perdoceo Education Corporation
Entity Central Index Key	0001046568
Entity Emerging Growth Company	false
Entity File Number	0-23245
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	36-3932190
Entity Address, Address Line One	1750 E. Golf Road
Entity Address, City or Town	Schaumburg
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60173
City Area Code	847
Local Phone Number	781-3600
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, $0.01 par value
Trading Symbol	PRDO
Security Exchange Name	NASDAQ
Amendment Description	As previously disclosed by Perdoceo Education Corporation, a Delaware corporation (the “Company”) on December 2, 2024 (the “Closing Date”), the Company completed its previously announced acquisition of University of St. Augustine Parent Corp., a Delaware corporation (“USAPC”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) with Lighthouse Merger Sub, Inc., a Delaware corporation and a wholly-owned direct subsidiary of the Company (“Merger Sub”), USAPC, and APH GP LP, an Ontario limited partnership, solely in its capacity as seller representative. USAPC is the 100% indirect owner of University of St. Augustine for Health Sciences, LLC.  Pursuant to the terms of the Merger Agreement, on the Closing Date, Merger Sub merged with and into USAPC (the “Merger”), with USAPC surviving the Merger as a wholly-owned direct subsidiary of the Company. The Company paid an aggregate cash purchase price of $137.8 million, which is subject to customary post-closing adjustments and escrow arrangements. On December 2, 2024, the Company filed a Current Report on Form 8-K (the “Initial Form 8-K”) with the Securities and Exchange Commission (the “SEC”) disclosing that it had consummated the Merger and that the financial statements required by Item 9.01(a) and the pro forma financial information required by Item 9.01(b) of Current Report on Form 8-K would be filed by amendment. This Amendment No. 1 to Current Report on Form 8-K (this “Amended Form 8-K”) amends the Initial Form 8-K to provide the required financial statements and pro forma financial information. This Amended Form 8-K should be read in conjunction with the Initial Form 8-K and the Company’s other filings with the SEC. Except as stated herein, this Amended Form 8-K does not reflect events occurring after the filing of the Initial Form 8-K with the SEC on December 2, 2024 and no attempt has been made in this Amended Form 8-K to modify or update other disclosures as presented in the Initial Form 8-K.

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